UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For The Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission File Number 1-10451
NORTH AMERICAN VACCINE, INC.
(Exact name of registrant as specified in its charter)
Canada 98-0121241
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12103 Indian Creek Court
Beltsville, Maryland 20705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 419-8400
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, No Par Value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title Of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X__ No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of a selected date within 60 days prior to the date of filing.
Specified Date -- January 31, 1997; Aggregate Market Value -- $425,806,105
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, No Par Value, Outstanding As Of February 28, 1997 -- 31,549,425
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DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference
certain sections of the registrant's Proxy Statement to be furnished to
shareholders pursuant to the Securities Exchange Act of 1934, as amended, in
connection with the 1997 Annual Meeting of Shareholders of the registrant (the
"1997 Proxy Statement").
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
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Part I
1 Business.......................................................... 3
2 Properties........................................................ 37
3 Legal Proceedings................................................. 38
4 Submission of Matters to a Vote of Security Holders............... 38
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 39
6 Selected Financial Data........................................... 41
7 Management's Discussion and Analysis of Financial
Condition and Results of Operation........................... 43
8 Financial Statements and Supplementary Data....................... 55
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 83
PART III
10 Directors and Executive Officers of the Registrant................ 83
11 Executive Compensation............................................ 83
12 Security Ownership of Certain Beneficial Owners and
Management................................................... 83
13 Certain Relationships and Related Transactions.................... 83
PART IV
14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................. 84
Signatures........................................................ 85
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PART I
ITEM 1. BUSINESS
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INTRODUCTION
North American Vaccine, Inc. (the "Company") is engaged in the
research, development, production and marketing of vaccines for the prevention
of infectious diseases in children and adults. The Company's first product is a
patented, monocomponent acellular pertussis ("aP") vaccine for the prevention of
whooping cough, which has been combined with diphtheria and tetanus toxoids for
use in a combined diphtheria-tetanus-acellular pertussis ("DTaP") vaccine for
all primary and booster pediatric doses. Regulatory approval to market the DTaP
vaccine in Sweden was granted in February 1996. In addition, regulatory approval
for a DTaP-IPV vaccine, which combines the Company's acellular pertussis vaccine
with diphtheria and tetanus toxoids and an enhanced, inactivated polio vaccine
("IPV"), was granted in Denmark in September 1996. The Company has 14 other
vaccines in various stages of development, including combination vaccines using
its DTaP vaccine as an "anchor," as well as nine conjugate vaccines for the
prevention of various bacterial diseases in children and adults.
Vaccination against infectious disease is a primary component of
pediatric, and an increasingly important element of adult health-care programs
throughout the world. For example, in the United States, seven pediatric
vaccines, including vaccines for the prevention of diphtheria, tetanus,
pertussis and polio, are generally required by state immunization programs.
According to data from the United States Centers for Disease Control and
Prevention ("CDC"), over 22 million doses of combination diphtheria, tetanus and
pertussis vaccines were sold in the United States during 1993. The Company
believes that a market of at least comparable size exists outside the United
States. In the adult market, vaccinations, particularly of older persons, could
lower the 50,000 to 70,000 deaths annually in the United States from influenza,
pneumonia and hepatitis B infections. The United States Department of Health and
Human Services has estimated that the costs to society of these diseases and
other diseases for which vaccines currently exist exceed $10 billion each year.
As a result, health-care providers, including managed care organizations, have
increasingly recognized that immunization of adults is a cost effective method
for preventing the incidence of disease and infection.
DTaP VACCINE. Vaccination against diphtheria, tetanus and pertussis is
mandated by most states for all children with doses administered at two, four,
six and between 15 to 18 months of age and immediately prior to entering grade
school. Prior to 1996, the only diphtheria-tetanus-pertussis vaccine approved in
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the United States for the primary doses given to infants included the entire
BORDETELLA PERTUSSIS bacterium ("whole cell") that has been inactivated in the
production process. In 1996 and 1997, three acellular pertussis vaccines,
combined with vaccines against diphtheria and tetanus, have been licensed by the
United States Food and Drug Administration ("FDA") for use in the United States.
The Company believes that DTaP vaccines will replace the "whole cell" DTP
vaccines. The "whole cell" pertussis component is generally believed to be the
leading cause of the adverse reactions associated with the DTP vaccines, which
range from minor rashes to fevers to convulsions and collapse. In the 1970s and
1980s, negative publicity regarding the side effects of "whole cell" pertussis
vaccines led to decreased rates of acceptance for the vaccine in Japan and
certain European countries, and to the suspension of its use in Sweden in 1979.
Unlike "whole cell" and other acellular pertussis vaccines, the Company's aP
vaccine consists solely of pertussis toxin that has been purified and chemically
inactivated (a "toxoid"). Clinical studies have shown that the Company's toxoid
induces immunity with fewer serious adverse reactions than the "whole cell"
pertussis vaccine. The Company holds exclusive licenses under United States and
foreign patents on the aP toxoid and the method of its manufacture.
The Company filed an application with the FDA in September 1995 seeking
approval to market its DTaP vaccine, Certiva[TRADEMARK], in the United States
for all primary and booster doses. On October 29, 1996, the FDA's Vaccines and
Related Biological Products Advisory Committee ("FDA Advisory Committee")
reviewed Certiva[TRADEMARK], and FDA approval for the vaccine is pending. See
"Products Under Development - Acellular Pertussis Vaccines."
COMBINATION VACCINES. The Company is developing combination vaccines by
combining the DTaP vaccine as an "anchor" with additional pediatric vaccines
that may be administered in a single injection. The Company believes that, in
many instances, these combination vaccines may replace stand-alone vaccines
because combination vaccines will reduce the number of required injections,
lower treatment costs and improve compliance with standard vaccination
schedules. The Company's first combination vaccine, DTaP-IPV, combines an IPV
with the DTaP vaccine. On September 30, 1996, the Danish National Board of
Health granted Statens Seruminstitut ("SSI") of Copenhagen, Denmark approval of
the DTaP-IPV vaccine for all primary and booster doses for infants and children.
This combination vaccine, which includes the Company's acellular pertussis
toxoid, was developed jointly by SSI and the Company, and SSI holds the product
rights in Denmark and other Scandinavian and Baltic countries. In the United
States, the CDC has issued a revised recommendation related to polio
vaccination. A sequential schedule, including two doses of IPV followed by two
doses of oral polio vaccination ("OPV") is now the preferred recommendation,
although a four- dose OPV or four-dose IPV schedule is acceptable. The Company
intends to pursue regulatory approval in other European countries and the United
States for the DTaP-IPV vaccine. The Company also is developing a DTaP-HIB
vaccine that combines the Company's DTaP vaccine with a vaccine against
HAEMOPHILUS INFLUENZAE type b ("HIB") infections, as well as a DTaP-IPV-HIB
vaccine. See "Products Under Development - Combination Vaccines."
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CONJUGATE VACCINES. The Company, using patented and proprietary
technologies, is developing several conjugate vaccines for prevention of
diseases in children and adults. Conjugate vaccines are formed by chemically
linking (i.e., conjugating) polysaccharides to a protein. This procedure has
been shown to enhance the immunogenic properties of the polysaccharides,
particularly in infants. Conjugate vaccines are useful in preventing several
serious diseases, including meningitis, pneumonia and strep throat. Vaccines are
not currently available for the prevention of several of these diseases. A Phase
I/II clinical trial has been conducted for a vaccine against group B
streptococcal infections utilizing patented technologies held by the Company,
and the Company has completed a Phase I clinical trial in adults for its
meningococcal C conjugate vaccine in the United Kingdom. See "Products Under
Development - Conjugate Vaccines."
COLLABORATIONS. To further develop and expand its technologies in
pediatric and adult vaccines, the Company has established several relationships,
including licenses and collaborations with pharmaceutical companies,
universities and government agencies. Some of these institutions have provided
funding for clinical trials and research, and conducted joint development
projects with the Company. For example, the Company has entered into agreements
with Pasteur Merieux-Connaught to jointly develop the Company's new conjugate
vaccine against meningococcus B infection, for immunization of adults,
adolescents and infants. Additionally, the Company is collaborating with the
National Institutes of Health in the development of its Group B streptococcal
vaccine.
In October 1996, the Company and Abbott Laboratories ("Abbott") signed
a definitive agreement under which Abbott would market Certiva[TRADEMARK] in the
United States to the private physician and managed care markets when approved by
the FDA, with the Company marketing Certiva[TRADEMARK] to government purchasers.
The marketing agreement also will allow Abbott to market the Company's DTaP-HIB,
DTaP-IPV and DTaP-IPV-HIB combination vaccines which are currently under
development. See "Business Relationships" and "Marketing of Vaccines."
ORGANIZATION. The Company was incorporated as a Canadian corporation on
August 31, 1989 for the purpose of acquiring American Vaccine Corporation, a
publicly held Delaware corporation ("American Vaccine"), and certain assets of
BioChem Pharma Inc., a publicly traded pharmaceutical company ("BioChem"), in a
share purchase and merger transaction (collectively described as the "Merger").
On February 28, 1990, shareholders of American Vaccine approved the Merger. The
Company had no operations prior to the Merger. Pursuant to the Merger, the
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shareholders of American Vaccine received 50% ownership in the Company.
Simultaneously, BioChem purchased a 50% interest in the Company in exchange for
cash, shares of BioChem common stock, and the license or assignment and transfer
of certain rights and other intangible assets.
BUSINESS STRATEGIES
The objective of the Company is to become a leading researcher,
developer and manufacturer of state-of-the-art vaccines for the prevention of
infectious diseases in children and adults. In pursuing this objective, the
Company focuses on developing and securing patented and proprietary vaccine
technologies. In addition, the Company seeks to minimize the development time
and costs for its products by: (i) licensing technologies that, in preclinical
studies or clinical trials, have demonstrated prospects for becoming successful
vaccine candidates; (ii) collaborating with government and academic institutions
to jointly develop new vaccines and sponsor clinical trials; and (iii) pursuing
collaborations with pharmaceutical and vaccine manufacturers, where appropriate,
to maximize the value of the Company's products and technologies.
The Company intends to market its DTaP vaccine directly to United
States and certain foreign governments through established purchasing programs.
In the United States, federal and state governments currently purchase a
substantial proportion of pediatric vaccines. The Company also pursues a
strategy of securing distribution, joint venture and similar arrangements with
third parties to sell its products in the United States and in areas of the
world where local partners are critical to market penetration. The Company also
intends to focus on the development and commercialization of vaccines for the
prevention of diseases and infections in adults, for which demand is anticipated
to increase in light of the trend towards managed care and the established
cost-effectiveness of vaccines.
OVERVIEW OF VACCINE MARKET
PEDIATRIC VACCINES. Due to the potential for epidemic disease, most
countries consider vaccinations to be a matter of national importance. In the
United States, the seven vaccines generally required by state pediatric
vaccination programs are intended to prevent diphtheria, tetanus, pertussis,
measles, mumps, rubella and polio. In addition to these seven vaccines, the
CDC's Advisory Committee on Immunization Practices ("ACIP") periodically reviews
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current immunization practices and issues its recommendations for additional
pediatric vaccinations. The ACIP has issued a recommendation for standard
vaccinations against HIB, hepatitis B and varicella (chickenpox). In Western
Europe, vaccination against diphtheria, tetanus and pertussis is generally
recommended, with each country establishing its own vaccination schedules and
requirements.
Children in the United States receive immunizations from public
providers, such as local health departments, and from private providers.
Immunizations provided by public providers are generally paid for through
federal and state government funding under public health programs. These
programs are intended to reduce barriers to immunization and to improve
immunization rates by providing free vaccine to qualifying low-income and
uninsured infants and children. Government purchases historically have been at
prices substantially below those offered to the private sector and presently
account for a substantial proportion of the vaccine doses distributed in the
United States. In addition, the government promotes the availability of an
adequate supply of necessary pediatric vaccines for United States public health
programs. In order to achieve this objective, the National Childhood Vaccine
Injury Act of 1986 ("NCVI Act") created a no-fault insurance program designed to
compensate those who suffer specified vaccine-related injuries associated with
the administration of one or more of the vaccines generally required by state
pediatric vaccination programs. This insurance program is funded through the
levy of an excise tax paid by the manufacturers on the sale of certain pediatric
vaccines, including combined diphtheria-tetanus-pertussis vaccines.
ADULT VACCINES. Adults, especially older persons who are at greater
risk of contracting and succumbing to disease and infection, can benefit greatly
from immunizations. In the United States, 50,000 to 70,000 adults die each year
of influenza, pneumococcal infections and hepatitis B. The United States
Department of Health and Human Services has estimated that the costs to society
of these and other diseases for which vaccines currently exist exceed $10
billion each year. In addition, vaccines have been widely recognized as highly
cost-effective in preventing the incidence of disease and infection. For
example, a 1995 study published in The New England Journal of Medicine indicates
that annual immunizations with influenza vaccine, which costs approximately $10
per dose, reduce the medical costs and sick days by more than $46 per patient
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immunized. Moreover, it is becoming widely recognized that many childhood
vaccine-preventable infections and diseases, such as pertussis, are also found
among younger adults, who serve as reservoirs for, and source of pediatric
exposure to, these infections and diseases. While the size of the target
populations for adult vaccines may vary and adult vaccination rates tend to be
low, some of these markets are much larger than the target population for
pediatric vaccines. With the trend in the United States towards managed care,
the Company believes that the market for adult vaccines will expand as
health-care providers increasingly recognize vaccines as a cost-effective method
for preventing the incidence of disease and infection.
PRODUCTS UNDER DEVELOPMENT
The Company is focusing its research and development efforts on the
vaccines set forth in Table 1 below. The summary information included in Table 1
is provided solely for convenience of reference and is qualified in its entirety
by the detailed discussion of each of the Company's products that follows. There
can be no assurance that any of these vaccines will be developed successfully by
the Company or licensed by the FDA or any other regulatory authority for
commercial sale. See "Risk Factors-Need for Regulatory Approvals" and "Risk
Factors-Uncertainties Related to Clinical Trials."
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<TABLE>
<CAPTION>
TABLE 1
PRODUCTS UNDER DEVELOPMENT
PRODUCTS DISEASE STATUS (1)
- ---------------------------- ------------------------------- --------------------------------
<S> <C> <C>
ACELLULAR PERTUSSIS VACCINES
DTaP..................... Diphtheria, tetanus and Licensed in Sweden; U.S. product
pertussis (whooping cough) license application pending
aP....................... Pertussis (adult booster) U.S. safety and immunogenicity
clinical trial completed
COMBINATION VACCINES
DTaP-IPV................. Diphtheria, tetanus, pertussis Licensed in Denmark;
and polio preclinical in U.S.
DTaP-HIB................. Diphtheria, tetanus, pertussis Preclinical
and meningitis
DTaP-IPV-HIB............. Diphtheria, tetanus, Preclinical
pertussis, polio and
meningitis
CONJUGATE VACCINES
Group B
Streptococcal............ Neonatal sepsis and Phase I/II clinical trial completed
meningitis
Meningococcal B.......... Meningitis Preclinical
Meningococcal C.......... Meningitis Phase I clinical trial completed
Meningococcal A/C Meningitis Preclinical
Meningococcal
A/B/C.................. Meningitis Preclinical
Haemophilus
Influenzae type b...... Meningitis Preclinical
Group A
Streptococcal.......... Streptococcal pharyngitis (strep Preclinical
throat), skin infections, etc.
Pneumococcal(otitis
media)................ Otitis media (middle ear Preclinical
infection)
Pneumococcal............. Pneumococcal pneumonia Basic Research
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(1) Preclinical development denotes work to refine product performance characteristics
and to conduct studies relating to product composition, stability, scale-up,
toxicity and efficacy in order to create a prototype formulation in preparation for
the filing of an investigational new drug application with the FDA for authority to
commence testing in humans (clinical studies). Phase I-III clinical trials denote
safety and efficacy tests in human patients in accordance with FDA guidelines as
follows:
Phase I: Safety, immunogenicity, and optimal dosage studies.
Phase II: Detailed evaluations of safety, immunogenicity and optimal
dosage in limited number of subjects in target population.
Phase III: Evaluation of safety and efficacy in expanded target
population.
See "Government Regulation."
</TABLE>
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ACELLULAR PERTUSSIS VACCINES
BACKGROUND. Immunization against diphtheria, tetanus and pertussis
using a combined vaccine during infancy and childhood has been a routine
practice in the United States since the late 1940s. The vaccination program is
considered to be a major factor in reducing the incidence of, and number of
deaths associated with, each of these diseases. Vaccination for the prevention
of diphtheria, tetanus and pertussis currently is required in the majority of
states within the United States and is scheduled to be administered to children
at the ages of two, four, six and 15 to 18 months of age, with a booster
immediately prior to entering grade school. In addition, immunization against
diphtheria, tetanus and pertussis is also required in many countries outside of
the United States.
Prior to 1996, the only diphtheria-tetanus-pertussis vaccines approved
for use in the United States for the doses given to infants at the ages of two,
four and six months included the entire BORDETELLA PERTUSSIS bacterium that has
been inactivated in the production process. It is generally believed that the
use of the "whole cell" BORDETELLA PERTUSSIS bacterium has been a leading cause
of the adverse reactions associated with the existing DTP vaccines. These
adverse reactions include minor local reactions (such as redness, swelling and
tenderness), minor temperature elevations, fretfulness, drowsiness, vomiting,
loss of appetite, high fever, excessive screaming, high pitched crying,
convulsions, and collapse (hypotonic-hyporesponsive episode). In addition, the
National Institutes of Health, in recently concluded clinical trials in Sweden
and Italy, announced that a licensed "whole-cell" DTP vaccine widely used in
the United States had efficacy rates significantly below that of acellular
pertussis vaccines. It is anticipated that the use of acellular pertussis
vaccines will offer advantages over the currently licensed "whole cell"
pertussis vaccines in terms of efficacy, as well as with respect to improved
tolerability and fewer serious adverse reactions. Currently, three acellular
pertussis vaccines, combined with vaccines against diphtheria and tetanus, have
been licensed by the FDA for use in the United States. In addition, one other
company has filed for regulatory approval in the U.S. for its acellular
pertussis vaccine. See "Products Under Development - Acellular Pertussis
Vaccines - DTaP Vaccine" and "Competition."
DTaP VACCINE. The Company has developed an acellular pertussis vaccine
in combination with diphtheria and tetanus toxoids for use as a combined DTaP
vaccine in childhood immunization programs. The Company's acellular pertussis
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vaccine consists of pertussis toxin that has been purified and chemically
inactivated. In clinical trials, this toxoid has been shown to induce immunity
with fewer serious adverse reactions than the "whole cell" pertussis vaccine.
The aP toxoid and the method of its manufacture are the subject of United States
and foreign patents licensed exclusively to the Company. See "Business
Relationships."
In September 1995, the Company filed an application with the FDA
seeking approval to market its DTaP vaccine, Certiva[TRADEMARK], in the United
States for all primary and booster doses. On October 29, 1996, the FDA Advisory
Committee reviewed Certiva[TRADEMARK]. Representatives from the FDA, the Company
and the clinical investigators presented the clinical data from several studies.
These studies involved over 100,000 doses administered to more than 45,000
infants and children with no serious adverse events or deaths related to the
administration of the vaccine as judged by the clinical investigators. The
incidence of high fever, redness, pain and swelling were all significantly lower
after use of the acellular pertussis vaccine than after immunization with the
"whole cell" pertussis vaccine. The data presented to the FDA Advisory Committee
by the co-principal clinical investigator in Sweden also established the
estimates of efficacy of Certiva[TRADEMARK] in preventing pertussis disease.
The FDA Advisory Committee, after the presentation of the data and
discussion, concluded that Certiva[TRADEMARK] is safe and effective for
administration at two, four, six and 15-18 months of age. In addition, the FDA
Advisory Committee concluded that Certiva[TRADEMARK] could be administered
concurrently with the administration of polio, HAEMOPHILUS INFLUENZAE type b,
hepatitis B and measles- mumps-rubella vaccines, which are all recommended for
immunization during the first two years of life. The FDA Advisory Committee
raised no concerns regarding the adequacy of the data regarding the use of
Certiva[TRADEMARK] for the booster dose given to children at 4-6 years of age
following primary immunization using the "whole cell" pertussis vaccine.
Additional data is required to support use at 4-6 years of age following four
consecutive doses of Certiva[TRADEMARK]. The FDA Advisory Committee commented on
the adequacy of the data regarding the use of the vaccine for the booster dose
given to toddlers at 15-18 months of age following primary immunization using
the "whole cell" pertussis vaccine. In response to those comments, the Company
intends to supplement the data presented at the FDA Advisory Committee meeting
and additional data may be provided in post-marketing studies. The Company does
not believe that any additional clinical studies will be required in connection
with its product license application, other than standard post-licensure testing
and surveillance for continued monitoring of the vaccine. This is a forward
looking statement made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward looking statements inherently
involve risks and uncertainties which may affect the Company's business and
prospects, including without limitation the requirement for regulatory approval
of products by the FDA, nature of competition, effective marketing, and
uncertainties relating to clinical trials, all as discussed under the heading
"Risk Factors", below. The conclusions of the FDA Advisory Committee are not
binding on the FDA.
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In February 1996, a license was granted to the Company's European
partner, SSI, to market the DTaP vaccine in Sweden for all primary and booster
doses for infants and children. The Company intends to prepare the appropriate
regulatory filings for the DTaP vaccine in certain European countries, and
approvals in any of these European countries can precede and are not dependent
upon filings with or approval by the FDA. The Company may file these regulatory
applications alone, through SSI for countries within its territory, or through
distributors. See "Marketing of Vaccines" and "Business Relationships."
Notwithstanding the foregoing, there can be no assurance that the regulatory
filings for the DTaP vaccine will be accepted, or receive regulatory approval in
a timely fashion or at all, by the FDA or any foreign regulatory authority. See
"Risk Factors - Dependence Upon Approval and Commercialization of DTaP Vaccine."
In 1995, the Company, working together with the Health and Medical
Services of Goteborg, Sweden, began a mass vaccination project in Goteborg using
the Company's acellular pertussis vaccine to vaccinate, free of charge, more
than 40,000 infants and children, representing about 80% of the eligible
pediatric population in the Goteborg metropolitan area. Under the vaccination
project, newborn infants are receiving the Company's DTaP vaccine at 3, 5 and 12
months of age, which are the recommended vaccination ages in Sweden.
Additionally, pre-school children ages 1 to 5 years who have previously received
their required vaccinations for diphtheria and tetanus will receive three doses
of the Company's acellular pertussis vaccine. This Swedish mass vaccination
project, which is providing the Company with additional data on the widespread
use of the vaccine, is not required in order to obtain regulatory approval for
Certiva[TRADEMARK] and has not been requested by any regulatory agency.
aP VACCINE. Adults are exposed to and may contract pertussis
infections. They also are considered a significant reservoir of, and source of
pediatric exposure to, pertussis. The Company believes that sale of a
stand-alone acellular pertussis vaccine may be appropriate for adult booster
immunizations. The Company participated in a safety and immunogenicity clinical
trial at Baylor College of Medicine, which was completed in 1995, for the
purpose of establishing the safety and immunogenicity of the aP vaccine as a
booster in adults. This clinical trial was sponsored by the National Institute
of Allergy and Infectious Diseases ("NIAID") of the National Institutes of
Health, and the results of this study reveal that the Company's aP vaccine is
highly immunogenic in adults with no vaccine associated severe adverse
reactions. The Company is presently considering sponsoring further adult
clinical trials in the United States using its aP vaccine. As a next step, the
Company intends to combine the aP vaccine with an adult formulation of tetanus
and diphtheria toxoids ("Td") to create a tetanus-diphtheria-acellular pertussis
("TdaP") vaccine for adults. The clinical research and development for a TdaP
vaccine are expected to be done concurrently with the clinical development of
the aP vaccine. In addition, the Company intends to seek regulatory approval for
sale of the stand-alone aP vaccine for use in those jurisdictions outside of the
United States where pertussis vaccines are sold and administered as a
stand-alone product, although there can be no assurance that any such approval
will be granted.
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COMBINATION VACCINES
The Company is developing three combination vaccines using the DTaP
vaccine as an "anchor." Additional vaccines would be added to the DTaP vaccine
to form the combination vaccine. The Company anticipates that these combination
vaccines will become generally acceptable because the ACIP recommended schedule
for immunization against diphtheria, tetanus, pertussis, polio and HIB are
compatible. Combination vaccines have a number of benefits, including fewer
injections, lower anxiety for the parents and reduction of the number of
required visits to the physician, thereby lowering costs and facilitating
compliance with recommended and mandated immunization programs. The Company's
combination vaccines under development are described below.
DTaP-IPV VACCINE. The Company believes that a single vaccination
program for diphtheria, tetanus, pertussis and polio can be established by
combining an enhanced, injectable IPV with its DTaP vaccine. The Company
anticipates that a DTaP-IPV vaccine can become a generally accepted multivalent
vaccine because the polio vaccination schedule is compatible with the DTaP
vaccination schedule, and because a polio vaccination program that includes IPV
has been accepted as both safe and efficacious. In the United States, the CDC
has issued a revised recommendation related to polio vaccination. A sequential
schedule, including two doses of IPV followed by two doses of oral polio
vaccination ("OPV") is now the preferred recommendation, although a four dose
OPV or four dose IPV schedule is acceptable.
In September 1996, the Danish National Board of Health granted SSI
regulatory approval to market a combined DTaP-IPV vaccine, which incorporates
the Company's acellular pertussis toxoid, for all primary and booster doses in
infants and children. Presently, there is no other acellular pertussis vaccine
licensed for use in Denmark, and this is the first DTaP-IPV vaccine licensed for
use in Europe.
SSI intends to prepare regulatory filings for the DTaP-IPV vaccine in
Sweden and other countries within its territory. The Company intends to file for
regulatory approval of the DTaP-IPV vaccine in other European countries. In
addition, the Company in collaboration with Abbott intends to conduct the
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requisite clinical trials in order to file for regulatory approval of the
DTaP-IPV in the United States. There can be no assurance that data from the
clinical trials will support a regulatory filing or that any regulatory filings
for the DTaP-IPV will be accepted, or receive regulatory approval in a timely
fashion or at all, by other regulatory agencies. See "Government Regulation" and
"Risk Factors - Need for Regulatory Approvals." See "Business Relationships."
DTaP-HIB VACCINE. The Company is developing a combined single
injectable DTaP-HIB vaccine in stable liquid form for the prevention of
diphtheria, tetanus, pertussis and infection caused by HAEMOPHILUS INFLUENZAE
type b. Preclinical test results of the Company's DTaP-HIB vaccine demonstrated
high immune responses for each of the components in the combined vaccine and
showed no interference among the different components of the vaccine. The
Company believes that the development of a safe and immunogenic DTaP-HIB vaccine
is technologically feasible, and that a program utilizing that vaccine can
become generally accepted for a number of the doses in the vaccination schedule
because the vaccination schedules for diphtheria, tetanus, pertussis, and HIB
are compatible. See "Products Under Development - Conjugate Vaccines -
HAEMOPHILUS INFLUENZAE Type b Vaccine" for a description of the Company's HIB
vaccine. See also "Competition." The Company is collaborating with Abbott in the
development of this vaccine. See "Business Relationships."
DTaP-IPV-HIB VACCINE. The Company is also developing a combined single
injectable DTaP- IPV-HIB vaccine in stable liquid form for the prevention of
diphtheria, tetanus, pertussis, polio and infection caused by HIB. Preclinical
test results of this vaccine demonstrated high immune responses for each of the
components in the combined vaccine and showed no interference among the
different components of the vaccine. The Company believes that the development
of a DTaP-IPV-HIB vaccine is technologically feasible, and that a program
utilizing that vaccine can become generally accepted for a number of the doses
in the vaccination schedule because the vaccination schedules for diphtheria,
tetanus, pertussis, polio and HIB are compatible. The Company is planning a
Phase III clinical trial of the DTaP-IPV-HIB vaccine to take place in
Scandinavia in order to test the safety and immunogenicity of the vaccine in
infants. The Company is collaborating with Abbott in the development of this
vaccine. See "Business Relationships." See also "Products Under Development -
Conjugate Vaccines - HAEMOPHILUS INFLUENZAE Type b Vaccine" for a description of
the Company's HIB vaccine.
CONJUGATE VACCINES
In recent decades, vaccines have been developed for certain bacterial
diseases using polysaccharides (long-chained sugars) which are attached to the
bacterium's outer membranes. While these polysaccharide vaccines have generally
proven to be safe, many of them do not elicit an adequate immune response,
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particularly in infants whose immature immune systems do not recognize these
polysaccharides. In an attempt to address this problem, the Company is utilizing
proprietary conjugate vaccine technology to link (i.e., conjugate)
polysaccharides to protein carriers, which serve to enhance the immunogenic
properties of the polysaccharides. The Company believes that conjugate vaccines
may prove as safe as and more effective than polysaccharide vaccines.
The Company holds exclusive worldwide rights (excluding Canada) for the
development, production and sale of vaccines against certain bacterial
infections under a license granted by the National Research Council of Canada, a
Canadian federal government agency ("NRC"), for certain conjugate vaccine
technology. United States and, in some cases, foreign patents relating to this
technology have been issued and applied for. The Company also holds, either as
assignee or licensee, several other patents related to the development and
manufacture of conjugate vaccines. The Company is developing conjugate vaccines
for the diseases discussed below and, where appropriate, intends to combine
certain of its conjugate vaccines with its DTaP and DTaP-IPV vaccines. See
"Products Under Development - Combination Vaccines" and "Business
Relationships."
GROUP B STREPTOCOCCAL VACCINE. Group B streptococcal ("GBS") infection
affects both infants and adults in the United States. GBS infections in infants
occur principally during the first three months after birth and can result in
serious complications, including death, pneumonia or permanent brain damage from
meningitis. GBS disease is also a prominent cause of peripartum maternal
infections. Since there is no vaccine for the prevention of GBS disease in
adults or infants, the CDC has issued guidelines for detecting and treating GBS
infections in pregnant women. These guidelines, which have been adopted by the
American Academy of Pediatrics and the American College of Obstetricians and
Gynecologists, include diagnostic testing during the third trimester and, for
those infected, a course of intravenous antibiotics during and after labor. The
initial target market for this vaccine will be women of child-bearing age. A
principal benefit to such an immunization program is that the vaccine has the
potential to generate protective antibodies for both the mother and the infant.
A Phase I/II clinical trial for a vaccine against GBS infection has
been completed utilizing patented technologies that the Company has licensed
from the NRC, the Brigham and Women's Hospital, and Harvard University. This
clinical trial was conducted by the Brigham and Women's Hospital and Baylor
College of Medicine under sponsorship of the NIAID. The clinical trial was
designed to examine the safety and immunogenicity of the vaccine in healthy
nonpregnant women. The results of this trial revealed that the GBS conjugate
polysaccharide vaccine was well tolerated with minimal reactogenicity and no
serious side-effects. Antibodies elicited by immunization with the conjugate
vaccine displayed protective activity against GBS IN VITRO and IN VIVO. In
addition, the clinical investigators reported that the delivery of a GBS
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polysaccharide conjugate vaccine through maternal immunization may be a
realistic approach to the prevention of perinatal GBS infection and that
antibodies transported through the placenta to the fetus may confer protective
immunity even to infants born prematurely between 34 and 37 weeks of gestation.
MENINGOCOCCAL VACCINES. Meningitis is a serious infection involving the
fluid surrounding the brain and spinal cord, which can lead to significant
central nervous system damage in all age groups, although in the United States
those most often stricken are children and young adults. A leading cause of
meningitis worldwide is meningococcus A, B and C bacteria. The incidence of
meningitis caused by meningococcus A, B and C varies from country to country.
Currently, a polysaccharide vaccine for the prevention of meningococcal A and C
infections is administered to United States military personnel. This vaccine has
not been demonstrated to be protective in children less than two years of age.
In addition, there is currently no licensed conjugate vaccine for the prevention
of meningococcus B infection.
Meningococcal B bacteria have been responsible for most cases of
meningococcal meningitis in developed countries since the late 1940s, and in the
United States account for approximately one-half of the yearly cases of such
meningitis (the other half being attributable principally to meningococcal C
bacteria). Epidemic outbreaks occurred in 1994-1995 in Florida and Texas, and
the incidence of meningitis caused by meningococcus B is on the rise in South
America and Europe, particularly in Scandinavia. At the end of 1995, the Company
entered into agreements with Pasteur Merieux- Connaught to jointly develop the
Company's new conjugate vaccine against meningococcal B infection. See "Business
Relationships - Pasteur Merieux-Connaught Agreements."
The Company is also developing conjugate vaccines against group A and C
meningococcal disease and group A/C and A/B/C meningococcal disease for adults
and infants. The Company has completed preclinical development and testing of
its group A and group A/C meningococcal conjugate vaccines, as well as a Phase I
clinical trial of its Group C meningococcal conjugate vaccine in adults. The
results from the Phase I clinical trial revealed that the group C meningococcal
vaccine was well tolerated with minimal reactogenicity and no serious
side-effects. Antibodies elicited by immunization with the conjugate vaccine
displayed protective activity against meningococcal C bacterial infection. The
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Company is presently planning to commence a Phase II clinical study of the
vaccine in infants to assess the safety and immunogenicity of the vaccine after
a three-dose primary series. The World Health Organization ("WHO") has indicated
its willingness to sponsor further clinical trials in children for the group C
meningococcal vaccine, although there can be no assurance that such sponsorship
ultimately will be provided. The clinical development and testing of these
vaccines are expected to take several years to complete.
HAEMOPHILUS INFLUENZAE TYPE B VACCINE. HIB has been a frequent cause of
meningitis and other serious infections in infants and children. The ACIP has
issued a recommendation for universal vaccination of children for protection
against diseases caused by HIB. Vaccination against HIB consists of primary
doses administrated at the ages of two, four and six months and a booster dose
administered at between 12 to 15 months of age. Children infected with HIB
bacteria can develop meningitis, which can lead to blindness, deafness, acquired
mental retardation or death. The peak incidence of HIB infection in the United
States occurs in children between six and 18 months of age. The Company is
pursuing efforts to develop a conjugate vaccine against HIB for use in infants
and for possible use in the Company's combination vaccines. See "Products Under
Development - Combination Vaccines." The Company has completed its preclinical
development of this vaccine. Three manufacturers are currently licensed by the
FDA to sell HIB conjugate vaccines for use in all primary and booster doses.
See "Competition."
GROUP A STREPTOCOCCAL VACCINE. Group A streptococcal disease occurs in
all age groups with a predominance in school-age children. Group A streptococcus
causes infections ranging from severe sore throat and sinus infection to
pneumonia and, if not treated, acute rheumatic fever. Currently, there is no
vaccine licensed by the FDA to prevent Group A streptococcal infection. The
Company is engaged in the research and development of a conjugate vaccine to
prevent this infection. Activities on this vaccine are in the preclinical stage.
PNEUMOCOCCAL (OTITIS MEDIA) VACCINE. Otitis media, or middle ear
infection, is a common illness in the United States afflicting children under
five years of age. The majority of bacterial cases are attributable to
pneumococcal organisms. Chronic otitis media can lead to hearing defects and
associated learning and language disabilities. There is no vaccine licensed by
the FDA that prevents otitis media caused by pneumococcal bacteria. The Company
is pursuing efforts to develop a conjugate vaccine to prevent pneumococcal
otitis media. This vaccine is currently in the preclinical stage of development.
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PNEUMOCOCCAL VACCINE. There are in excess of 20 serotypes of
pneumococcal bacteria that cause pneumonia, a respiratory infection that affects
individuals of all ages, as well as other infections. The present pneumococcal
vaccine is a multivalent polysaccharide vaccine recommended for adults,
particularly elderly and other patients with a high risk of contracting
pneumonia. The Company is currently in the basic research stage of the
development of a multivalent conjugate vaccine against pneumococcus.
OTHER VACCINES
VIRAL INFLUENZA. The Company holds exclusive rights in the United
States to vaccine products acquired by BioChem from Institut Armand Frappier of
Quebec, Canada. Included among those vaccines is a viral influenza vaccine,
which has been commercially marketed and sold by BioChem in Canada for several
years. The manufacture and marketing of viral influenza vaccine is seasonal.
Historically in the United States, the strains to be used for influenza vaccines
are provided to manufacturers by the CDC in the spring of each year, and
manufacturers introduce the vaccine in the fall through early winter. The
Company may seek to obtain FDA approval for the viral influenza vaccine in the
United States. There are no assurances that the Company will receive regulatory
approval or that, if received, the vaccine will be successfully marketed and
sold. See "Risk Factors - Need for Regulatory Approval."
OTHERS. The Company, utilizing patented and proprietary technologies,
is performing research on and developing other adult and pediatric vaccines,
which it selects for development based on the anticipated need for a particular
product, the nature of the competition, and the ability of the Company to
develop the product, among other factors. These vaccines, which currently
include vaccines to prevent urinary tract infections and typhoid fever, are all
in basic research or preclinical stage of development. The Company's research
and development efforts are being conducted independently and in conjunction or
in collaboration with governmental agencies and universities. There are no
assurances that any of these vaccines will enter clinical trials or successfully
be developed or licensed by the FDA or any other regulatory authority for
commercial sale.
MARKETING OF VACCINES
An objective of the Company is to become a leader in the development,
production and marketing of state-of-the-art vaccines for the prevention of
infectious diseases in children and adults. In pursuing this objective, the
Company, considers among other things, collaborations with pharmaceutical and
other vaccine manufacturers where appropriate to maximize the value of the
Company's products and technologies. To maximize market penetration for its
first commercial products within the least amount of time, the Company currently
is implementing a marketing strategy aimed at establishing marketing alliances
in the United States, Europe and other territories with well-established local
partners on a country-by-country basis. Thereafter, the Company intends to
develop, where appropriate and feasible, an internal sales force to succeed
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these alliances following expiration of the respective agreements. Towards this
end, the Company has entered into marketing alliances for certain products with
Abbott in the United States, Chiron Behring ("Behring") in Germany and Austria
("Behring's Territory") and SSI in the Scandinavian, Baltic and certain other
countries ("SSI's Territory"). The Company will continue to seek distribution,
marketing, joint venture and similar arrangements with third parties in other
territories and for other products where, in the judgement of the Company, such
arrangements would be beneficial to the successful commercialization of its
products. See "Business Relationships." All of the Company's product sales in
1996 were for export from the United States and were stated in U.S. dollars. See
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operation.
In addition to establishing these commercial alliances, the Company is
developing an internal marketing and sales organization and is preparing for the
product launch of Certiva[TRADEMARK] in the United States upon receipt of
regulatory approval. The Company intends to market Certiva[TRADEMARK] directly
to federal and state governments through established purchasing programs. In the
United States, federal and state governments currently purchase a substantial
portion of pediatric vaccines sold, and the Company expects that the federal
government will continue its historical practice of purchasing pertussis and
other vaccines from multiple licensed commercial manufacturers through these
established programs, although there are no assurances in this regard. This is a
forward looking statement made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward looking statements
inherently involve risks and uncertainties which may affect the Company's
business and prospects, including without limitation the requirement for
regulatory approval of products by the FDA, nature of competition, effective
marketing, and uncertainties relating to clinical trials, all as discussed under
the heading "Risk Factors", below. See "Risk Factors - Changes in Government
Purchasing Policies," "Risk Factors - No Assurance of Effective Marketing" and
"Risk Factors - Need for Regulatory Approvals." Presently, the U.S. government
is continuing with multiple contract awards for the purchase of its annual
requirements of DTaP vaccine. Under these contracts, vaccine suppliers
effectively will not be guaranteed any minimum purchase requirements, but they
will be provided the opportunity to revise their contract proposals on a
quarterly basis.
To successfully introduce and commercialize Certiva[TRADEMARK] in the
United States, the Company will be required, among other things, to participate
in established purchasing programs of Federal and state governments, to
establish an identity and reputation for the Company and its products, to create
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an awareness among pediatricians of the safety and efficacy of the vaccine, to
distinguish the Company's products from that of its competitors, to establish
the Company as an effective and reliable supplier of vaccines, and to establish
effective distribution channels. There can be no assurance that the Company will
be able to successfully market its vaccine products, that its existing business
relationships will prove to be commercially successful, or that it will
successfully negotiate and execute any additional commercial arrangements with
third parties. See "Business Relationships," "Competition" and "Risk Factors -
No Assurance of Effective Marketing."
BUSINESS RELATIONSHIPS
PERTUSSIS LICENSE AGREEMENT. The process by which the Company's
pertussis toxin is inactivated is the subject of a United States patent held by
the United States Government, which has been licensed exclusively to the
Company. The patent is scheduled to expire on June 16, 2006. The Company's
exclusive rights will expire seven years from the date of the first commercial
sale of the product in the United States following licensing of such product for
general use by the FDA. The Company is required to pay the United States
Government a royalty based on net sales of a vaccine that utilizes the patented
technology. Foreign patent applications covering this technology have been filed
and ten unexpired foreign patents are issued with expiration dates ranging from
2002 to 2007. The Company has acquired a royalty-bearing exclusive license for
the use of the patented technology in all such foreign jurisdictions for the
full term of the patents. See "Products Under Development - Acellular Pertussis
Vaccines."
CANADIAN GOVERNMENT LICENSE AGREEMENTS. The Company is the assignee
under two license agreements between BioChem and the Canadian Government
covering the conjugate technology being developed by the Company. These license
agreements currently cover a total of twenty-two issued patents with expiration
dates ranging from 1997 to 2013, and the Company and the Canadian Government
have applied for additional patents, which, if issued, would be licensed to the
Company under these agreements. The Company is required to pay the Canadian
Government royalties on the sale of licensed vaccines. In the event of a change
in control of the Company, the Canadian Government retains the right to
terminate both agreements if it believes such change in control is detrimental
to the Canadian Government. The Canadian Government also can terminate the
license agreements if all reasonable efforts are not being used to exploit the
technology commercially with due diligence. Under one license agreement, the
Company has the exclusive worldwide rights (excluding Canada) for the
development, production and sale of vaccines produced in accordance with the
conjugate vaccine technology covered by the license. The vaccines covered
include, among others, those against meningococcal, HAEMOPHILUS INFLUENZAE type
b, group B streptococcal and pneumococcal infections. The term of the license is
co-extensive with the term of the patents. Currently, the last-to- expire patent
licensed under this agreement is scheduled to expire in 2013. Under the second
license agreement, the Company has the exclusive worldwide rights (excluding
Canada) for the development, production and sale of a vaccine against group B
meningococcal disease produced in accordance with the licensed technology. The
term of the license is co-extensive with the terms of the patents. Currently,
the last-to-expire patent licensed under this agreement is scheduled to expire
in 2013. See also "Products Under Development - Conjugate Vaccines."
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STATENS SERUMINSTITUT SUPPLY AGREEMENTS. In 1991, the Company and SSI
executed a supply agreement under which SSI is required to supply the Company
with its requirements of diphtheria and tetanus toxoids to be used by the
Company for developing, producing and selling the DTaP vaccine, either alone or
as a combination. The Company has been using, and intends to continue to use,
these diphtheria and tetanus toxoids in producing its DTaP vaccine. In the event
SSI fails to continue to supply the Company with these components, the Company
has a royalty-bearing license to produce the diphtheria and tetanus toxoids. The
Company's right to purchase diphtheria and tetanus toxoids for sale of such
products is exclusive in North America and the United Kingdom and nonexclusive
in the rest of the world and excludes SSI's Territory. The contract has a term
of 20 years. The Company and SSI also have entered into another supply agreement
pursuant to which the Company has agreed, on an exclusive basis, to supply SSI
with the pertussis toxoid for combination with diphtheria and tetanus toxoids
either alone or together with other antigens for sale in SSI's Territory.
In February 1992, the Company signed two additional supply agreements
with SSI. Under the first supply agreement, SSI has agreed, on an exclusive
basis, to provide the Company with diphtheria and tetanus toxoids for use as
carrier proteins in the development and manufacture of the Company's conjugate
vaccines. In the event that SSI fails to continue to supply the Company with
these components, the Company has a royalty-bearing license to produce
diphtheria and tetanus toxoids for this purpose. Under the second supply
agreement, the Company has agreed, on an exclusive basis, to supply SSI with its
conjugate vaccines that utilize SSI's diphtheria or tetanus toxoids as a carrier
protein, solely for use by SSI in combination with DTaP and DTaP-IPV vaccines in
SSI's Territory. SSI's right to market and sell these products is exclusive in
SSI's Territory. These agreements have a term of 20 years.
STATENS SERUMINSTITUT RESEARCH AND DEVELOPMENT AGREEMENT. In 1991, the
Company entered into a research and development agreement with SSI under which
the parties agreed to collaborate on the development of a DTaP-IPV vaccine. See
"Products Under Development - Combination Vaccines." The agreement permits
either party to add other antigens to the DTaP-IPV product. Once the Company
obtains regulatory approval, and commences sales of the DTaP-IPV product, it
will be required to make royalty payments to SSI. SSI is required to sell to the
Company all of its requirements of IPV for the purpose of developing, producing
and selling the DTaP-IPV product, either alone or together with other antigens.
The contract has a term of 20 years.
STATENS SERUMINSTITUT DISTRIBUTION AGREEMENTS. The Company has been
designated the exclusive distributor in North America and the United Kingdom for
SSI's diphtheria, tetanus and IPV vaccines. Additionally, SSI will be the
exclusive distributor in SSI's Territory for the conjugate vaccines manufactured
using the components supplied to the Company by SSI. These agreements were
executed in February 1992, and each agreement has a term of 10 years.
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TECHNOLOGY TRANSFER AGREEMENT WITH BIOCHEM. In 1990, in addition to the
conjugate vaccine technologies described above, BioChem transferred to the
Company all rights to certain vaccine technologies and granted to the Company a
paid-up exclusive right (excluding Canada) and license to other technologies for
vaccine applications, including those relating to monoclonal antibodies,
synthetic peptides and adjuvants. The licenses granted under this agreement
generally will not terminate until the expiration of the last valid patent or
copyright anywhere in the world for the licensed technologies or until the last
portion of the technologies protected by trade secrecy enters the public domain
everywhere in the world, whichever occurs last. Currently, this agreement covers
seven foreign patents with expiration dates that range from 2007 to 2011.
PASTEUR MERIEUX-CONNAUGHT AGREEMENTS. At the end of 1995, the Company
entered into a clinical development agreement and a license agreement with
Pasteur Merieux-Connaught under which both parties will jointly develop the
Company's new conjugate vaccine against meningococcus B for both adult and
pediatric indications. Total fees and payments to the Company under these
agreements would amount to $52 million upon achievement of all clinical and
regulatory milestones. In addition, Pasteur Merieux-Connaught will be
responsible for all costs associated with the clinical development of the
vaccine through the completion of Phase II clinical trials. See "Products Under
Development - Conjugate Vaccines - Meningococcal Vaccines."
To date, the Company has received payments from Pasteur
Merieux-Connaught in connection with the execution of a memorandum of
understanding and for development funding under the clinical development
agreement in the amount of $7 million. Further fees and funding will be made
upon achievement of development, clinical and regulatory milestones. Total
remaining fees and payments to the Company, upon achievement of all clinical and
regulatory milestones, amount to $45 million. See Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operation.
Under the terms of the license agreement, Pasteur Merieux-Connaught
will hold co-exclusive world-wide rights to manufacture and sell the
meningococcus B vaccine both as a stand-alone product and in combination with
other vaccines. The Company will retain co-exclusive world-wide rights to
manufacture and sell the meningococcus B vaccine both as a stand-alone product
and in combination with other vaccines. With limited exceptions, neither party
may grant sublicenses under the technology. Following first product approval,
the Company will receive annual minimum royalties and running royalties on
product sales by Pasteur Merieux-Connaught. Pasteur Merieux-Connaught is subject
to specific diligence obligations and performance milestones in the development
and commercialization of the vaccine. The obligations of Pasteur
Merieux-Connaught will be reduced in the event of a change of control of the
Company involving certain specified corporations. The license agreement must be
ratified by the NRC and will not become operational until a pre-clinical study
is successfully completed. The license agreement may be terminated by Pasteur
Merieux-Connaught in its sole discretion at any time with advance notice. The
Company may terminate the license agreement upon Pasteur Merieux-Connaught's
default or its failure to meet its obligations under the clinical development
agreement.
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Under the terms of the clinical development agreement, the parties will
jointly develop the vaccine through Phase II clinical trials, and each party
will have access to and the right to use the clinical trial results. Pasteur
Merieux-Connaught will be responsible for all costs associated with the clinical
development of the meningococcus B vaccine through the completion of Phase II
clinical trials. Pasteur Merieux-Connaught's obligations will terminate upon a
change of control of the Company with certain specified corporations. Pasteur
Merieux-Connaught is subject to specific diligence obligations and performance
milestones in the development and commercialization of the vaccine. The
agreement may be terminated by Pasteur Merieux-Connaught in its sole discretion
at any time with advance notice.
ABBOTT LABORATORIES AGREEMENT. In October 1996, the Company and Abbott
signed a definitive agreement under which Abbott would market Certiva[TRADEMARK]
when approved by the FDA. The marketing agreement also will allow Abbott to
market the Company's DTaP-HIB, DTaP-IPV and DTaP-IPV-HIB combination vaccines
which are under development.
Abbott will market Certiva[TRADEMARK] and combination vaccines to
private physicians and managed care markets in the United States for
immunization of infants and children. The Company will market Certiva[TRADEMARK]
and the combination vaccines to government purchasers, including state
governments and the CDC.
On execution of the agreement with Abbott, the Company received $13
million of which $6.3 million represented payment for 350,000 shares of the
Company's Common Stock, and the balance represented a marketing fee and a
clinical development payment. The Company and Abbott will collaborate in the
clinical development of the combination vaccines, and Abbott will provide the
Company with clinical development funding. The Company will receive payments
upon achievement of prescribed milestones. The agreement provides for total
payments of up to $42 million by Abbott. The first milestone relates to FDA
approval of Certiva[TRADEMARK] provided certain other conditions are satisfied.
In addition, the Company will receive revenues from Abbott as it purchases
Certiva[TRADEMARK] and the combination vaccine products for resale to the
private pediatric market. Each party is subject to prescribed diligence
obligations. The agreement will expire on the expiration of the patents covering
the products to be marketed. In addition, the agreement may be terminated by
Abbott in its sole discretion at any time with advance notice. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operation.
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OTHER RELATIONSHIPS. The Company holds licenses and other rights to
additional technologies that the Company is researching and/or developing
jointly with various research institutions. In addition, the Company is in
various stages of discussions with third parties, including multinational
pharmaceutical companies, regarding various business arrangements, including
acquisitions, licensing, research and development, distribution, marketing,
joint venture and other business agreements, some of which possibly may be
concluded in the near term. There are no assurances that the Company will
successfully negotiate and sign any such agreement or that, if executed, the
financial terms of any such agreement will be significant.
COMPETITION
Competition in the vaccine industry is intense. The Company will face
competition from many companies, including a number of large companies and
specialized firms in the United States and abroad that are engaged in the
development and production of vaccines, and major universities and research
institutions. Many of the Company's competitors have substantially greater
financial and other resources, more extensive experience in conducting clinical
testing and obtaining regulatory approvals for their products, greater operating
experience, larger research and development and marketing staffs, and greater
production capabilities than those of the Company. The Company believes that the
principal competitive factors in the vaccine industry are product quality,
measured by the safety and efficacy of a vaccine product, ease of administration
(represented by combination vaccines and vaccines that are stable in liquid
form) and price. See "Marketing of Vaccines."
The Company believes that its principal competitors in the United
States are Merck & Co., Pasteur Merieux-Connaught, SmithKline Beecham plc., and
Lederle Laboratories (a subsidiary of American Home Products), most of which are
active in the development of acellular pertussis, combination and conjugate
vaccines for use in infants and children. For example, during 1996 and 1997,
three companies announced that they had received FDA approval for their DTaP
vaccine for infants and children. One of these competitors also announced that
the FDA licensed a vaccine that combines by reconstitution that
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company's HIB vaccine with its DTaP vaccine for administration at 15-18 months
of age and that it continues to seek FDA approval for administration at two,
four and six months of age. In addition, several competing DTaP vaccines and
certain combination vaccines have been licensed for sale outside of the United
States. See "Risk Factors Competition and Technological Change."
PATENTS AND PROPRIETARY INFORMATION
The Company actively pursues a strategy of seeking patent protection
for valuable patentable subject matter. The Company believes that patent and
trade secret protection is an important element of its business and that its
success will depend in part on its ability to obtain strong patents, to maintain
trade secret protection and to operate without infringing the proprietary rights
of third parties. The Company holds as assignee and licensee a number of patents
and patent applications. See "Business Relationships" and "Risk Factors - Patent
Protection and Proprietary Information."
The Company also relies upon trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive position.
Disclosure and use of the Company's know-how is generally controlled under
agreements with the parties involved. In addition, the Company has
confidentiality agreements with its key employees, consultants and officers.
There can be no assurance that disclosure of the Company's trade secretes will
not occur, or that others will not independently develop and patent equivalent
technology.
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GOVERNMENT REGULATION
The Company is currently subject to regulation by various governmental
agencies and to Federal and other laws. United States and foreign regulations
will be a significant factor in the production and marketing of the Company's
products and are currently a significant factor in its ongoing research and
development activities. In order to test, produce and market vaccines, mandatory
procedures must be followed to ensure that safety, quality and efficacy
standards established by the FDA and comparable agencies in foreign countries
are satisfied. See also "Risk Factors - Changes in Government Purchasing
Policies" for a description of regulatory and legislative initiatives that may
affect the marketing and distribution of vaccines.
In the United States, the marketing of human vaccines is subject to FDA
review and approval. The steps required before a new human vaccine can be
marketed include: preclinical studies; the filing of an investigational new drug
application ("IND") with the FDA; clinical trials in humans to determine safety
and efficacy; FDA approval of the product for commercial sale; and FDA approval
of the production-related facilities. The results of the preclinical studies and
human clinical trials are submitted to the FDA in a product license application,
or PLA, approval of which must be obtained prior to commencement of commercial
sales. The FDA may deny a PLA if, among other reasons, clinical trial protocols
are not adequate or appropriate. The FDA also may require additional testing or
information to assess the safety and efficacy of a company's products if the FDA
does not view the PLA as containing adequate evidence of the safety and efficacy
of the product. Notwithstanding the submission of such data, the FDA may
ultimately decide that the application does not satisfy its regulatory criteria
for approval. Even if the PLA is approved, the product may be required to
undergo post-licensure testing and surveillance to continue to monitor its
safety and effectiveness. At this stage, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing. These regulatory standards relate to, among other
things, manufacturing, testing, labelling, advertising and marketing. The
interval between the filing of an IND and the filing of a PLA application can be
lengthy and in some instances the data obtained from clinical trials authorized
under an IND do not support the filing of a PLA.
The product manufacturing and support facilities also must be licensed
for the production of vaccines. To accomplish this, an establishment license
application ("ELA") must be filed with the FDA. The ELA describes the
facilities, equipment and personnel involved in the manufacturing process. An
establishment license is granted on the basis of inspections of the applicant's
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facilities in which the primary focus is on compliance with FDA's current good
manufacturing practices ("CGMP") and the applicant's ability to consistently
manufacture the product in the facility in accordance with the PLA. If the FDA
finds the inspection unsatisfactory, it may decline to approve the ELA,
resulting in a delay in production or distribution by the applicant. Although
reviewed separately, approval of both the PLA and ELA must be received prior to
commercial marketing of a vaccine.
Presently, there are a number of legislative initiatives being
considered in Congress and proposed regulations under consideration by the FDA,
which if adopted, could reform the FDA's review and approval processes by, among
other things, streamlining the product licensing application processes for
biologics, including vaccines. Some of these proposals are designed to eliminate
the requirement for ELAs and to simplify the approval process. The Company is
unable to predict which legislative or regulatory initiatives, if any, will
ultimately be enacted or the effect that any such initiative may have on the
FDA's application or approval process for the Company's DTaP and other vaccines,
or on the Company's business or results of future operations.
The FDA Export Reform and Enhancement Act of 1996, which became
effective on April 26, 1996, revised the terms and conditions under which
biologics may be exported. The legislation was designed to facilitate the export
of drugs, including biologics, by revising and in some circumstances eliminating
the requirement for FDA approval as a condition of export. The new legislation
now permits, in most cases, a company to commercially export vaccines
manufactured in the United States with little or no prior FDA review or approval
before these vaccines are licensed by the FDA for marketing in the United
States.
Preclinical studies are conducted in the laboratory and in animal
systems to evaluate the safety and potential efficacy of vaccines. The results
of these preclinical studies are submitted as part of the IND. Human clinical
trials may commence if, 30 days after receipt by the FDA of the IND, the FDA
does not notify the IND applicant that the trials are subject to a clinical
hold.
Clinical trials involve the administration of the investigational new
vaccine to healthy volunteers or to patients, under the supervision of a
qualified principal investigator. Clinical trials are conducted in accordance
with certain standards under protocols that detail the objectives of the study,
the parameters to be used to monitor safety and the efficacy criteria to be
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<PAGE>
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board ("IRB") at the institution at which the
study will be conducted or by a qualified centralized independent IRB. The IRB
must approve the study to be conducted. In its review, the IRB will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution.
Clinical trials are typically conducted in three sequential phases, but
the phases may overlap. In Phase I, the initial introduction of the vaccine into
healthy human subjects, the vaccine is tested for safety (adverse effects),
optimal dosage, and its ability to induce an immune response (immunogenicity).
Phase II involves studies in a limited target patient population to further
evaluate immunogenicity and optimal dosage, and to identify possible adverse
effects and safety risks. When a product is found to have an acceptable safety
profile in Phase II evaluations, Phase III clinical trials are undertaken to
evaluate clinical efficacy and to further test for safety within an expanded
target patient population at geographically dispersed clinical study sites.
Clinical trials generally require several years to complete and may be
very costly. To date, the Company has been successful in reducing the cost of
clinical trials by obtaining third-party sponsorship of the clinical trials for
its first vaccine products. The Company, where appropriate, may continue to seek
third-party sponsorship or funding for clinical trials for its vaccine products.
There can be no assurance that such sponsorship or funding, if sought, will be
obtained.
The Company's activities are subject to specific government quality
assurance regulations. The CGMP regulations set specific requirements for the
production of biologics, including vaccines, and similar requirements are also
in effect in the European Union and other foreign countries where the Company
has applied or may apply for regulatory approval for clinical studies and/or
marketing of its vaccines. The Company's research and operations also are
subject to regulation by the Occupational Safety and Health Agency, the
Environmental Protection Agency, the Department of Agriculture, and the
Department of Transportation. The Company also is subject to regulation under
the Toxic Substances Control Act, the Resource Conservation and Recovery Act,
and other regulatory statutes, and may in the future be subject to other
Federal, state, local or foreign regulations. The Company's compliance with laws
that regulate the discharge of materials into the environment or otherwise
relate to the protection of the environment does not have a material effect on
the ongoing operations of the Company. The Company has not made any material
expenditures for environmental control facilities, nor does it anticipate any
such expenditures during the current fiscal year.
RAW MATERIALS
Laboratory supplies utilized in the Company's research and development
generally are available from several commercial suppliers under standard terms
and conditions. Most raw materials necessary for process development, scale-up
and commercial manufacturing are generally available from multiple commercial
suppliers. However, certain processes require raw materials from sole sources or
materials that are difficult for suppliers to produce and certify to the
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Company's specifications. In addition, the Company may experience temporary or
permanent shortages of critical raw materials necessary for continued production
of its vaccines. Accordingly, given the specific nature of, and critical need
for, certain raw materials, there is a risk that material shortages could delay
production efforts, adversely impact production costs and yields, and even
necessitate the use of substitute materials. Any of these events could have a
significant adverse impact on the Company's operations. See also "Risk Factors -
Dependence on Suppliers."
PRODUCT LIABILITY
The testing and marketing of vaccines entail an inherent risk of
product liability attributable to unwanted and potentially serious health
effects. The extent of this risk was sufficiently great in the United States
that, by the mid-1980s, many manufacturers ceased production of pediatric
vaccines because of liability exposure.
In response to these withdrawals from the vaccine market, Congress
enacted the NCVI Act to ensure the availability of government mandated pediatric
vaccines by addressing the liability of manufacturers for immunization-related
injuries. Among other things, the NCVI Act created a trust fund, supported by an
excise tax on each dose of vaccine sold, to compensate eligible injured parties.
Compensation awards are statutorily established and are generally limited to
actual and projected unreimbursed medical, rehabilitative and custodial
expenses, lost earnings, and pain and suffering, together with reasonable
attorneys' fees. Injured parties are not allowed to bring a lawsuit against the
manufacturer unless they have filed a claim with the program, received a final
determination and rejected it in favor of litigation. The NCVI Act may not,
however, protect vaccine manufacturers against suits by family members of an
injured party. See "Overview of Vaccine Market."
As the vaccines covered by the NCVI Act include vaccines for the
prevention of diphtheria, tetanus, pertussis and polio, the Company's DTaP and
IPV vaccines have certain protection from liability claims. While none of the
Company's other products are presently covered by the NCVI Act, from time to
time there are legislative and regulatory proposals to expand the list of
vaccines covered by, and reduce the excise taxes that fund, the program. In
1997, varicella, hepatitis B and HIB vaccines were added to the program's list
of covered vaccines provided that Congress establishes an excise tax for such
vaccines. In addition, the Company is unable to predict whether any other
legislative or regulatory proposal will ultimately be enacted or the effect any
of these proposals may ultimately have on the Company's business or results of
future operations.
The Company has limited product liability insurance coverage. It
intends to seek additional insurance coverage as it commences commercialization
of its vaccines, but there can be no assurance that adequate additional
insurance coverage will be available at acceptable costs, if at all, or that a
product liability claim would not materially adversely affect the business or
financial condition of the Company. See "Risk Factors - Product Liability;
Limited Insurance."
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<PAGE>
EMPLOYEES
As of December 31, 1996, the Company had 206 full-time employees of
whom 28 have Ph.D. degrees and two have M.D. degrees. Of these employees, 133
were engaged in research, development and production activities, 31 were engaged
in administration, and 42 were engaged in quality/regulatory and related aspects
of the Company's operations. The Company considers its relationship with
employees to be satisfactory.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED HEREIN, THE FOLLOWING
RISK FACTORS SHOULD BE CAREFULLY CONSIDERED. THIS ANNUAL REPORT ON FORM 10-K
CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF AND MADE
PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995, WHICH STATEMENTS INHERENTLY INVOLVE RISKS AND UNCERTAINTIES
THAT MAY AFFECT THE COMPANY'S BUSINESS AND PROSPECTS. 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 THIS SECTION.
DEPENDENCE UPON APPROVAL AND COMMERCIALIZATION OF DTaP VACCINE. The
Company has generated only limited revenue from the sale of its acellular
pertussis vaccine. Prior to commercial introduction, the Company's DTaP and
combination vaccines must be approved by the FDA for sales in the United States
and by similar authorities for sales in other countries. In 1996, the DTaP
vaccine was approved for sale in Sweden and the DTaP-IPV was approved for sale
in Denmark. The DTaP vaccine is currently being considered for approval for sale
in the United States by the FDA. There can be no assurance as to when or whether
the Company will receive such approval, or that any such approval will not be
subject to additional testing requirements. The commercial introduction of the
Company's DTaP vaccine will require the Company to manufacture and produce large
quantities of vaccine in its manufacturing facility, which was modified in 1995
for increased production. The Company has limited experience manufacturing
commercial quantities of vaccines and operating its manufacturing facility.
Accordingly, there can be no assurance that the production process will not fail
or become subject to substantial disruptions. See "Risk Factors - Manufacturing
and Scale-Up." To successfully introduce and commercialize its DTaP vaccine, the
Company will be required to, among other things, participate in established
purchasing programs of Federal and state governments, establish an identity and
reputation for the Company and its products, create an awareness among
pediatricians of the safety and efficacy of the vaccine, distinguish the
Company's product from that of its competitors, establish the Company as an
effective and reliable supplier of vaccines, and establish effective
distribution channels. In October 1996, the Company and Abbott signed an
agreement for Abbott to market the Company's DTaP vaccine and certain
combination vaccines in the United States to the private physician and managed
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care markets upon approval by the FDA, with the Company marketing those products
to governmental purchasers. There can be no assurance that the Company or Abbott
will successfully implement its sales and marketing strategy. In attempting to
do so, the Company believes there will be intense competition from other vaccine
producers. There can be no assurance that the Company will produce a
commercially viable product, attain sufficient market share, or distinguish its
vaccine product from that of its competitors.
Currently, the Company's prospects for becoming profitable are
substantially dependent upon the successful commercialization of the DTaP
vaccine, as well as the successful development and commercialization of other
vaccines under development. There can be no assurance that the Company will be
able to successfully market its vaccine products at levels sufficient to
generate profits.
DEPENDENCE ON SUPPLIERS. While the Company produces the pertussis
component of the DTaP vaccine, it has purchased, and intends to continue to
purchase, its requirements of the diphtheria and tetanus toxoids and enhanced
IPV from SSI. There can be no assurance that SSI will be able to meet the
Company's requirements or that SSI will not experience difficulties in obtaining
necessary regulatory approvals or disruptions in its production of diphtheria
and tetanus toxoids and IPV.
Certain of the Company's production processes require raw materials
from sole sources or materials that are difficult for suppliers to produce and
certify to the Company's specifications. The Company also may experience
temporary or permanent shortages of critical raw materials necessary for
continued production of its vaccines. Any shortage of these materials could
delay production efforts, adversely impact production costs and yields, or
necessitate the use of substitute materials, any of which could have a
significant adverse impact on the Company's operations. In addition, the Company
has contracted with third parties for the sterile fill, labelling, and packaging
of its vaccine products until the Company obtains its own facilities to perform
these operations. Failure of any such contractor to meet the Company's
requirements may involve costly delays and significant expense, and would
require additional regulatory approval as the Company seeks alternative
arrangements.
CHANGES IN GOVERNMENT PURCHASING POLICIES. Children in the United
States receive immunizations from public providers, such as local health
departments, as well as from private providers. Immunizations provided by public
providers are generally paid for through federal and state government funding
under public health programs. These programs are intended to reduce barriers to
immunization and to improve immunization rates by providing free vaccine to
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<PAGE>
qualifying low-income and uninsured infants and children. Government purchases
historically have been at prices substantially below those offered to the
private sector and presently account for a substantial portion of the vaccine
doses distributed in the United States. From time to time, legislative and
regulatory initiatives are proposed that, if adopted, could significantly modify
government vaccine programs by, among other things, modifying or restricting the
federal government's purchasing authority or substantially increasing or
reducing the funding available for government vaccine purchases. The Company is
unable to predict which legislative initiative, if any, will ultimately be
enacted or the effect any such initiative may ultimately have on the Company's
business or results of future operations. In addition, proposals for
health-care, insurance and tax reform may be considered in the future by federal
and state governments and some of these proposals, if adopted, may limit
government or third-party, private reimbursement policies, or prices charged by
pharmaceutical and vaccine manufacturers for their product.
NO ASSURANCE OF EFFECTIVE MARKETING. The Company has little experience
in marketing its products. The Company is in the process of implementing its
marketing and sales plans for its products; however, there can be no assurance
that the Company's current marketing and sales strategies or the size and
make-up of the Company's sales and marketing organization will be sufficient for
the successful commercialization of its products. The factors affecting
successful commercial launch of the Company's vaccines in the United States
include, among others: establishing an identity and reputation for the Company
and its products; creating an awareness among pediatricians of the safety and
efficacy of the Company's vaccines; distinguishing the Company's products from
those of its competitors; establishing the Company as an effective and reliable
supplier of vaccines; and establishing effective distribution channels. The
Company has entered into supply, marketing and distribution agreements with
third parties under which such parties hold exclusive rights to market certain
of the Company's products within their respective territories. There can be no
assurance that any of these third parties will be able to distribute and market
those products successfully within its territory. There also can be no assurance
that the Company will be successful in negotiating and executing marketing
and/or distribution agreements with any other third parties covering any
products or that any other third party will be able to market the Company's
products successfully. See "Business Relationships."
UNCERTAINTIES RELATED TO CLINICAL TRIALS. Before obtaining regulatory
approval for the commercial sale of any products under development, the Company
must demonstrate through pre- clinical studies and clinical trials that these
products are safe and effective. The results from pre- clinical studies and
early clinical trials may not be predictive of results obtained in large-scale
clinical trials. There can be no assurance that large-scale clinical trials for
any of the Company's products will demonstrate safety and efficacy, be
sufficient to support application for regulatory approval, or lead to marketable
products. A number of companies in the biotechnology industry have suffered
significant setbacks in advanced clinical trials even after achieving promising
results in earlier trials.
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<PAGE>
NEED FOR REGULATORY APPROVALS. The Company has not commercialized any
products or received product approval from the FDA. The Company's vaccine
products, product development activities and manufacturing facilities and
processes are subject to extensive and rigorous regulation by the FDA, including
preclinical and clinical testing requirements, and inspection and approval
processes. Approval of the Company's products for commercial introduction in the
U.S. currently requires both a license for each product and a license for each
production facility. The process of obtaining licenses can be costly and time
consuming, and there can be no assurance that the licenses will be granted, or
that FDA review will not involve delays that would adversely affect the
Company's ability to market products. There also can be no assurance that any of
the products under development by the Company will demonstrate the safety or
efficacy profiles necessary for regulatory approval, or that the Company's
products under development or its production facility will receive the requisite
regulatory approvals and licenses in a timely fashion or at all. There also can
be no assurance that the FDA or other regulatory authorities will not require
the Company to conduct additional testing to assess the safety and/or efficacy
of the Company's vaccines, including its DTaP vaccine. Even if the necessary
licenses are obtained from the FDA, there may be limitations on product use and
the FDA can withdraw approvals at any time upon the occurrence of unforeseen
problems. The FDA can also limit or prevent the manufacture or distribution of
the Company's products and require a recall of such products. The FDA
regulations depend heavily on administrative and scientific interpretation and
advisory committee determinations, and there can be no assurance that future
interpretations by the FDA or other regulatory bodies, with possible prospective
and retroactive effect, will not adversely affect the Company. In addition, the
FDA and various state agencies inspect the Company and its facilities from time
to time to determine whether the Company is in compliance with regulations,
including manufacturing, testing, recordkeeping, quality control and labelling
practices. A determination that the Company is in material violation of such
regulations could have a material adverse effect on the Company.
MANUFACTURING AND SCALE-UP. The production of vaccines is a highly
complex, biological process involving many steps, commencing from seed culture
through final production. The production process could fail at any point
resulting in the failure and continued inability to meet production
requirements. From time to time, the Company experiences disruptions and
production failures and there are no assurances that the steps taken by the
Company to address such failures will be effective or that such failures will
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<PAGE>
not continue in the future or affect the Company's ability to obtain regulatory
approval for its products or the timing of such approval or affect the Company's
ability to produce vaccines. No assurances can be given that the Company will be
successful in establishing and maintaining consistent manufacture and continuous
commercial production of its vaccines in sufficient quantity and quality or that
it will be capable of producing a competitively priced product for commercial
sale.
PATENT PROTECTION AND PROPRIETARY INFORMATION. The vaccine industry
traditionally has placed considerable importance on obtaining and maintaining
patent and trade secret protection for significant new technologies, products
and processes. The Company believes that such protection will be an important
factor in its success and may require the expenditure of substantial resources.
Many companies, universities and research institutions have applied for and/or
obtained patents for vaccine products and technologies that may be competitive
or inconsistent with those held by or licensed to the Company. No assurances can
be given as to the degree and range of protection any patents will afford the
Company, that additional patents will be issued to the Company, or as to the
extent to which the Company will be successful in avoiding any patents granted
to others. Further, there can be no assurance that others have not or will not
independently develop or otherwise properly gain access to technology or
information that is substantially similar to that which is unpatented yet
considered proprietary by the Company. The Company also may desire or be
required to obtain licenses from others in order to develop, produce and market
commercially viable products effectively. Failure to obtain those licenses could
have a significant adverse effect on the Company's ability to commercialize its
vaccine products. There can be no assurance that such licenses will be
obtainable on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the unpatented technology underlying such licenses will remain
proprietary. There has been, and the Company believes that there may be in the
future, significant litigation in the industry regarding patent and other
intellectual property rights. If the Company becomes involved in such
litigation, it could consume substantial resources.
COMPETITION AND TECHNOLOGICAL CHANGE. Competition in the vaccine
industry is intense. Competitors of the Company both in the United States and
internationally include major pharmaceutical and chemical companies, specialized
biotechnology firms, universities and other research institutions. Many of these
competitors are actively developing competing vaccines. For example, in 1996 and
1997, three competitors announced that their respective DTaP vaccines were
approved by the FDA for use in infants and children. One of those competitors
also announced that the FDA licensed a vaccine that combines by reconstitution
that company's HIB vaccine with its DTaP vaccine for administration at 15-18
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<PAGE>
months of age and that it continues to seek FDA approval for administration at
two, four and six months of age. In addition, several competitors' DTaP vaccines
and certain combination vaccines have been licensed for sale outside of the
United States. Many of these competitors have substantially greater resources,
more extensive experience in conducting clinical testing and obtaining
regulatory approvals for their products, greater operating experience, larger
research and development and marketing staffs, and greater production
capabilities than those of the Company. In addition, the vaccine industry is
subject to significant technological change. There can be no assurance that the
Company's competitors will not succeed in designing around the Company's
patents, developing technologies and products that are as or more effective than
any that have been or are being developed by the Company, or developing
technologies and products that would render the Company's technology and
products obsolete and noncompetitive.
PRODUCT LIABILITY; LIMITED INSURANCE. The testing and marketing of
vaccine products entail an inherent risk of product liability. Although the
Company has limited product liability insurance coverage, it intends to seek
additional insurance coverage as it commences commercialization of its products.
There can be no assurance that adequate additional insurance coverage will be
available at acceptable cost, if at all, or that a product liability claim would
not materially adversely affect the business or financial condition of the
Company. To the extent the Company is not covered by insurance, the Company
faces potential liability that could be substantial in the event of claims.
LACK OF PROFITABILITY. The Company's accumulated deficit, as of
December 31, 1996 was approximately $58.8 million, and the Company presently has
limited revenues. The Company expects to incur additional losses until such time
as the Company makes significant commercial sales of its DTaP product. The
Company's ability to achieve and maintain profitability is dependent upon its
ability to develop products that are effective and commercially viable, to
continue to obtain regulatory approvals for production and sale of its products,
and to produce and market its products successfully. There can be no assurance
that the Company will become profitable.
AVAILABILITY OF CAPITAL. It is anticipated that the Company will
continue to expend significant amounts of capital to fund its operations and
capital expenditures. The Company plans to finance its cash requirements through
a combination of: cash and cash equivalents; revenues from product sales and
from license, collaboration, marketing, distribution and/or development
agreements; the exercise of stock options; the sale of debt and/or equity
securities; mortgage financing; and equipment leases. There can be no assurance
that the Company will be able to satisfy its funding requirements from any of
these alternatives or that it will be effective in reducing cash requirements
for operations if FDA approval is not timely received. See Item 6 - Selected
Consolidated Financial Data, and Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operation.
DEPENDENCE ON ATTRACTING AND RETAINING QUALIFIED PERSONNEL. The
Company's success in developing marketable products and achieving a competitive
position will depend, in part, on its ability to attract and retain qualified
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personnel. Competition for such personnel is intense, and no assurance can be
given that the Company will be able to continue to attract or retain such
personnel. The loss of key personnel could adversely affect the Company.
DIVIDENDS AND TAXATION. The Company has never paid cash dividends on
its Common Stock. The Company currently intends to retain earnings, if any, to
finance the growth and development of its business and does not anticipate
paying cash dividends in the foreseeable future. Moreover, any profits earned by
the U.S. subsidiary of the Company will not be distributable directly to the
Company's shareholders. Instead, such subsidiary must declare and pay a dividend
to the Company, and the Company in turn must declare a dividend to its
shareholders. This will subject each dividend to a withholding tax. See Item 5 -
Market for Registrant's Common Equity and Related Stockholder Matters, and Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operation.
IMPACT OF BECOMING A PASSIVE FOREIGN INVESTMENT COMPANY. If more than a
certain percentage of the Company's assets or income become passive, the Company
will be classified for U.S. tax purposes as a passive foreign investment company
("PFIC"), and a U.S. taxpayer may be subject to an additional Federal income tax
on receiving certain dividends from the Company or selling the Company's Common
Stock. See Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters, and Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operation.
VOTING CONTROL BY PRINCIPAL SHAREHOLDERS. The principal shareholders of
the Company, BioChem and Dr. Phillip Frost, either directly or through
affiliates, are parties to a Shareholders' Agreement requiring, among other
things, that the Company's Common Stock covered by the agreement be voted
together for the election of directors. As of January 31, 1997, these principal
shareholders beneficially owned approximately 18,991,601 shares of the Company's
outstanding Common Stock, which represented approximately 50.8% of the Company's
then outstanding Common Stock. See Item 13 - Certain Relationships and Related
Transactions.
VOLATILITY OF STOCK PRICE. The market prices for securities of many
biotechnology and pharmaceutical companies, including the Company, have been
highly volatile. Many factors have historically had, and are expected to
continue to have, a significant impact on the Company's business and on the
market price of the Company's securities including: announcements by the Company
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<PAGE>
and others regarding the results of regulatory approval filings, clinical trials
or other testing; technological innovations or new commercial products by the
Company or its competitors; government regulations; developments concerning
proprietary rights; public concern as to safety of vaccine and pharmaceutical
products; and economic or other external factors.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of the
Company's Common Stock in the public market following the exercise of options or
the conversion of convertible securities could have an adverse effect on the
price of the Company's securities. To the extent that either of the two
principal shareholder groups determines to sell a substantial number of their
shares of the Company's Common Stock, such sales could significantly increase
the volatility of the market price of the issued and outstanding securities of
the Company. In addition, one of the principal shareholders holds certain
registration rights concerning shares of the Company's Common Stock that it
owns. See Item 13 - Certain Relationships and Related Transactions.
ITEM 2. PROPERTIES
----------
The production of vaccines is a highly complex, biological process
involving many steps, commencing from seed culture through final production. The
Company's vaccine production processes involve the use of patented technologies
and proprietary rights and trade secrets at the Company's facilities. The
Company's facilities are briefly described below:
<TABLE>
<CAPTION>
Square
Facility/Function Location Feet Own/lease
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Production Facility Beltsville, MD 26,000 Leased until February 1999
(ten-year renewal option)
Production Facility Beltsville, MD 35,000 Leased until February 2001
(two five-year renewal options)
Warehouse and Support Beltsville, MD 31,000 Owned
Services for Production
Facility
Research and Development Beltsville, MD 27,700 Subleased until April 1998
Laboratory Facility
Executive Offices and Beltsville, MD 25,600 Leased until December 1997
Warehouse Facility (two three-year renewal options)
</TABLE>
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<PAGE>
The Company's production facilities have been designed and built to
produce vaccines for large scale clinical trials and commercial sales after
product licensing. In 1995, the Company modified its 26,000 square foot
production facility to significantly expand production capacity for
Certiva[TRADEMARK]. See Item 1 - Business, "Risk Factors - Manufacturing and
Scale-Up."
In 1996, the Company acquired a 35,000 square foot production facility
in Beltsville, Maryland. The acquisition included the purchase and lease of
equipment and leasehold improvements and the assumption of real estate leases
underlying the facility, which are scheduled to expire in 2001, subject to two
five-year extensions. The facility is being dedicated to the production of
vaccines for clinical trials and commercial sale.
The Company is presently leasing space for a research and development
laboratory facility. This facility, consisting of approximately 27,700 square
feet, is used for research in areas such as protein chemistry, immunology,
molecular biology and conjugation technology.
The Company owns a building located adjacent to its current production
facility. This building has been modified to house the service and warehouse
departments that support the Company's production facility. In addition, the
Company is continuously exploring opportunities to build-out, lease or acquire
additional research, development and production facilities to accommodate the
Company's expanding vaccine development program. The Company has no present
agreements, commitments or understandings in respect of any additional
facilities.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is, and from time to time becomes, involved in various
claims and lawsuits that are incidental to its business. In the opinion of the
Company's management, there are no material legal proceedings pending against
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
--------------------------------------------------
The Company's Common Stock is listed on the American Stock Exchange
("AMEX") under the symbol "NVX." The table below sets forth the high and low
closing sales prices as reported on the AMEX composite tape for each calendar
quarter of 1995 and 1996.
HIGH LOW
---- ---
1995
First Quarter $ 9 1/4 $ 6
Second Quarter 9 15/16 5 7/8
Third Quarter 11 7/8 7 5/16
Fourth Quarter 15 1/2 9 3/8
1996
First Quarter $16 1/8 $12 1/2
Second Quarter 25 3/4 12 1/8
Third Quarter 28 14 5/8
Fourth Quarter 28 17 3/8
The number of record holders of the Company's Common Stock as of
February 28, 1997 was approximately 271. The transfer agent and registrar for
the Common Stock is American Stock Transfer and Trust Company, which is located
at 40 Wall Street, New York, New York 10005.
The Company has never paid cash dividends on its Common Stock and
anticipates that its earnings, if any, will be retained for development of the
Company's business. Therefore, it is not anticipated that any cash dividends on
its Common Stock will be declared in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company, general business
conditions and tax considerations.
Because the Company is a Canadian corporation, any profits earned by
its U.S. subsidiary will not be distributable directly to shareholders. Instead,
for those profits to be distributed to shareholders, the subsidiary must declare
a dividend to the Company, and the Company in turn must declare a dividend to
its shareholders. This will subject each dividend to a withholding tax. First,
the dividend from the subsidiary to the Company will be subject to a 5%
withholding tax imposed by the United States on the gross amount of the
dividend. Pursuant to the Canada-United States Income Tax Convention (1980) (the
- 39 -
<PAGE>
"Treaty"), the subsequent dividend paid by the Company to a shareholder resident
in the United States will be subject to Canadian withholding tax at the rate of
15% on the gross amount of the dividend. The rate of withholding tax will be
reduced to 5% in respect of dividends paid to a company that is a resident of
the United States for purposes of the Treaty and owns at least 10% of the voting
stock of the Company. Each shareholder should consult his or her own tax advisor
as to tax consequences associated with dividends received on the Company's
Common Stock.
If more than a certain percentage of the Company's assets or income is
passive, the Company will be classified for United States tax purposes as a
passive foreign investment company or PFIC, and a United States taxpayer may be
subject to an additional federal income tax on receiving certain dividends from
the Company or selling Common Stock. Certain interest, dividend, capital gain
and royalty income may be considered passive income for PFIC purposes, which, in
the absence of sufficient other income, would result in the Company being
classified as a PFIC.
If the Company becomes a PFIC, a United States taxpayer will be subject
to special rules with respect to transactions involving the Common Stock. Under
these rules, all gains realized on disposition of the United States taxpayer's
Common Stock will be allocated pro rata over the number of years in which the
shareholder held the Common Stock. The gain that is allocated to a prior year
(subsequent to December 31, 1986) in which the Company was a PFIC, or any
subsequent year other than the year of disposition, will be taxed at the highest
marginal rate for that year and such tax will be subject to an interest charge
as if it had originally been due in that year. In addition, gain realized on the
disposition of the United States taxpayer's Common Stock that is allocated to
the current year or to a prior year before the Company was a PFIC will be
treated as ordinary income. Similar rules will apply to distributions made by
the Company. The above rules will not apply if the United States taxpayer elects
to treat the Company as a qualified electing fund and the Company agrees to
provide certain information to the United States Internal Revenue Service. In
such case, the United States taxpayer will include in his or her income each
year his or her pro rata share of the ordinary income and capital gains of the
Company. The Company has not been classified as a PFIC to date, and during 1997,
the Company intends to, and believes that it can, generate sufficient other
income to avoid being classified as a PFIC. See Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operation.
- 40 -
<PAGE>
On May 7, 1996, the Company completed an offering of 6.5% convertible
subordinated notes (the "Notes") in the principal amount of $86.25 million due
May 1, 2003 for cash. The net proceeds from this offering were approximately
$82.7 million. Goldman Sachs and UBS Securities were the initial purchasers of
the Notes, and the aggregate fee to the initial purchasers was $3.0 million. The
Notes were sold in the United States to qualified institutional buyers (as
defined in Rule 144A, "Qualified Institutional Buyers") amended (the "Securities
Act"), and to a limited number of institutional accredited investors in a manner
exempt from registration in reliance on Regulation D of the Securities Act and
outside the United States in reliance on Regulation S under the Securities Act.
The Notes are convertible into shares of the Company's Common Stock, at the
initial conversion price of approximately $24.86 per share. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operation.
On October 11, 1996 the Company sold to Abbott in a private sale, in
reliance on Section 4(2) of the Securities Act, 350,000 shares of the Company's
Common Stock for $6.3 million in cash. See Item 1 - Business, "Business
Relationships - Abbott Laboratories Agreement" and Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operation.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Selected consolidated financial data for the Company are set forth
below. The selected financial data as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995 and 1994 have been derived from, and are
qualified by reference to, the audited financial statements included elsewhere
in this Annual Report. The selected financial data as of and for the years ended
December 31, 1993 and 1992 have been derived from the audited financial
statements of the Company not included in this Annual Report. The selected
consolidated financial data should be read in conjunction with the financial
statements of the Company and other financial information included in this
Annual Report.
- 41 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
North American Vaccine, Inc.
Fiscal Year Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
Marketing, research and development agreements $ 9,656 $ 3,000 $ - $ - $ -
Contract revenue - - - 141 1,527
Product sales 892 - - - -
------- -------- -------- -------- --------
Total revenue 10,548 3,000 - 141 1,527
Operating Expenses:
Production 14,764 6,317 6,188 3,032 3,669
Research and development 11,594 10,206 5,763 5,824 3,770
General and administrative 6,753 6,696 4,543 4,070 5,958
------- -------- -------- -------- --------
Total operating expenses 33,111 23,219 16,494 12,926 13,397
------- -------- -------- -------- --------
Operating loss (22,563) (20,219) (16,494) (12,785) (11,870)
Gain on sale of investments in affiliates 4,228 14,429 11,929 - -
Interest and dividend income 2,934 804 638 657 1,151
Interest expense (4,088) - - - (5)
-------- -------- -------- --------- ---------
Net loss $(19,489) $ (4,986) $ (3,927) $(12,128) $(10,724)
======== ======== ======== ======== =========
Net loss per share $ (0.63) $ (0.17) $ (0.14) $ (0.44) $ (0.40)
======== ======== ======== ======== =========
Weighted-average number
of common shares outstanding 30,764 29,745 28,785 27,622 26,970
Balance Sheet Data:
Cash and cash equivalents $ 70,881 $ 10,443 $ 20,922 $ 17,166 $ 28,207
Investments in affiliates (1) 1,281 9,065 17,724 38,039 4,874
Total assets 122,962 41,249 49,580 63,762 42,575
Preferred stock 6,538 6,538 6,538 6,538 6,538
Common stock 71,357 58,474 56,922 51,958 51,312
Unrealized investment holding gains (1) 653 7,466 14,762 33,165 -
Accumulated deficit (58,769) (39,280) (34,294) (30,367) (18,239)
Dividends - - - - -
- --------------------------------
(1) In December of 1993, the Company adopted Statement of Financial Accounting Standard
(SFAS) 115. In accordance with SFAS 115, investments in equity securities are
reported on the Company's balance sheet at their fair market value resulting in
unrealized investment holding gains as a separate component of shareholders' equity.
The original cost of these investments at December 31, 1996, 1995, 1994, and 1993
was $628, $1,599, $2,962, and $4,874 respectively. The market value of the Company's
investment in affiliates at February 28, 1997 was approximately $1.5 million.
</TABLE>
- 42 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
--------------------------------------------------
THE FOLLOWING PARAGRAPHS CONTAIN CERTAIN FORWARD LOOKING STATEMENTS,
WHICH ARE WITHIN THE MEANING OF AND MADE PURSUANT TO THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD LOOKING
STATEMENTS INCLUDE, WITHOUT LIMITATION, THOSE REGARDING THE PROSPECTS FOR
REGULATORY APPROVAL AND THE NEED FOR FURTHER CLINICAL EVALUATION, THE PROSPECTS
FOR MARKETING AND DISTRIBUTION OF VACCINE PRODUCTS, ASSESSMENTS OF REGULATORY
AND ADVISORY COMMITTEE REVIEWS OF THE COMPANY'S AND COMPETITORS' PRODUCTS, THE
PROSPECTS FOR AND FACTORS AFFECTING FUTURE REVENUES AND PROFITABILITY,
LIKELIHOOD OF ADDITIONAL FUNDING UNDER LICENSE, COLLABORATION, MARKETING,
DISTRIBUTION AND/OR DEVELOPMENT AGREEMENTS, CASH REQUIREMENTS FOR FUTURE
OPERATIONS, AND PROJECTED CAPITAL EXPENDITURES. READERS ARE CAUTIONED THAT
FORWARD LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES, AND FACTORS THAT MAY
AFFECT THE COMPANY'S BUSINESS AND PROSPECTS, INCLUDING WITHOUT LIMITATION THOSE
DESCRIBED BELOW AS WELL AS THE RISKS ASSOCIATED WITH: OBTAINING REGULATORY
APPROVAL OF PRODUCTS BY THE FDA; THE PRODUCTION OF VACCINES; THE NATURE OF
COMPETITION; EFFECTIVE MARKETING; AND UNCERTAINTIES RELATING TO CLINICAL TRIALS,
ALL AS DISCUSSED IN THE COMPANY'S FILINGS WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION.
Background
- ----------
The Company is engaged in the research, development, production,
marketing and sale of vaccines for the prevention of infectious diseases in
children and adults.
In February 1996, the Swedish Ministry of Health granted regulatory
approval to market the Company's acellular pertussis vaccine formulated as a
combined DTaP vaccine for the prevention of diphtheria, tetanus, and pertussis
(whooping cough). This marketing authorization was the first regulatory approval
for any of the Company's products. In September 1996, the Danish National Board
of Health granted regulatory approval to market a combined DTaP-IPV vaccine for
all primary and booster doses for infants and children in Denmark. This
combination vaccine, which combines the DTaP vaccine with an enhanced,
inactivated polio vaccine ("IPV") developed jointly by Statens Seruminstitut
("SSI") and the Company. Under a supply agreement, the Company manufactures the
acellular component of the vaccine, and SSI manufactures the diphtheria, tetanus
and IPV components and markets and distributes the DTaP vaccine in Sweden and
the DTaP-IPV in Denmark. In addition, upon receipt of any required regulatory
approvals, SSI will market and distribute such products in the Scandinavian,
Baltic and other countries comprising its territory ("SSI's Territory").
Accordingly, the Company has been selling its acellular pertussis toxoid to SSI
for formulation into DTaP and DTaP-IPV for sale in SSI Territory.
- 43 -
<PAGE>
In 1995 and 1996, the Company recognized development revenues pursuant
to agreements with Pasteur Merieux-Connaught, under which the Company and
Pasteur Merieux-Connaught will jointly develop the Company's meningococcus B
vaccine. Additional funding may be provided to the Company by Pasteur
Merieux-Connaught under the terms of the license and clinical development
agreements. See "Liquidity and Capital Resources," below.
In the fourth quarter of 1996, the Company and Abbott Laboratories
("Abbott") signed an agreement under which Abbott would market
Certiva[TRADEMARK], the Company's DTaP vaccine, when approved by the FDA. The
marketing agreement also will allow Abbott to market the Company's DTaP-HIB,
DTaP-IPV and DTaP-IPV-HIB combination vaccines, which are under development.
Abbott will market Certiva[TRADEMARK] and the combination vaccines to private
physicians and managed care markets in the United States for immunization of
infants and children. The Company will market Certiva[TRADEMARK] and the
combination vaccines to government purchasers, including state governments and
the CDC.
On execution of the agreement with Abbott, the Company received $13
million of which $6.3 million represented payment for 350,000 shares of the
Company's Common Stock, and the balance represented a marketing fee and a
clinical development payment. The Company and Abbott will collaborate in the
clinical development of the combination vaccines and Abbott will provide the
Company with clinical development funding. The Company will receive payments
upon achievement of prescribed milestones. The agreement provides for total
payments of up to $42 million by Abbott. The first milestone relates to FDA
approval of Certiva[TRADEMARK] provided certain other conditions are satisfied.
In addition, the Company will receive revenues from Abbott as it purchases
Certiva[TRADEMARK] and the combination vaccine products for resale to the
private pediatric market.
In September 1995, the Company filed a product license application with
the FDA for approval to market Certiva[TRADEMARK] and FDA approval for the
vaccine is pending. During the fourth quarter of 1996, the clinical data on
Certiva[TRADEMARK] was presented to and reviewed by the FDA's Vaccine and
Related Biological Products Advisory Committee (the "FDA Advisory Committee").
The FDA Advisory Committee, after the presentation of the data and discussion,
concluded that Certiva[TRADEMARK] is safe and effective for administration at 2,
4, 6 and 15-18 months of age. In addition, the FDA Advisory Committee concluded
that the data supported concurrent administration with polio, HAEMOPHILUS
INFLUENZAE type b, hepatitis B and measles-mumps-rubella vaccines, which are all
recommended for immunization during the first two years of life. The FDA
- 44 -
<PAGE>
Advisory Committee raised no concerns regarding the adequacy of the data
regarding the use of Certiva[TRADEMARK] for the booster dose given to children
at 4-6 years of age following primary immunization using the "whole cell"
pertussis vaccine. Additional data is required to support use at 4-6 years of
age following four consecutive doses of Certiva[TRADEMARK]. The FDA Advisory
Committee commented on the adequacy of the data regarding the use of the vaccine
for the booster dose given to toddlers at 15-18 months of age following the
primary immunization using the "whole cell" pertussis vaccine. In response to
those comments, the Company intends to supplement the data presented at the FDA
Advisory Committee meeting and additional data for this matter may be addressed
in post-marketing studies. The Company does not believe that any additional
clinical studies will be required in connection with its product license
application, other than the standard post-licensure testing and surveillance for
continued monitoring of the vaccine. This is a forward looking statement and the
necessity for any additional clinical studies for licensure of
Certiva[TRADEMARK] depends in large measure upon the FDA's requirements. The
conclusions of the FDA Advisory Committee are not binding on the FDA. In
addition, three competitors announced in 1996 and 1997 that their respective
DTaP vaccines were approved by the FDA for use in infants and children.
In May 1996, the Company completed an offering of 6.5% convertible
subordinated notes in the principal amount of $86.25 million due May 1, 2003.
The net proceeds from this offering were approximately $82.7 million. Interest
on the notes is payable semiannually on May 1 and November 1 each year. The
notes are convertible into shares of the Company's Common Stock, at the initial
conversion price of approximately $24.86 per share. The notes are also
subordinated to present and future senior indebtedness of the Company and will
not restrict the incurrence of future senior or other indebtedness by the
Company. See "Liquidity and Capital Resources," below.
Prior to 1995, the Company's limited operating revenues were derived
primarily from contracts with NICHD to supply an investigational DTaP vaccine
for clinical trials. Performance under these contracts was completed in 1993.
Provisional payments to the Company under cost-reimbursable contracts are
subject to adjustment upon completion of audits of reimbursable costs by NICHD.
In the opinion of management, adjustments, if any, resulting from the audits of
the contracts are not expected to have a material adverse impact on the
Company's future financial position or future results of operations, although
there are no assurances in this regard. This is a forward looking statement and
the factors affecting its outcome are in large measure outside of the control of
the Company.
Research and development expenses were $11.6 million, $10.2 million and
$5.8 million in 1996, 1995 and 1994, respectively. The Company had 206, 167 and
118 full-time employees as of December 31, 1996, 1995 and 1994, respectively.
Years Ended December 31, 1996 And 1995
- --------------------------------------
In 1996, the Company recognized $892,000 of revenue from product sales
of its acellular pertussis vaccine. All such product sales were for export. In
addition, the Company recognized $9.7 million of revenue from its collaboration
agreements principally with Pasteur Merieux-Connaught and Abbott.
- 45 -
<PAGE>
Production expenses were $14.8 million in 1996 compared to $6.3 million
in 1995. The increase in these expenses in 1996 is due to increases in
depreciation, materials, and labor, as the Company produces the acellular
pertussis vaccine for European distribution and prepares for regulatory approval
of Certiva[TRADEMARK] in the United States. The increase in labor cost is
attributable primarily to an increase in number of employees. In addition,
facility costs increased in 1996 over 1995 due to the Company's placing in
service its expanded production facility and its adjacent support facility.
Research and development expenses increased to $11.6 million in 1996
from $10.2 million in 1995. The increase in these expenses in 1996 is due
primarily to depreciation expenses related to the acquisition of a new
manufacturing facility, and to a lesser extent, an increase in clinical testing
and related expenses as the number of clinical trials sponsored by the Company
increased and as the Company expanded its clinical and regulatory affairs
operations. See "Liquidity and Capital Resources" below for a description of
acquisition of the new facility.
General and administrative expenses were $6.8 million in 1996 as
compared to $6.7 million in 1995. The increase is primarily due to a greater
number of employees and related use of supplies, offset in part by decreased
outside consulting expenses.
In 1996, the Company sold 193,084 shares of its investment the common
stock of IVAX Corporation ("IVAX"), which generated proceeds of approximately
$5.2 million and a realized gain of $4.2 million. In 1995, the Company sold the
remaining 695,936 shares of its investment in BioChem common stock and 156,916
shares of its investment in IVAX common stock, which generated approximately
$11.5 and $4.3 million of cash respectively. The realized gain on these sales
were $10.9 and $3.5 million respectively.
Interest and dividend income increased to $2.9 million in 1996 from
$804,000 in 1995. This increase is due primarily to higher cash balances as a
result of the placement of $86.25 million convertible subordinated notes in May
1996. See "Liquidity and Capital Resources" below.
Interest expense in 1996 was $4.1 million due to the issuance of the
convertible subordinated notes, and the capital lease obligations for certain
equipment in the newly acquired manufacturing facility.
The factors cited above resulted in a net loss of $19.5 million or
$0.63 per share of the Company's Common Stock in 1996 as compared to net loss of
$5.0 million or $0.17 per share of the Company's Common Stock in 1995. Without
the gains on the sales of investment securities in 1996 and 1995, the net losses
per share for 1996 and 1995 would have been $0.77 and $0.65 per share of the
Company's Common Stock, respectively. The weighted-average number of common and
common equivalent shares outstanding was 30.8 million for 1996 compared to 29.7
- 46 -
<PAGE>
million for 1995. The increase in the number of weighted-average shares
outstanding for 1996 as compared to 1995 was attributable primarily to the
exercises of stock options and the sale of 350,000 shares of the Company's
Common Stock to Abbott.
Years Ended December 31, 1995 And 1994
- --------------------------------------
In 1995, the Company recognized $3 million of revenue from Pasteur
Merieux-Connaught in connection with the execution of the previously announced
memorandum of understanding and from development payments under the clinical
development agreement for the Company's meningococcus B vaccine.
Production expenses were $6.3 million in 1995 compared to $6.2 million
in 1994. The 1994 results included a one-time write-off of approximately $1.8
million related to modifications to the Company's production facilities
build-out plan. The increase in production expenses in 1995, exclusive of the
write-off in 1994, is due to increases in labor, materials and supplies expenses
in 1995 as the Company prepared for regulatory approval of its DTaP vaccine in
the United States. The increase in labor cost is primarily attributable to an
increase in number of employees. In addition, depreciation expense in 1995 was
greater than in 1994 due to the Company's placing in service its modified
production facility.
Research and development expenses increased to $10.2 million in 1995
from $5.8 million in 1994. The increase was primarily clinical testing and
related expenses and to a lesser extent increased labor and patent and
regulatory filing expenses. These increases are the result of expanding the
clinical and regulatory affairs operations of the Company.
General and administrative expenses were $6.7 million in 1995 as
compared to $4.5 million in 1994. The increase was primarily due to higher
consulting and professional fees as the Company prepared for regulatory approval
to market its DTaP vaccine in the United States and, to a lesser extent,
increased labor, insurance and travel costs.
In 1995, the Company sold the remaining 695,936 shares of its
investment in BioChem common stock and 156,916 shares of its investment in IVAX
common stock, which generated approximately $11.5 and $4.3 million of cash,
respectively. The realized gains on the sales were $10.9 and $3.5 million,
respectively.
Interest and dividend income increased to $804,000 in 1995 from
$638,000 in 1994. This increase is due primarily to higher interest rates in
1995.
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<PAGE>
The factors cited above resulted in a net loss of $5.0 million in 1995
as compared to a net loss of $3.9 million in 1994. The net loss per share of the
Company's Common Stock was $0.17 and $0.14 for 1995 and 1994, respectively.
Without the $14.4 million gain on the sales of investment securities, the net
loss per share for 1995 would have been $0.65. The loss per share in 1994 would
have been $0.49 without the write off of $1.8 million related to modification to
the Company's production facilities build-out plan and the gain of $11.9 million
on the sale of investment securities. The weighted-average number of shares of
the Company's Common Stock outstanding was 29.7 million for 1995 compared to
28.8 million for 1994. The increase in weighted-average shares outstanding is
attributable primarily to exercises of stock options in 1995.
Liquidity And Capital Resources
- -------------------------------
In May 1996, the Company completed an offering of 6.5% convertible
subordinated notes in the principal amount of $86.25 million due May 1, 2003.
The net proceeds from this offering were approximately $82.7 million. Interest
on the notes is payable semiannually on May 1 and November 1 each year. The
notes are convertible into shares of the Company's Common Stock, at the initial
conversion price of approximately $24.86 per share. The notes also are
subordinated to present and future senior indebtedness of the Company and will
not restrict the incurrence of future senior or other indebtedness by the
Company. The notes are redeemable, in whole or in part, at the option of the
Company on or after May 1, 1999 at certain pre-established redemption prices,
plus accrued interest. Upon a change in control, the Company is required to
offer to purchase all or part of the notes then outstanding at a purchase price
equal to 100% of the principal amount thereof, plus interest. The repurchase
price is payable in cash or, at the option of the Company, in shares of the
Company's Common Stock. The Company has filed a registration statement
registering resales of the notes and the underlying shares of Common Stock.
The Company spent $9.8 million for operations in the fourth quarter of
1996 and $30.3 million for the year ended 1996. The Company financed its
operations and capital expenditures for 1996 from cash, sale of investment
securities, proceeds from the offering of its convertible notes, a capital
lease, and amounts from marketing, research and development agreements, and
product sales. At December 31, 1996, the Company had cash and cash equivalents
of approximately $70.9 million and investment securities in an affiliate with a
market value of $1.3 million. The investment securities consisted of 125,000
shares of IVAX common stock. The fair market value of these investment
securities as of February 28, 1997 was $1.5 million. These investments are
volatile and therefore subject to significant fluctuations in value.
- 48 -
<PAGE>
The Company anticipates that cash requirements for operations in the
first quarter in 1997 will be between approximately $7 million and $8 million as
the Company: expands production for commercial sale in Europe and in
anticipation of regulatory approval in the United States; plans for and
commences additional clinical trials for its combination vaccines and conjugate
vaccines; and operates its newly acquired development and production facility.
Thereafter, quarterly cash requirements for operations will depend upon the
level of vaccine production, costs in preparing for and the timing of the market
introduction of Certiva[TRADEMARK], the level of expenditures for the Company's
ongoing research and development program, and the timing of interest payments
due on the convertible subordinated notes described above. The foregoing is a
forward looking statement. There are no assurances that the Company will meet
the projections for cash requirements for operations, that any further
regulatory approvals will be received as projected, that the milestones
described above will be achieved, or that, if such milestones are obtained, they
will contribute materially to the quarterly cash requirements. Failure or
significant delays in receiving additional regulatory approvals and meeting
required milestones would have a significant adverse effect on the Company's
future financial position.
Total capital expenditures for 1996 were $28.7 million, primarily
attributable to the acquisition of a 35,000 square foot manufacturing facility
in Beltsville, Maryland. That acquisition included the purchase and lease of
equipment and leasehold improvements and the assumption of real estate leases.
The total acquisition cost for the equipment and leasehold improvements
was approximately $24.9 million, which included a cash payment of $17.2 million.
The balance of $7.7 million is represented by an equipment lease obligation
which expires in 2000. The lease will be accounted for as a capital lease for
financial reporting purposes, with monthly payments of approximately $179,000.
In addition, the Company has assumed the real estate leases underlying the
facility, which are scheduled to expire in February 2001, but may be extended
through 2011. Under the terms of the equipment lease, the Company has a buyout
option at the end of the third year for a predetermined amount, and an option at
the end of the fourth year at the greater of the fair market value of the
equipment or a predetermined amount. Under the equipment lease agreement there
are financial covenants that obligate the Company to maintain certain minimum
cash and investment balances, a minimum tangible net worth and certain other
financial ratios. The Company would be required to post an irrevocable letter of
credit for predetermined amounts at such time as the Company is not in
compliance with any of these financial covenants.
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<PAGE>
Total projected capital expenditures for the first quarter of 1997 are
expected to be approximately $1.5 million. Thereafter, capital expenditures,
exclusive of any future real estate acquisition or build-out plans, could
fluctuate based upon a number of factors including: the Company's ability to
meet demand for its licensed products from its existing facilities; the
Company's ability to produce sufficient quantities of investigational product in
its existing facilities; and unanticipated costs to replace or repair existing
equipment and systems in order to keep the manufacturing and development
facilities operational or in compliance with regulatory requirements. The
Company continues to evaluate its need to build-out, lease or acquire additional
research, development, production and other facilities to accommodate the
Company's expanding vaccine development program. The Company has no present
agreements, commitments or understandings in respect of any additional
facilities and the total capital expenditures for such a project will vary
substantially depending upon a number of factors including, among other things,
the size of such a facility, the equipment and systems requirements for the
facility, location, zoning and other government restrictions.
Cash requirements for operations and capital expenditures for 1997 will
be financed through a combination of: cash and cash equivalents; revenues from
product sales and fees and payments from license, collaboration, marketing,
distribution and/or development agreements; the exercise of stock options; the
sale of debt and/or equity securities; mortgage financing; and equipment leases.
The Company believes that it has adequate cash resources to meet its 1997
funding requirements although there are no assurances in this regard. While
failure or significant delays in receiving additional regulatory approvals and
meeting required milestones would have a significant adverse effect on the
Company's future operating results and future financial position, the Company
believes that in such event it could manage and reduce cash requirements for
operations, although there are no assurances in this regard. This paragraph
contains forward looking statements and the factors affecting the ability of the
Company to meets its funding requirements and manage its cash resources include,
among other things, the magnitude and timing of product sales; the magnitude and
timing of any fees and payments from license, marketing, and/or development
agreements; and the magnitude of fixed costs.
- 50 -
<PAGE>
Outlook
- -------
The Company recognized an operating loss of $199,000 in the fourth
quarter of 1996 based on revenues of $9.8 million principally from up-front and
milestone payments from marketing and development agreements. The Company
anticipates that the 1997 quarterly operating results may fluctuate
significantly based upon a number of factors including, among other things: the
magnitude of product sales for distribution in Europe; the timing of FDA
approval for, and the commercial introduction of, Certiva[TRADEMARK]; the
ability of the Company and its distributors to effectively market and sell
products in their respective territories; the sales prices established for
products by the Company and its distributors; compensation expense associated
with stock-based compensation plans; the efficiency of production; the timing of
the payments under license, collaboration, marketing, distribution and/or
development agreements with third parties; the ability of the Company to
manufacture and deliver products in accordance with customer orders; the timing
and costs associated with clinical trials and post-licensure testing of the
Company's products; the timing and amount of funding that may be received under
any additional license, collaboration, marketing, distribution and/or
development agreements with third parties; and the timing of and amount of
proceeds from the sale of additional investment securities. This is a forward
looking statement and the factors affecting its outcome are described herein as
well as in the first paragraph of this Management's Discussion and Analysis of
Financial Condition and Results of Operations.
There are no assurances that the Company will meet the operating
results projected, that any further regulatory approvals will be received, that
any milestones will be achieved, or if achieved, that milestone payments will
contribute materially to the quarterly operating results of the Company.
PRODUCT SALES. During 1996, the government of Sweden granted marketing
authorization for the Company's acellular pertussis vaccine formulated as a
combined DTaP vaccine and the government of Denmark granted marketing
authorization for the Company's acellular pertussis vaccine formulated as a
combined DTaP-IPV vaccine. SSI is responsible for marketing and distributing
these products in SSI's Territory. In addition, during the fourth quarter of
1996, the Company executed a supply and distribution agreement with Chiron
Behring ("Behring") covering the Company's DTaP and DTaP-IPV vaccines for
Germany and Austria ("Behring's Territory").
- 51 -
<PAGE>
The Company therefore anticipates revenues during 1997 from the
continued sale of its acellular pertussis component to SSI for its sale of the
DTaP and the DTaP-IPV vaccines in SSI's Territory. Any additional product
approvals granted to SSI could lead to increased revenues from the sale of the
Company's acellular pertussis vaccine. Additional revenues may be forthcoming
from sale of the DTaP and/or DTaP-IPV vaccines to Behring in anticipation of or
following regulatory approval for one or both of these products in the Behring
Territory. There are no assurances that further product approvals will be
obtained in these territories during 1997 or at all, or that once obtained SSI
or Behring will be effective in the marketing and distribution of the products.
The Company does not control the marketing and distribution efforts of SSI or
Behring in their respective territories and, therefore, the Company's revenues
for product sales in those territories are dependent upon the effectiveness of
these parties' sales, marketing and distribution efforts.
As described above, during 1996, the Company and Abbott signed an
agreement under which Abbott would market Certiva[TRADEMARK] and certain
combination vaccines to private physicians and managed care markets in the
United States for immunization of infants and children. The Company will market
these products to government purchasers, including state governments and the
Centers for Disease Control and Prevention ("CDC"). The Company filed a product
license application for Certiva[TRADEMARK] with the FDA in September 1995 and
FDA approval is pending.
The Company therefore anticipates revenues during 1997 from the sale of
Certiva[TRADEMARK] in the United States to state governments and the CDC, and to
Abbott for resale to private physicians and the managed care market. If the
product is launched successfully in the United States by the Company and Abbott,
revenues from operations and the prospects for profitability would significantly
increase. There can be no assurance that the FDA's approval will be obtained or
that, once obtained, the Company and/or Abbott will be effective in marketing
and distributing the product. The principal factors affecting the approval of
Certiva[TRADEMARK] and its timing are believed to be the sufficiency of the
clinical trials' design, the quality of the clinical data submitted to the FDA,
and the adequacy of the manufacturing facilities and operations for the product,
among other things. The factors affecting successful commercial launch of
Certiva[TRADEMARK] in the United States include, among others: successfully
participating in established purchasing programs of Federal and state
governments; establishing an identity and reputation for the Company and its
products; creating an awareness among pediatricians of the safety and efficacy
of the vaccine; distinguishing the Company's product from that of its
competitors; establishing the Company as an effective and reliable supplier of
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<PAGE>
vaccines; and establishing effective distribution channels. In 1996 and 1997,
three competitors announced that their respective DTaP vaccines were approved by
the FDA for use in infants and children. One of those competitors also announced
that the FDA licensed a vaccine that combines by reconstitution that company's
HIB vaccine with its DTaP vaccine for administration at 15-18 months of age and
that it continues to seek FDA approval for administration at two, four and six
months of age. In addition, several competitors' DTaP vaccines and certain
combination vaccines have been licensed for sale outside of the United States.
Accordingly, there can be no assurance that the Company and its distributors
will attain sufficient market share for the Company's products at satisfactory
sales price levels.
Approval of Certiva[TRADEMARK] for commercial introduction requires
that the FDA issue a license for the product and a license for the production
facilities. Production of vaccines is a highly complex, biological process which
involves many steps commencing from seed culture through final production. The
production process could fail at any point resulting in the failure and
inability to meet production requirements. From time to time, the Company
experiences disruptions and production failures, and there are no assurances
that the steps taken by the Company to address such failures will be effective
or that such failures will not continue in the future or affect the Company's
ability to obtain regulatory approval for its products or the timing of such
approval or affect the Company's ability to produce vaccines. Moreover, there
are no assurances that the Company will be able to successfully establish and
maintain consistent manufacture and continuous commercial production of its
vaccines in sufficient quantity and quality or that it will be capable of
producing a competitively priced product for commercial sale. The foregoing
paragraphs contain only a partial description of the factors affecting the
Company's business prospects and risk factors affecting future operations.
Reference is made to the Company's filings with the Securities and Exchange
Commission for a more complete description of the risks and uncertainties
affecting the Company and its business.
RESEARCH & DEVELOPMENT, LICENSING AND MARKETING AGREEMENTS. In December
1995, the Company signed a clinical development agreement and license agreement
with Pasteur Merieux-Connaught under which the parties agreed to jointly develop
its new conjugate vaccine against meningococcus B infection for both adults and
pediatric indications. In 1996 and 1995, the Company recognized revenue from
Pasteur Merieux-Connaught under this collaboration. Future fees and funding
would be made upon achievement of development, clinical and regulatory
milestones. Total remaining fees and payments to the Company upon achievement of
all clinical and regulatory milestones amount to $45 million. The first
milestone is the satisfactory completion of a pre-clinical study. In addition,
the license agreement must be ratified by the National Research Council of
Canada ("NRC"). Successful completion of the milestone and ratification of the
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<PAGE>
license by the NRC would trigger a payment from Pasteur Merieux-Connaught. The
time it may take to achieve future milestones cannot be predicted accurately and
there are no assurances that any milestone will be met during 1997 or at all or
that the NRC will ratify the license agreement. In addition, Pasteur
Merieux-Connaught may terminate these agreements in its sole discretion at any
time.
Under the marketing and distribution agreement with Abbott, the Company
will receive during 1997 clinical development payments aggregating $7 million on
dates certain and milestone payments upon achievement of prescribed clinical and
regulatory events. The first milestone relates to FDA approval of
Certiva[TRADEMARK] provided certain other conditions are satisfied. Total
remaining payments by Abbott to the Company under the agreements, inclusive of
payments expected during 1997, amount to $29 million. In addition, the Company
will receive revenues from Abbott as it purchases Certiva[TRADEMARK] and the
combination vaccine products for resale to the private pediatric market. There
are no assurances that the milestones will be met, that the quantities of
Abbott's purchases of Certiva[TRADEMARK] will be significant or as to the timing
of such purchases, or that Abbott will not exercise its right to terminate this
arrangement at any time with advance notice.
During 1997, the Company anticipates that license fees, clinical
development funding and milestone payments under its existing agreements will
range from $7 million to approximately $19 million. This is a forward looking
statement and the factors that affect the timing of the license fee and
milestone payments are in large measure outside of the control of the Company.
The revenue recognized by the Company from clinical development payments
received from Abbott will be equal to the Company's expenditures in the clinical
development program for Certiva[TRADEMARK] and the combination vaccines up to a
specified amount. Accordingly, such revenues are likely to fluctuate from
quarter to quarter and would have no effect on net operating results. The
factors that affect the timing of these expenditures, and therefore the revenues
to be recognized therefrom, are subject to uncertainties related to clinical
trials and the regulatory approval process. There are no assurances that the
clinical development funding from Abbott will be sufficient to fund all of the
Company's expenditures in the clinical development program for
Certiva[TRADEMARK] and the combination vaccines.
The Company is considering the advisability of executing further
distribution agreements for certain markets throughout the world. The Company
also intends to collaborate in the development of selected vaccine products and
may enter into additional collaborative development agreements similar in nature
to that which was signed with Pasteur Merieux-Connaught, as described above. In
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<PAGE>
addition, the Company is in various stages of discussions with third parties
regarding various business arrangements including licensing, joint venture,
acquisition, and other business agreements, some of which possibly may be
concluded in the near term. There are no assurances that the Company will
successfully negotiate and sign any such agreements or that, if executed, the
financial terms for any such agreement will be significant.
Tax And Other Matters
- ---------------------
At December 31, 1996, the Company and its subsidiaries had income tax
loss carryforwards of approximately $9.9 million to offset future Canadian
source income and approximately $55.5 million to offset future United States
taxable income subject to the alternative minimum tax rules in the United
States.
If more than a certain percentage of the Company's assets or income
become passive, the Company will be classified for U.S. tax purposes as a
passive foreign investment company ("PFIC"), and a U.S. taxpayer may be subject
to an additional Federal income tax on receiving certain dividends from the
Company or selling the Company's Common Stock.
The Company has not been classified as a PFIC to date, and during 1997,
the Company intends to, and believes that it can, generate sufficient other
income to avoid being classified as a PFIC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Financial Statements and accompanying Notes thereto, the
Accountants' Report, required Supplementary Data, and certain other financial
information are set forth on pages 56 to 82 of this Annual Report immediately
following. The table of contents to the Financial Statements and accompanying
Notes appears on page 84 of this Annual Report.
- 55 -
<PAGE>
Report of Independent Public Accountants
To North American Vaccine, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of North American
Vaccine, Inc. (a Canadian corporation) and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurances about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North American Vaccine, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, D.C.
February 14, 1997
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<PAGE>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31,
1996 1995
--------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 70,881 $ 10,443
Accounts receivable 4,166 2,000
Inventory 1,782 496
Prepaid expenses and other current assets 533 571
--------- ---------
Total current assets 77,362 13,510
Property, plant and equipment, net 40,629 18,121
Investment in affiliate, at market 1,281 9,065
Deferred financing costs, net 3,184 -
Other assets 506 553
--------- ---------
Total assets $ 122,962 $ 41,249
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,912 $ 3,550
Deferred revenue 3,000 -
Obligation under capital lease,
current portion 1,496 -
Other current liabilities 4,540 4,296
--------- ---------
Total current liabilities 10,948 7,846
6.50% Convertible subordinated notes 86,250 -
Obligation under capital lease, net of
current portion 5,871 -
Deferred rent credit, net of current portion 114 205
--------- ---------
Total liabilities 103,183 8,051
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; unlimited
shares authorized-Series A, convertible;
issued and outstanding 2,000,000 shares;
entitled to Can $2.50 per share in liquidation 6,538 6,538
Common stock, no par value; unlimited shares
authorized; issued
31,406,999 shares at December 31, 1996 and
30,186,711 shares at December 31, 1995 71,357 58,474
Unrealized investment holding gain 653 7,466
Accumulated deficit (58,769) (39,280)
--------- --------
Total shareholders' equity 19,779 33,198
--------- --------
Total liabilities and shareholders' equity $ 122,962 $ 41,249
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
- 57 -
<PAGE>
<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years ended December 31,
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Revenues
Marketing, research and development agreements $ 9,656 $ 3,000 $ -
Product sales 892 - -
-------- -------- --------
Total revenues 10,548 3,000 -
-------- -------- --------
Operating expenses:
Production 14,764 6,317 6,188
Research and development 11,594 10,206 5,763
General and administrative 6,753 6,696 4,543
-------- -------- --------
Total operating expenses 33,111 23,219 16,494
-------- -------- --------
Operating loss (22,563) (20,219) (16,494)
Other income (expenses):
Gain on sale of investments in affiliates 4,228 14,429 11,929
Interest and dividend income 2,934 804 638
Interest expense (4,088) - -
-------- -------- --------
Net loss $(19,489) $ (4,986) $ (3,927)
======== ======== ========
Net loss per share $ (0.63) $ (0.17) $ (0.14)
Weighted-average number of common shares
outstanding 30,764 29,745 28,785
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Series A
Convertible Unrealized
Preferred Stock Common Stock Investment Total
------------------ ---------------- Holding Accumulated Shareholders'
Shares Amount Shares Amount Gains Deficit Equity
------- ------- ------ ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 2,000 $6,538 27,732 $51,958 $33,165 $(30,367) $61,294
Exercises of stock options - - 1,512 4,861 - - 4,861
Shares issued under
401(k) plan - - 9 103 - - 103
Realized investment holding gains - - - - (11,929) - (11,929)
Decrease in market value
of investments - - - - (6,474) - (6,474)
Net loss - - - - - (3,927) (3,927)
------- ------ ------ ------- ------ --------- -------
Balance, December 31, 1994 2,000 6,538 29,253 56,922 14,762 (34,294) 43,928
Exercises of stock options - - 920 1,424 - - 1,424
Shares issued under
401(k) plan - - 14 128 - - 128
Realized investment holding gains - - - - (14,429) - (14,429)
Increase in market value
of investment - - - - 7,133 - 7,133
Net loss - - - - - (4,986) (4,986)
------- ------ ------ ------- ------ --------- -------
Balance, December 31, 1995 2,000 6,538 30,187 58,474 7,466 (39,280) 33,198
Exercises of stock options - - 859 6,356 - - 6,356
Issuance of common stock - - 350 6,344 - - 6,344
Shares issued under
401(k) plan - - 11 183 - - 183
Realized investment holding gains - - - - (4,228) - (4,228)
Decrease in market value
of investment - - - - (2,585) - (2,585)
Net loss - - - - - (19,489) (19,489)
------- ------ ------ ------- ------- -------- -------
Balance, December 31, 1996 2,000 $6,538 31,407 $71,357 $ 653 $(58,769) $19,779
======= ====== ====== ======= ======= ======== =======
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(19,489) $ (4,986) $ (3,927)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of investments in affiliates (4,228) (14,429) (11,929)
Gain on disposal of equipment (12) - -
Write-off of property and equipment - 27 1,806
Depreciation and amortization 6,154 2,223 2,206
Amortization of deferred financing costs 335 - -
Contribution of common stock to 401(k) plan 183 128 103
Decrease (increase) in other assets 47 (248) (205)
Decrease in deferred rent (81) (75) (65)
Cash flows (used in) provided by other
working capital items (1,818) (56) 3,442
-------- -------- --------
Net cash used in operating activities (18,909) (17,416) (8,569)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (21,012) (10,279) (6,377)
Proceeds from sale of investments in affiliates 5,199 15,792 13,841
Proceeds from sale of equipment 27 - -
-------- -------- --------
Net cash (used in) provided by
investing activities (15,786) 5,513 7,464
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of convertible notes 86,250 - -
Deferred financing costs of convertible notes (3,519) - -
Repayment of lease obligation (298) - -
Proceeds from exercises of stock options 6,356 1,424 4,861
Proceeds from issuance of common stock 6,344 - -
-------- -------- --------
Net cash provided by financing activities 95,133 1,424 4,861
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 60,438 (10,479) 3,756
Cash and cash equivalents, beginning of period 10,443 20,922 17,166
-------- -------- --------
Cash and cash equivalents, end of period $ 70,881 $ 10,443 $ 20,922
======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Years ended December 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows Provided By Other Working Capital Items:
Decrease (increase) in :
Accounts receivable $ (2,166) $(2,000) $ 340
Accounts receivable from affiliate - 81 53
Inventory (1,286) (347) (93)
Prepaid expenses and other current assets 38 (264) (108)
Increase (decrease) in :
Accounts payable (1,638) 404 2,990
Deferred revenue and other current
liabilities 3,234 2,070 260
-------- ------- -------
Net cash provided by (used in) other working
capital items $ (1,818) $ (56) $ 3,442
======== ======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 2,758 $ - $ -
======== ======= =======
Equipment acquired through capital lease $ 7,665 $ - $ -
======== ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
North American Vaccine, Inc. and Subsidiaries (the "Company") is
engaged in the research, development and production of vaccines for the
prevention of infectious diseases in children and adults.
The Company was incorporated in Canada on August 31, 1989 to
consolidate the assets, liabilities and operations of American Vaccine
Corporation ("American Vaccine"), and certain assets and vaccine-related
technologies of BioChem Pharma Inc. ("BioChem"), in a share purchase and merger
transaction (the "Merger"). On February 28, 1990, the shareholders of American
Vaccine approved the Merger. Prior to February 28, 1990, the Company had no
operations.
Pursuant to the Merger, shareholders of American Vaccine exchanged
their shares for 50 percent ownership of the Company. Simultaneously, BioChem
purchased a 50 percent interest in the Company for cash, shares of BioChem
common stock, and certain rights in BioChem's vaccine-related technologies. The
net assets of American Vaccine, common stock of BioChem, and the rights in
vaccine-related technologies transferred by BioChem were carried forward to the
Company at their previously recorded amounts as reflected in the historical
financial statements of BioChem and American Vaccine.
(2) RISK FACTORS
The Company has incurred substantial losses in the development of its
technologies. The Company has generated only limited revenue from the sale of
its acellular pertussis vaccine and marketing, research and development
agreements. Prior to commercial introduction, the Company's DTaP vaccine for the
prevention of diphtheria, tetanus, and pertussis (whooping cough) must be
approved by the U.S. Food and Drug Administration ("FDA") for sales in the
United States and by similar authorities for sales in other countries. The DTaP
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<PAGE>
vaccine was approved for sale in Sweden in February 1996, and the DTaP-IPV
(polio) vaccine was approved for sale in Denmark in the third quarter of 1996.
The DTaP vaccine is currently being considered for approval for sale in the
United States by the FDA. There can be no assurance as to when or whether the
Company will receive such approval, or that any such approval will not be
subject to additional testing requirements. The commercial introduction of the
Company's DTaP vaccine will require the Company to manufacture and produce large
quantities of vaccine in its manufacturing facility, which was modified for
increased production in 1995. The Company has limited experience manufacturing
commercial quantities of vaccines and operating its manufacturing facility.
Accordingly, there can be no assurance that the production process will not fail
or become subject to substantial disruptions. To successfully introduce and
commercialize its DTaP vaccine, the Company will be required to implement
successfully its sales and marketing strategy that will enable it to, among
other things, participate in established purchasing programs of Federal and
State governments, establish an identity and reputation for the Company and its
products, create an awareness among pediatricians of the safety and efficacy of
the vaccine, distinguish the Company's product from that of its competitors, and
establish effective distribution channels. In October 1996, the Company and
Abbott Laboratories ("Abbott") signed an agreement for Abbott to market the
Company's DTaP vaccine and certain combination vaccines in the United States to
the private physician and managed care markets upon approval by the FDA, with
the Company marketing those products to governmental purchasers. There can be no
assurance that the Company or Abbott will successfully implement its sales and
marketing strategy. In attempting to do so, the Company believes there will be
intense competition from other vaccine producers. There can be no assurance that
the Company will produce a commercially viable product, attain sufficient market
share, or distinguish its vaccine product from that of its competitors.
Currently, the Company's prospects for becoming profitable are
substantially dependent upon the successful commercialization of the DTaP
vaccine, as well as the successful development and commercialization of other
vaccines under development. There can be no assurance that the Company will be
able to successfully market its vaccine products at levels sufficient to
generate profits.
The production of vaccines is a highly complex, biological process
involving many steps, commencing from seed culture through final production. The
production process could fail at any point resulting in the failure and
continued inability to meet production requirements. No assurance can be given
that the Company will be successful in establishing and maintaining the
commercial production of its vaccines or that it will be capable of producing a
competitively priced product.
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<PAGE>
The Company produces the pertussis component of the DTaP vaccine and it
has purchased, and intends to continue to purchase, its requirements of the
diphtheria and tetanus toxoids and enhanced inactivated polio vaccine ("IPV")
from Statens Seruminstitut ("SSI"), an enterprise owned by the government of
Denmark. There can be no assurances that SSI will be able to meet the Company's
requirements or that SSI will not experience difficulties or disruptions in its
production of diphtheria and tetanus toxoids and IPV. Certain of the Company's
production processes require raw materials from sole sources or materials that
are difficult for suppliers to produce and certify for the Company's
specifications. The Company also may experience temporary or permanent shortages
of critical raw materials necessary for continued production of its vaccines.
Any shortage of these materials could delay production efforts, adversely impact
production costs and yields, or necessitate the use of substitute materials, any
of which could have a significant adverse impact on the Company's operations. In
addition, the Company has contracted with third parties for the sterile fill,
labeling, and packaging of its vaccine products until the Company obtains its
own facilities to perform these operations. Failure of any such contractor to
meet the Company's requirements may involve costly delays and significant
expense, and would require additional regulatory approval as the Company seeks
alternative arrangements.
The vaccine industry is subject to significant technological changes
and many of the Company's competitors have substantially greater financial and
technical resources, and production, marketing, research and development and
regulatory capabilities, than the Company. In addition, the Company is in the
process of establishing a marketing and sales organization for its products.
Under existing government vaccine programs, the manufacturers submit
contract bids under which they would sell vaccines to Federal and State
governments for vaccination of qualified individuals under Federal and State
sponsored vaccination programs. In addition, State governments are permitted to
purchase vaccines directly from the manufacturers at the same prices.
Historically, government purchases under existing government programs have
represented a significant portion of the pediatric vaccine doses distributed in
the United States and have been at prices substantially below those offered to
the private sector. From time to time, legislative and regulatory initiatives
are proposed that, if adopted, could significantly modify government vaccine
programs by, among other things, restricting the federal government's purchasing
authority or substantially reducing the funding available for government vaccine
purchases. The Company is unable to predict which legislative initiative, if
any, will ultimately be enacted or the effect any such initiative may ultimately
have on the Company's business or results of future operations.
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<PAGE>
The Company believes that patent protection will be an important factor
in its success and may require the expenditure of substantial resources. No
assurance can be given as to the degree and range of protection any patents will
afford the Company, that patents will be issued to the Company, or as to the
extent to which the Company will be successful in avoiding or securing
commercially reasonable licenses under patents granted to others. There has
been, and the Company believes that there may be in the future, significant
litigation in the industry regarding patent and other intellectual property
rights. If the Company becomes involved in such litigation, it could consume
substantial resources.
Although the Company has limited product liability insurance coverage,
it may seek additional insurance coverage as it commences commercialization of
its DTaP vaccine. There can be no assurance that adequate additional insurance
coverage will be available at acceptable costs, if at all, or that a product
liability claim would not materially adversely affect the business or financial
condition of the Company.
(3) SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF ACCOUNTING AND CURRENCY. The accompanying consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") in the United States and are denominated in U.S.
dollars, because the Company conducts the majority of its transactions in this
currency. The application of Canadian GAAP would not result in material
adjustments to the accompanying financial statements, except for the impact of
the adoption of Statement of Financial Accounting Standards ("SFAS") No. 115, as
discussed in Note 6. The effect of foreign currency translation has been
immaterial.
(b) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of North American Vaccine, Inc. and its subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.
(c) PERVASIVENESS OF ESTIMATES. The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from estimates.
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<PAGE>
(d) CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents consist primarily of commercial paper and
U.S. Treasury Bills.
(e) INVENTORIES. Inventories are stated at the lower of cost (first-in,
first-out) or market. Components of inventory cost include materials, labor, and
manufacturing overhead. Inventories consist of the following (in thousands):
1996 1995
---- ----
Raw Materials $1,518 $ 496
Work-in-process 162 -
Finished goods 102 -
------- ------
$1,782 $ 496
====== ======
(f) REVENUE RECOGNITION. Nonrefundable fees or milestone payments in
connection with research and development or collaborative agreements are
recognized when they are earned in accordance with the applicable performance
requirements and contract terms. Revenue from product sales is recognized when
all significant risks of ownership have been transferred, the amount of the
selling price is fixed and determinable, all significant related acts of
performance have been completed, and no other significant uncertainties exist.
In most cases, these criteria are met when the goods are shipped.
(g) RESEARCH AND DEVELOPMENT COSTS. The Company expenses all research
and development costs as incurred. Under Canadian GAAP, certain development
costs should be deferred to future periods if certain criteria are met. No costs
have been capitalized for Canadian GAAP purposes because the Company believes
that the applicable deferral criteria have not been met.
(h) DEPRECIATION AND AMORTIZATION. Depreciation of property, plant and
equipment, with the exception of leasehold improvements and an owned facility,
is provided using an accelerated method over the estimated useful lives of the
assets. The estimated useful lives are generally five to seven years for
machinery, equipment and laboratory fixtures. Leasehold improvements are
amortized over the term of the lease. The Company's owned facility is
depreciated on a straight line basis over twenty years.
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<PAGE>
(i) DEFERRED FINANCING COSTS. Deferred financing costs represent fees
and other costs incurred in connection with the issuance of the 6.5% convertible
notes. These costs are amortized over the term of the related debt using the
effective interest rate method. Total accumulated amortization through December
31, 1996 is $335,000.
(j) INCOME TAXES. The Company computes deferred tax assets or
liabilities based on the difference between the financial statement and income
tax bases of assets and liabilities using the enacted tax rate.
(k) NET LOSS PER COMMON SHARE. Net loss per common share is based upon
the weighted-average number of common shares outstanding during each period. The
effect of outstanding convertible preferred stock, convertible notes and options
on net loss per share is not included because it would be antidilutive.
(l) RECLASSIFICATIONS. Certain items in the prior year's consolidated
financial statements have been reclassified to conform with the presentation
used in the 1996 financial statements.
(4) PRODUCTION, DEVELOPMENT, AND MARKETING CONTRACTS
(a) AGREEMENTS WITH PASTEUR MERIEUX-CONNAUGHT. In the December 1995
clinical development agreement and license agreements with Pasteur
Merieux-Connaught, the parties agreed to jointly develop the Company's new
conjugate vaccine against meningococcus B for both adult and pediatric
indications. The Company recognized $3 million and $4 million of research and
development revenue for non-refundable payments made by Pasteur
Merieux-Connaught in 1995 and 1996, respectively, in connection with the
clinical development agreement. Further fees and funding will be made upon
achievement of development, clinical and regulatory milestones. In addition, the
Company will receive royalties on any product sales by Pasteur
Merieux-Connaught.
Under the clinical development agreement, the parties will jointly
develop the vaccine through Phase II clinical trials, and each party will have
access to and the right to use the clinical trial results. Pasteur
Merieux-Connaught will be responsible for all costs associated with the clinical
development of the meningococcus B vaccine through the completion of Phase II
clinical trials.
In order to become operational the license agreement must be ratified
by the National Research Council of Canada and the results of a pre-clinical
study must be deemed satisfactory. After the license agreement becomes
operational, Pasteur Merieux-Connaught will hold co-exclusive world-wide rights
- 67 -
<PAGE>
to manufacture and sell the meningococcus B vaccine both as a stand-alone
product and in combination with other vaccines. The Company will retain
co-exclusive world-wide rights to manufacture and sell the meningococcus B
vaccine both as a stand-alone product and in combination with other vaccines.
Pasteur Merieux-Connaught may elect to terminate the agreements at any time.
(b) AGREEMENT WITH ABBOTT LABORATORIES. In the fourth quarter of 1996,
the Company and Abbott signed an agreement under which Abbott would market
Certiva(TRADEMARK), the Company's DTaP vaccine, when approved by the FDA. The
marketing agreement also will allow Abbott to market the Company's DTaP-HIB,
DTaP- IPV and DTaP-IPV-HIB combination vaccines which are under development.
Abbott will market Certiva(TRADEMARK) and combination vaccines to
private physicians and managed care markets in the United States for
immunization of infants and children. The Company will market Certiva(TRADEMARK)
and the combination vaccines to government purchasers, including state
governments and the Centers for Disease Control and Prevention.
On execution of the agreement, the Company received $13 million of
which approximately $6.3 million represented payment for 350,000 shares of the
Company's common stock, and the balance represented a marketing fee and clinical
development funding. Amounts received for clinical development to be expended in
the future by the Company have been deferred. The Company and Abbott will
collaborate in the clinical development of the combination vaccines and Abbott
will provide the Company with clinical development funding. In addition, the
Company will receive payments upon achievement of prescribed milestones. The
agreement provides for total payments of up to $42 million by Abbott, including
the $13 million received upon execution. The first milestone relates to FDA
approval of Certiva(TRADEMARK) provided certain other conditions are satisfied.
In addition, the Company will receive revenues from Abbott as it purchases
Certiva(TRADEMARK) and the combination vaccine products for resale to the
private pediatric market.
(c) AGREEMENT WITH CHIRON BEHRING GMBH & CO. In the fourth quarter of
1996, the Company and Chiron Behring GmbH & Co. ("Chiron Behring") signed a
definitive agreement under which Chiron Behring would market the Company's DTaP
vaccine. The marketing agreement will also allow Chiron Behring to market the
Company's combination DTaP-IPV vaccine. Under terms of the agreement, Chiron
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<PAGE>
Behring will market the DTaP and DTaP-IPV vaccines in Germany and Austria
following appropriate regulatory approval. The agreement provides for an
up-front nonrefundable payment and future milestone payments. In addition, the
Company will receive revenues as it sells the vaccine products to Chiron Behring
for resale in its territory.
(d) PRODUCT SALES. In February 1996, the Swedish Medical Products
Agency granted regulatory approval to market a combined DTaP vaccine that
contains the Company's acellular pertussis vaccine for all primary and booster
doses. In September 1996, the Danish National Board of Health granted regulatory
approval to market a combined DTaP-IPV (polio) vaccine, which includes the
Company's acellular pertussis vaccine, for all primary and booster doses for
infants and children in Denmark. SSI markets the DTaP vaccine in Sweden, and the
DTaP-IPV vaccine in Denmark, and has indicated that it will file additional
applications for the acellular pertussis vaccine, both alone and in combination
with other antigens, in other countries within its territory. There can be no
assurance given that SSI will file such additional applications or that, if
filed, such applications will be approved by the appropriate regulatory
authorities.
Following the regulatory approvals described above, the Company has
recognized revenues from sale of its acellular pertussis vaccine. Additional
revenues from such product sales are dependent upon successful commercialization
of the DTaP vaccine in Sweden and the DTaP-IPV vaccine in Denmark and additional
product approvals of acellular pertussis products in other countries. The
Company does not control the marketing and distribution efforts of third party
distributors in their respective territories and, therefore, the Company's
revenues for product sales in those territories are dependent upon effective
sales, marketing and distribution efforts of such parties. There are no
assurances if or when further product approvals will be obtained, or that the
vaccines will be marketed and distributed effectively.
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<PAGE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were recorded at cost and consisted of
the following components:
As Of December 31,
------------------
1996 1995
---- ----
(in thousands)
Property, plant and equipment:
Land $ 498 $ 498
Building and improvements 2,407 2,014
Machinery, equipment and laboratory fixtures 41,405 17,764
Leasehold improvements 8,567 6,122
Office furniture, equipment and software 3,488 1,373
------- -------
56,365 27,771
Accumulated depreciation and amortization:
Building and improvements 129 22
Machinery, equipment and laboratory fixtures 10,728 5,847
Leasehold improvements 3,537 2,818
Office furniture, equipment and software 1,342 963
------- -------
15,736 9,650
------- -------
Property, plant and equipment, net $40,629 $18,121
======= =======
In 1994, the Company began modifications to its production facility
that were completed in 1995. In the third quarter of 1994, the Company
recognized a non-cash expense of approximately $1.8 million associated with
these modifications to its production facilities build-out plan. This expense
represents a write-off of property and equipment, previously capitalized
leasehold improvements and design costs. The original cost and accumulated
depreciation of the property and equipment written-off was approximately $4.9
and $3.1 million, respectively.
In 1996, the Company entered into an agreement which included the
assumption of a lease of a 35,000 square foot manufacturing facility and the
purchase and lease of equipment and leasehold improvements. See Note 8 for
further description of the transaction.
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<PAGE>
(6) INVESTMENTS IN AFFILIATES
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," equity securities classified as available-for-sale
are reported at fair value, with unrealized gains and losses reported as a
separate component of shareholders' equity. As a result, the Company's
investments in its affiliates are reflected at their current market value as of
December 31, 1996, and 1995, of $1.3, and $9.1 million, respectively (original
cost of $629,000 and $1.6 million, respectively).
In 1994, the Company sold 1.1 million shares of its investment in
BioChem stock (see Note 16). The gross proceeds and the realized gain from the
sales were $10.2 and $9.3 million, respectively. The Company also sold 200,000
shares of its investment in IVAX stock. The gross proceeds and the realized gain
from the sales were $3.6 and $2.7 million, respectively.
In 1995, the Company sold the remaining 695,936 shares of its
investment in BioChem stock. The gross proceeds and the realized gain from the
sales were $11.5 and $10.9 million, respectively. The Company also sold 156,916
shares of its investment in IVAX stock. The gross proceeds and the realized gain
from the sales were $4.3 and $3.5 million, respectively.
In 1996, the Company sold 193,084 shares of its investment in IVAX
stock. The gross proceeds and the realized gain from the sales were $5.2 and
$4.2 million, respectively. The historical cost of the remaining 125,000 shares
of IVAX common stock was $629,000 or $5.03 per share at December 31, 1996.
The market values of these securities as of December 31, 1996 and 1995,
as disclosed on the accompanying consolidated balance sheets, have been
determined based on the closing prices for registered securities of IVAX as of
those dates. The aggregate market value of the Company's remaining investment in
IVAX common stock at February 28, 1997, was approximately $1.5 million. These
investment securities are volatile and, therefore, are subject to significant
fluctuations in value.
(7) OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following components:
As Of December 31,
--------------------
1996 1995
---- ----
(In thousands)
Payroll and fringe benefits $1,114 $ 736
Accrued interest 999 --
Accrued consulting and professional fees 144 767
Reserve for contract loss 720 720
Accrued taxes 608 633
Accrued costs of clinical trials 421 574
Other accrued liabilities 247 471
Accrued construction costs 192 310
Deferred rent credit 95 85
------ ------
Total other current liabilities $4,540 $4,296
====== ======
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<PAGE>
(8) COMMITMENTS AND CONTINGENCIES
(a) OPERATING LEASES. The Company has a lease agreement for its
production facility through February 28, 1999. The Company has the option of
extending this lease for an additional ten years at the then fair market value.
Under the terms of the lease of this facility, the lessor reimbursed the Company
for $625,000 of improvements made to the property. This reimbursement has been
reflected as a deferred rent credit, which is being amortized over the term of
the lease. The lease provides for minimum annual escalations of the base rent.
These escalations are recorded as expense ratably over the term of the lease.
The Company has also leased office space through December 31, 1997,
with two three-year renewal options.
In December 1993, the Company signed a sublease agreement to rent space
for a research and development facility through April 30, 1998. In October 1996,
the Company signed a sublease agreement to rent additional space adjacent to the
existing research and development facility through April 30, 1998.
In November 1996, the Company assumed a lease to rent 35,000 square
feet of space for a development and production facility through February 1,
2001, with two five-year renewal options. The lease provides for minimum annual
escalations of the base rent.
Minimum future lease payments under all leases, exclusive of real
estate tax escalations, are as follows:
Years Ending
December 31,
--------------
(In Thousands)
1997 $1,514
1998 1,051
1999 652
2000 568
2001 71
------
Total $3,856
======
Total rent expense was $898,000; $812,000; and $742,000 in 1996, 1995, and 1994,
respectively.
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<PAGE>
(b) CAPITAL LEASE. In connection with the operating lease agreement
described above that was entered into in 1996, the Company also entered into an
agreement that included the purchase and lease of equipment and leasehold
improvements. The total acquisition cost was approximately $24.9 million, which
included a cash payment of $17.2 million. The balance of $7.7 million was
financed through an equipment lease obligation which expires in 2000. The
equipment lease has been accounted for as a capital lease for financial
reporting purposes, with monthly payments of approximately $179,000. Total
depreciation expense associated with equipment under the capital lease was
approximately $715,000 for 1996. Under the terms of the equipment lease, the
Company has a buyout option at the end of the third year for a predetermined
amount, and an option at the end of the fourth year at the greater of the fair
market value of the equipment or a predetermined amount. Under the equipment
lease agreement there are financial covenants that obligate the Company to
maintain certain minimum cash and investment balances, a minimum tangible net
worth and certain other financial ratios. The Company would be required to post
an irrevocable letter of credit for predetermined amounts at such time as the
Company is not in compliance with any of these financial covenants. Minimum
future lease payments are as follows:
Years Ending
December 31,
------------
(In Thousands)
1997 (includes interest of $646) $2,142
1998 (includes interest of $495) 2,142
1999 (includes interest of $329) 2,142
2000 (includes interest of $141) 2,552
------
Total 8,978
Less interest component (1,611)
------
Total principal payments $7,367
======
(c) CONTINGENCIES. In prior years, the Company was awarded various
cost-plus-fixed-fee contracts by the National Institute of Child Health and
Human Development ("NICHD"). Performance under these contract was completed in
1993. Provisional payments to the Company under cost-reimbursable contracts are
subject to adjustment upon completion of audits of reimbursable costs by the
NICHD. In the opinion of management, adjustments, if any, resulting from the
audits of the contracts are not expected to have a material adverse impact on
the Company's financial position or future results of operations.
The Company is, and from time to time becomes, involved in various
claims and lawsuits that are incidental to its business. In the opinion of the
Company's management, there are no material legal proceedings pending against
the Company.
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<PAGE>
(9) CONVERTIBLE SUBORDINATED NOTES
In May 1996, the Company completed an offering of 6.50% convertible
subordinated notes in the principal amount of $86.25 million due May 1, 2003.
The net proceeds from this offering were approximately $82.7 million. Interest
on the notes is payable semi-annually on May 1 and November 1 of each year. The
notes are convertible into common shares of the Company at the conversion price
of approximately $24.86 per common share. The notes are subordinated to present
and future senior indebtedness of the Company and will not restrict the
incurrence of future senior or other indebtedness by the Company. The notes are
redeemable, in whole or in part, at the option of the Company on or after May 1,
1999, at certain pre-established redemption prices plus accrued interest. Upon a
change in control, the Company is required to offer to purchase all or part of
the notes then outstanding at a purchase price equal to 100% of the principal
amount thereof, plus interest. The repurchase price is payable in cash or, at
the option of the Company, in common shares.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the Company's consolidated balance
sheets at December 31, 1996 and 1995, for cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximate fair values due
to the short maturity of those instruments. Management believes the carrying
value of the convertible subordinated notes and the capital lease obligation
approximates fair value.
(11) INCOME TAXES
The operations of the Company are taxed under Canadian income tax laws
and the operations of its United States branch are also taxed under United
States income tax laws subject to applicable treaty provisions for the avoidance
of double taxation. The Company's wholly owned subsidiaries, American Vaccine
and AMVAX, Inc., are both taxed under United States income tax laws.
For income tax reporting purposes in 1995 and 1994, the Company
realized a net gain in Canada and a net loss in the United States. In 1996, the
Company incurred a loss for income tax reporting purposes in Canada and the
United States. The Company had sufficient net operating loss carryforwards to
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<PAGE>
offset the 1995 and 1994 taxable income in Canada. Accordingly, no provision or
benefit for United States or Canadian income taxes has been recorded in the
accompanying financial statements. The components of the Company's net results
from operations for tax reporting purposes are:
1996 1995 1994
---- ---- ----
(in thousands)
United States $(14,736) $(11,973) $ (6,749)
Canada (4,753) 6,987 2,822
--------- --------- ---------
Total $(19,489) $ (4,986) $ (3,927)
========= ========= =========
The components of the net deferred tax assets consisted of:
As Of December 31,
---------------------------
1996 1995
-------- --------
(in thousands)
Deferred tax assets:
Net operating loss carryforwards $25,314 $23,221
Accrued intercompany interest 3,097 1,923
Depreciation and amortization 1,143 236
Reserve for contract loss 278 278
Deferred rent 81 112
Other 3,323 2,293
------- -------
Total deferred tax assets 33,236 28,063
Deferred tax liabilities:
Historical accrual to cash difference (2,235) (2,980)
Investments in affiliates (433) (6,250)
Other (85) (136)
-------- --------
Total deferred tax liability (2,753) (9,366)
-------- --------
Net deferred tax assets before allowance 30,483 18,697
Less: Valuation allowance (30,483) (18,697)
------- -------
Net deferred tax assets $ -- $ --
======= =======
The Company has determined that $30.5 million in 1996 and $18.7 million
in 1995 of net deferred tax assets do not satisfy the recognition criteria set
forth in SFAS No. 109. Accordingly, a valuation allowance was recorded against
the applicable net deferred tax assets.
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<PAGE>
At December 31, 1996, the Company had net operating loss carryforwards
of approximately $65.4 million. Of this consolidated total, approximately $9.9
million of the Company's net operating loss carryforwards are available to
offset future Canadian-sourced taxable income, if any. These loss carryforwards
expire between 1999 and 2003. Of the remaining balance, American Vaccine and
AMVAX had net operating loss carryforwards of approximately $54.6 million and
$911,000, respectively, available to offset future United States taxable income,
if any. These loss carryforwards expire between 2002 and 2011.
The net operating loss carryforwards available to be used in any given
year may be limited due to significant changes in ownership interests resulting
from future stock issuances or other changes in equity interests.
(12) INDEMNIFICATION AGREEMENT
In connection with the Merger described in Note 1, certain shareholders
of American Vaccine with significant ownership interests were required to file
gain recognition agreements with the United States Internal Revenue Service.
Under the terms of the gain recognition agreements, these shareholders have
agreed to amend their income tax returns for 1990 if the Company disposes of
substantially all of the stock or assets of American Vaccine within a ten-year
period. With those amended returns, the shareholders will be required to pay tax
based on the difference between their basis in American Vaccine stock and the
value, at February 28, 1990, of the Company stock received in the Merger, plus
interest from the time of the Merger to the disposition of American Vaccine
stock or assets by the Company.
In connection with the Merger, the Company entered into an
indemnification agreement with these shareholders of American Vaccine whereby
the Company will (i) lend to the affected shareholders, on an interest-free and
after-tax basis, an amount equal to the taxes to be paid with the amended tax
returns; and (ii) pay to the affected shareholders, on an after-tax basis, any
interest and penalties with respect to the taxes to be paid with the amended tax
returns. Under the terms of the indemnification agreement, repayment of the
loans described above will only be required at the time and to the extent that
the affected shareholders receive benefit from the resulting increase in the tax
basis of their Company stock. There can be no assurance that any such benefit
will be received.
The ultimate amount of this potential liability, if any, is not
presently determinable but will be based on the amount of gain, interest rates
in effect during the period, and the length of time between the consummation of
the Merger and the event triggering the gain recognition. Based on current
interest rates, the Company estimates that, in the event that the gain
recognition would have occurred at December 31, 1996, its obligations to the
affected shareholders could approximate $15.1 million.
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<PAGE>
(13) LICENSE AGREEMENTS
Certain of the conjugate vaccine-related technologies transferred to
the Company by BioChem in connection with the Merger are licensed under two
agreements with the National Research Council of Canada (the "NRC"), a Canadian
federal governmental agency. Under these license agreements, the Company will be
required to pay royalties to the NRC on all sales of such licensed products and
related services. Certain minimum annual royalties are payable irrespective of
the volume of sales of such products and services. BioChem has agreed to
reimburse the Company for 10 percent of these minimum annual royalties. The NRC
has the right to terminate the license agreements under certain specified
conditions including if it concludes that all reasonable efforts are not being
used to develop and commercialize the technologies.
The Company has a license agreement with the National Technical
Information Service (the "NTIS"), an agency of the United States government, to
bring the method of preparing the acellular pertussis vaccine to the point of
practical application. In return, the NTIS granted an exclusive license to make,
have made, use and sell the vaccine following approval of commercial sale by the
FDA. Under the agreement, the Company will pay to the NTIS an annual maintenance
fee and a royalty based on sales or other similar dispositions of the vaccine.
The exclusive rights under this agreement will terminate seven years from the
date of the first commercial sale of the vaccine. The Company has acquired a
royalty-bearing exclusive license for the use of this patented technology in
certain foreign jurisdictions for the full term of the patents.
(14) SHAREHOLDERS' EQUITY
(a) PREFERRED STOCK. Preferred shares are nonvoting (other than as
required by law) and may be issued in one or more series. Shares of Series A
preferred stock are convertible, at the option of the holder, into common stock
on the basis of two shares of common stock for each share of preferred stock
held. The preferred stock had a liquidation preference of Can. $2.50 per share
or U.S. $3.6 million in the aggregate at December 31, 1996. The conversion ratio
is subject to adjustment for certain dilutive events.
(b) 1990 SHARE OPTION PLAN. In 1990, the Company adopted the North
American Vaccine, Inc. Share Option Plan (the "1990 Plan"), which, as amended,
provided for the issuance of up to 3,650,000 shares of its common stock to
officers, directors, employees and consultants. The 1990 Plan, which expired in
February 1995, provided that options be granted at no less than market value on
the date of grant. In 1996 the Company extended the expiration date for options
to purchase 540,000 shares of common stock previously granted under this plan.
These options have been accounted for as new grants under the plan. The fair
market value of the Company's stock on the new grant date was less than the
exercise price of these options. Subsequent to December 31, 1996, the Company
extended the expiration date for an option to purchase 150,000 shares of common
stock previously granted under this plan, at an exercise price of $11.13. This
option will be accounted for as a new option under this plan. The fair market
value of the Company's common stock on the new grant date was greater than the
exercise price of the options, which will result in compensation expense to the
Company in 1997.
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<PAGE>
(c) 1995 SHARE OPTION PLAN. In 1995, the Company adopted the North
American Vaccine, Inc. 1995 Share Option Plan (the "1995 Plan"), which provides
for the issuance of up to 1,000,000 shares of its common stock to officers,
directors, employees and consultants. The 1995 Plan, which expires in March
2000, provides that options be granted at no less than market value on the date
of the grant and may have a term of up to 10 years.
The following table summarizes option activity outside of any formal
stock option plan and under both the 1990 Plan and the 1995 Plan for the period
from December 31, 1993, through December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------------
1990 Plan 1995 Plan Non-Plan Exercise Wtg.Avg.
Options Options Options Price Exer.price
------- ------- ------- ----- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,218,294 -- 1,610,788 $ 1.19-12.88 $ 6.30
Granted 150,000 -- -- 9.88-13.63 12.38
Exercised (149,536) -- (1,252,350) 1.19-12.88 3.38
Expired or canceled (100,203) -- -- 9.00-12.88 10.74
---------- --------- ---------- ------------ ------
Balance at December 31, 1994 2,118,555 -- 358,438 1.19-13.63 8.15
Granted 172,500 505,000 -- 9.13-14.13 12.44
Exercised (487,688) -- (11,562) 1.19- 2.00 1.84
Expired or canceled (156,467) -- -- 1.81-12.88 11.83
---------- --------- ---------- ----------- ------
Balance at December 31, 1995 1,646,900 505,000 346,876 1.56-14.13 10.34
Granted 540,000 18,500 -- 12.88-21.50 13.16
Exercised (428,231) -- (231,252) 1.56-12.88 7.08
Expired or canceled (558,987) (24,000) -- 9.13-13.88 12.82
---------- --------- ---------- ------------ ------
Balance at December 31, 1996 1,199,682 499,500 115,624 $ 2.92-21.50 $11.59
========== ========= ========== ============ ======
</TABLE>
At December 31, 1996, under the 1990 Plan, options to purchase an
aggregate of 1,049,633 common shares were exercisable at prices ranging from
$9.00 to $13.63 per share (weighted average exercise price per share of $11.68),
and no options were available for grant. At December 31, 1996, under the 1995
Plan, options to purchase an aggregate of 168,235 common shares were exercisable
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<PAGE>
at prices ranging from $11.25 to $13.88 per share (weighted average exercise
price per share of $13.57), and 500,500 options were available for grant.
Subsequent to year end, options to acquire an additional 110,000 shares were
granted under this plan at an exercise price of U.S. $24.50.
In addition, non-plan options to purchase an aggregate of 57,812 shares
of common stock were exercisable at December 31, 1996, at a price of $2.92 per
share. The weighted average per share grant date fair value of options granted
during 1996 and 1995 for the 1990 plan was $5.11 and $4.53 respectively. The
weighted average per share grant date fair value of options granted during 1996
and 1995 for the 1995 plan was $10.59 and $8.40 respectively.
(d) 1990 NON-EMPLOYEE DIRECTOR AND SENIOR EXECUTIVE STOCK OPTION PLAN
("1990 SESOP") . In 1990, the Company adopted the 1990 SESOP, which, as amended,
provided for the issuance of up to 1,850,000 shares of its common stock to all
the Company's non-employee directors, and senior executives who are residents of
Canada. Under the 1990 SESOP, which expired in October 1995, options were
granted automatically to each non-employee director annually on January 1. The
1990 SESOP required that the exercise price must not be less than the market
value of the stock at the date of grant. Options issued to non-employee
directors under the 1990 SESOP are exercisable in Canadian currency, vest
ratably over a period of three years and expire five years from the date of
grant. Upon a change of control of the Company, all outstanding stock options
granted under the 1990 SESOP become fully exercisable.
(e) 1995 NON-EMPLOYEE DIRECTOR AND SENIOR EXECUTIVE STOCK OPTION PLAN
("1995 SESOP"). In 1995, the Company adopted the 1995 SESOP, which provides for
the issuance of up to 500,000 shares of its common stock to all the Company's
non-employee directors, and its senior executives who are residents of Canada.
Under the 1995 SESOP, which expires in March 2000, options are granted
automatically to each non-employee director annually on January 1. The 1995
SESOP requires that the exercise price must not be less than the market value of
the stock at the date of grant. Options issued to non-employee directors vest
ratably over a period of three years and expire ten years from the date of
grant. Upon a change of control of the Company, all outstanding stock options
granted under the 1995 SESOP become fully exercisable.
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<PAGE>
The following table summarizes option activity under the 1990 SESOP
plan and the 1995 SESOP plan from December 31, 1993 through December 31, 1996:
<TABLE>
<CAPTION>
1990 Plan 1995 Plan Exercise Price Wtg.Avg.
Options Options Can.$ U.S. $ Exer.price(U.S.)
----------- --------- --------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 1,030,002 -- $ 1.40-15.10 $1.02-11.02 $ 5.29
Granted 130,000 -- 14.56 10.62 10.62
Exercised (110,000) -- 1.40- 1.88 1.02- 1.37 1.11
Expired or canceled (50,000) -- 12.88-15.10 9.40-11.02 10.61
--------- ------- ------------ ----------- ------
Balance at December 31, 1994 1,000,002 -- 1.40-15.10 1.02-11.02 6.17
Granted 120,000 -- 11.75 8.57 8.57
Exercised (420,002) -- 1.40- 1.88 1.02- 1.37 1.21
--------- ------- ------------ ----------- ------
Balance at December 31, 1995 700,000 -- 1.88-15.10 1.37-11.02 9.56
Granted -- 130,000 -- 14.13 14.13
Exercised (199,999) -- 1.88-15.10 1.37-11.01 8.47
Expired or canceled (10,001) (10,000) 11.75-14.56 8.58-14.13 11.69
--------- -------- ------------ ----------- ------
Balance at December 31, 1996 490,000 120,000 $11.75-15.10 $8.58-14.13 $10.82
========= ======== ============ =========== ======
</TABLE>
At December 31, 1996, under the 1990 SESOP, 379,992 options were
exercisable at prices ranging from Can. $11.75 to Can. $15.10 (U.S. $8.57 to
U.S. $11.02) per share (weighted average U.S. price of $10.24) and no options
were available for grant under the 1990 SESOP. At December 31, 1996, under the
1995 SESOP, there were no exercisable options to purchase shares of common
stock, and 380,000 options were available for grant. Subsequent to year end,
options to acquire an additional 130,000 shares were granted under this plan at
an exercise price of U.S. $24.38. The weighted average per share grant date fair
value of options granted during 1995 for the 1990 SESOP plan was $3.91. The
weighted average per share grant date fair value of options granted during 1996
for the 1995 SESOP plan was $10.58.
(f) STOCK BASED COMPENSATION PLANS. The Company applies the intrinsic
value based method of accounting pursuant to APB Opinion No. 25, "Accounting For
Stock Issued To Employees," and related interpretations for option grants under
its stock based compensation plans. Accordingly, no compensation cost has been
recognized in the accompanying financial statements. Had compensation cost for
the Company's four stock option plans been determined on the fair value based
method of SFAS 123, "Accounting for Stock-Based Compensation," at the grant
dates for awards under these plans, the Company's net loss and loss per share
for 1996 and 1995 would have been $23.9 million or a loss of $0.78 per share and
$6.7 million or a loss of $0.22 per share, respectively.
- 80 -
<PAGE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
Pursuant to SFAS 123, the fair value of each option grant is estimated
on the date of grant using a Black- Scholes option pricing model with the
following weighted average assumptions used for grants in 1996, and 1995,
respectively: risk-free interest rates of 6.04 to 7.59 percent for the 1990 Plan
options, 5.26 to 6.49 for the 1995 Plan options, 7.79 percent for the 1990 SESOP
options and 5.21 percent for the 1995 SESOP options; no expected dividend
yields; expected lives of 4 years for the 1990 Plan options, between 5 and 6
years for the 1995 Plan options, 4 years for the 1990 SESOP options, and 8 years
for the 1995 SESOP options; and expected volatility of 78 percent. Of the
2,424,806 options outstanding at December 31, 1996, 1,655,672 options have a
weighted average remaining contractual life of approximately 2 years. All of
these options are exercisable. The remaining 769,134 options have a weighted
average remaining contractual life of approximately 6 years.
(15) RETIREMENT AND SAVINGS 401(k) PLAN AND TRUST
The Company's Retirement and Savings 401(k) Plan and Trust ("the Plan")
became effective April 1, 1991. The Plan is a qualified profit-sharing plan with
a cash or deferred compensation arrangement and discretionary matching
contributions. Under the Plan, eligible employees may elect to contribute to the
Plan by salary deferrals up to an annual limit, which is the lesser of 20
percent of a participant's annual compensation or the maximum allowed by law,
and the Company may contribute matching amounts as provided by the Plan. Salary
deferrals and matching contributions are vested immediately. The Company's
matching expense, contributed in the form of the Company's common stock, was
$200,000, $135,000, and $109,000 for 1996, 1995, and 1994, respectively.
The Company may elect to make additional contributions to the Plan,
from its current or accumulated net profits, in the form of a profit sharing
contribution. This discretionary contribution will be made for all eligible
participants regardless of whether such participants make any salary deferrals
for that plan year. Profit sharing contributions are vested ratably over a five
year period. From inception of the Plan, the Company has not made a profit
sharing contribution.
- 81 -
<PAGE>
The Plan provides for an overall limitation with respect to the amount
of contributions (including company match, if any) which can be allocated to any
participant in any plan year. This limitation is the lesser of 25 percent of a
participant's annual compensation or the maximum allowed by law.
(16) RELATED-PARTY TRANSACTIONS
Pursuant to the terms of the technology transfer agreement executed by
the Company and BioChem at the time of the Merger, the companies shared in the
expenses of researching and developing the subject vaccine technologies,
including expenses related to obtaining applicable patent rights. In January
1995, BioChem exercised its option under the technology transfer agreement to
terminate this joint arrangement. BioChem's portion of the expenses including
reimbursements for its share of minimum annual royalties as discussed in Note
12, was $2,200, $20,000, and $496,000 in 1996, 1995, and 1994, respectively. In
addition, BioChem paid certain expenses for the development of the conjugate
vaccine technologies transferred to the Company in the Merger, subject to
reimbursement by the Company. The Company's portion of these expenses was $0,
$0, and $1,200 in 1996, 1995, and 1994, respectively, and are included in
research and development in the accompanying consolidated statements of
operations. In 1994 the Company also received $336,000 from BioChem for its
share of the costs of a withdrawn public offering.
In 1994 the Company sold 1,100,000 shares of common stock of BioChem
held by the Company as investment securities since 1990. The sale of these
investment securities was pursuant to a negotiated transaction at a discount of
approximately 10 percent from the then trading price of that stock. The sales
were made to thirteen purchasers, several of whom were directors of the Company.
All sales were made at the same price per share.
In the Merger, as discussed in Note 1, the Company and Biochem granted
to each other a one time demand registration right (with expenses to be paid by
the party exercising the registration right) and certain piggy-back registration
rights, through January 17, 1995. In connection with a proposed offering of the
Company's stock in 1994 by both BioChem and the Company, which offering was
later withdrawn at BioChem's request, BioChem's one-time demand registration
right was extended through January 17, 1998.
- 82 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item 10 is incorporated by reference
to the discussion under the headings "Election of Directors," "Identification of
Senior Management" and "Security Ownership of Certain Beneficial Owners and
Management - Section 16(a) Beneficial Ownership Reporting Compliance" as set
forth in the Company's 1997 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item 11 is incorporated by reference
to the discussion under the heading "Executive Compensation" and "Election of
Directors - Compensation of Directors" set forth in the Company's 1997 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
---------------------------------------------------
The information required by this Item 12 is incorporated by reference
to the discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" set forth in the Company's 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this Item 13 is incorporated by reference
to the discussion under the heading "Certain Transactions" set forth in the
Company's 1997 Proxy Statement.
- 83 -
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
-------------------------------------------------------
a) DOCUMENTS FILED AS PART OF FORM 10-K.
-------------------------------------
The following documents are filed as part of this Annual Report on Form
10-K:
1. FINANCIAL STATEMENTS: PAGE
Report of Independent Public Accountants 56
Consolidated Balance Sheets as of
December 31, 1996 and 1995 57
Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995 and 1994 58
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1996,
1995 and 1994 59
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 60
Notes to Consolidated Financial Statements 62
2. FINANCIAL STATEMENT SCHEDULES:
None Required.
3. EXHIBITS: See Exhibit Index on page 86.
(b) REPORTS ON FORM 8-K.
--------------------
None.
- 84 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, North American Vaccine, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
NORTH AMERICAN VACCINE, INC.
Dated: March 10, 1997 By: /s/ Sharon Mates
------------------
Sharon Mates, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of North
American Vaccine, Inc. in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ Sharon Mates March 10, 1997
- -------------------------
Sharon Mates, Ph.D.
President
Principal Financial Officer And
Principal Accounting Officer:
/s/ Lawrence J. Hineline March 10, 1997
- --------------------------
Lawrence J. Hineline
Vice President-Finance
<TABLE>
<CAPTION>
A Majority Of The Board Of Directors:
<S> <C> <C> <C>
/s/ Francesco Bellini March 10, 1997 /s/ Rondi R. Grey March 3, 1997
- -------------------------- --------------------------
Francesco Bellini, Ph.D. Rondi R. Grey
/s/ Alain Cousineau March 10, 1997 /s/ Lyle Kasprick March 10, 1997
- -------------------------- --------------------------
Alain Cousineau Lyle Kasprick
/s/ Jonathan Deitcher March 10, 1997 /s/ Francois Legault March 3, 1997
- -------------------------- --------------------------
Jonathan Deitcher Francois Legault
/s/ Denis Dionne March 3, 1997 /s/ Sharon Mates March 10, 1997
- -------------------------- --------------------------
Denis Dionne Sharon Mates, Ph.D.
/s/ Neil W. Flanzraich March 10, 1997 /s/ Richard C. Pfenniger, Jr. March 10, 1997
- -------------------------- ---------------------------
Neil W. Flanzraich Richard C. Pfenniger, Jr.
/s/ Phillip Frost March 10, 1997
- --------------------------
Phillip Frost, M.D.
</TABLE>
- 85 -
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2.1 Master Agreement, dated October 25, 1989, among North American Vaccine,
Inc. ("NAV"), American Vaccine Corporation ("American Vaccine") and IAF
BioChem International, Inc. ("BioChem"). (1)
2.2 Agreement and Plan of Merger, dated as of October 25, 1989, among NAV,
American Vaccine and NAVA Acquiring Corp. (1)
2.3 Share Purchase Agreement, dated January 17, 1990, between NAV and
BioChem. (1)
2.4 Technology Transfer Agreement, dated January 17, 1990, between NAV and
BioChem. (1)
3.1 Articles of Incorporation of NAV, as amended. (1)(5)
3.2 Restated Bylaws of NAV. (2)
4.2 Specimen Certificate for NAV Common Shares. (1)
4.3 Specimen Certificate for NAV Preferred Shares. (1)
9.1 Shareholders' Agreement, dated January 17, 1990, among BioChem, Phillip
Frost, M.D., IVAX Corporation ("IVAX") and Frost-Nevada, Limited
Partnership ("Frost-Nevada"). (1)
10.1 License Agreement, dated July 27, 1987, between Canadian Patents and
Development Limited ("CPDL") and BioChem [with certain confidential
information deleted therefrom]. (1)
10.2 License Agreement, dated June 27, 1988, between CPDL and BioChem [with
certain confidential information deleted therefrom]. (1)
10.3 Agreement, dated April 6, 1989, between AMVAX, Inc. ("AMVAX") and the
National Institute of Child Health and Human Development ("NICHD"). (1)
10.4 License Agreement, dated March 25, 1988, between National Technical
Information Service ("NTIS") and Selcore Laboratories, Inc.,
predecessor to AMVAX ("Selcore") [with certain confidential information
deleted therefrom]. (1)
- 86 -
<PAGE>
Exhibit
No. Description
- ------- -----------
10.5 Second Amended and Restated Patent License Agreement, dated March 12,
1992, between Ronald D. Sekura, Ph.D., and AMVAX [with certain
confidential information deleted therefrom]. (5)
10.6* North American Vaccine, Inc. Share Option Plan, as amended. (7)
10.9 Form of Indemnification Agreement among NAV, American Vaccine, IVAX,
Frost-Nevada and Ronald D. Sekura, Ph.D. (1)
10.12 Lease Agreement dated December 31, 1987, as amended, between Selcore
and Indian Creek Holding Associates Limited Partnership. (1)
10.13 Modification No. 11 to Contract with NICHD dated January 31, 1991 [with
certain confidential information deleted therefrom]. (3)
10.14 Supply Agreement between AMVAX and Statens Seruminstitut dated March
26, 1991 [with certain confidential information deleted therefrom]. (3)
10.16 Supply Agreement between AMVAX and Statens Seruminstitut dated March
26, 1991 [with certain confidential information deleted therefrom]. (3)
10.17 Research, Development and License Agreement between AMVAX and Statens
Seruminstitut dated March 26, 1991 [with certain confidential
information deleted therefrom]. (3)
10.18* Non-Employee Director and Senior Executive Stock Option Plan, as
amended. (7)
10.19 Modification No. 12 to Contract with NICHD dated April 1, 1992 [with
certain confidential information deleted therefrom]. (6)
10.20 Contract dated April 9, 1992 with NICHD [with certain confidential
information deleted therefrom]. (6)
10.21 Modification No. 13 to Contract with NICHD dated September 24, 1992
[with certain confidential information deleted therefrom]. (7)
10.22 Amended and restated master agreement dated June 20, 1994 among NAV,
BioChem, IVAX, D&N Holding Company, Frost-Nevada and Phillip Frost.
(10)
10.23 Share exchange agreement dated April 20, 1994 between NAV and BioChem.
(8)
10.24 Construction Agreement dated July 18, 1994 between AMVAX and The
Whiting-Turner Contracting Company. (9)
- 87 -
<PAGE>
Exhibit
No. Description
- ------- -----------
10.25* North American Vaccine, Inc. 1995 Share Option Plan. (11)
10.26* North American Vaccine, Inc. 1995 Non-Employee Director and Senior
Executive Stock Option Plan. (12)
10.27 Clinical Development Agreement dated December 22, 1995 between NAV and
Pasteur Merieux SJrums et Vaccins ("PMSV") [with certain confidential
information deleted therefrom]. (13)
10.28 License Agreement dated December 22, 1995 between NAV and PMSV [with
certain confidential information deleted therefrom]. (13)
10.29 Indenture dated May 7, 1996 between NAV and Marine Midland Bank. (14)
10.30 Registration Rights Agreement dated May 1, 1996 between NAV, Goldman,
Sachs & Co. and UBS Securities LLC. (14)
10.31 Exclusive Distribution Agreement between Abbott Laboratories ("Abbott")
and NAV dated October 11, 1996 [with certain confidential information
deleted therefrom]. (15)
10.32 Stock Purchase Agreement dated October 11, 1996 between Abbott and NAV.
(15)
10.33 Assets Purchase Agreement dated October 17, 1996 among NAV, Cephalon
Property Management, Inc. ("CPMI") and Cephalon, Inc. [with certain
confidential information deleted therefrom]. (15)
10.34 Assignment and Assumption of Leases dated November 12, 1996 between
CPMI and NAV.
10.35 Master Agreement dated November 1, 1996 between NAV and General
Electric Capital Corporation [with certain confidential information
deleted therefrom].
21 Subsidiaries. (4)
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
__________________________
* Management contract or compensatory plan or arrangement.
(1) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form S-4 Registration Statement
(File No. 33-31512) filed with the Securities and Exchange Commission
and declared effective on January 24, 1990.
(2) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-Q Quarterly Report for
the Quarter Ended June 30, 1990 (File No. 1-10451).
- 88 -
<PAGE>
(3) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-K Annual Report for the
Year Ended December 31, 1990 (File No. 1-10451).
(4) This exhibit is incorporated herein by this reference to Exhibit 22 in
the Company's Form 10-K Annual Report for the Year Ended December 31,
1990 (File No. 1-10451).
(5) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-K Annual Report for the
Year Ended December 31, 1991 (File No. 1-10451).
(6) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-Q Quarterly Report for
the Quarter Ended March 31, 1992 (File No. 1-10451).
(7) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-K Annual Report for the
Year Ended December 31, 1992 (File No. 1-10451).
(8) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-Q Quarterly Report for
the Quarter Ended March 31, 1994 (File No. 1-10451).
(9) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-Q Quarterly Report for
the Quarter Ended June 30, 1994 (File No. 1-10451).
(10) This exhibit is incorporated herein by this reference to the Exhibit
99.1 in the Company's Registration Statement on Form S-3 (Registration
No. 33-78002) filed with the Securities and Exchange Commission and
withdrawn from registration on November 23, 1994.
(11) This exhibit is incorporated herein by this reference to the Exhibit
4.1 in the Company's Registration Statement on Form S-8 (Registration
No. 33-80479) filed with the Securities and Exchange Commission and
effective as of December 15, 1995.
(12) This exhibit is incorporated herein by this reference to the Exhibit
4.2 in the Company's Registration Statement on Form S-8 (Registration
No. 33-80479) filed with the Securities and Exchange Commission and
effective as of December 15, 1995.
(13) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-K Annual Report for the
Year Ended December 31, 1995 (File No. 1-10451).
- 89 -
<PAGE>
(14) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-Q Quarterly Report for
the Quarter Ended March 31, 1996 (File No. 1-10451).
(15) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-Q Quarterly Report for
the Quarter Ended September 30, 1996 (File No. 1-10451).
- 90 -
Exhibit 10.34
ASSIGNMENT AND ASSUMPTION OF LEASES
-----------------------------------
THIS ASSIGNMENT AND ASSUMPTION OF LEASES ("Assignment") is entered
into as of the 12th day of November, 1996, by and between CEPHALON PROPERTY
MANAGEMENT, INC., a Delaware corporation ("Assignor") and NORTH AMERICAN
VACCINE, INC., a Canadian corporation ("Assignee"). For good valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties covenant and agree as follows:
1. ASSIGNMENT. Assignor hereby assigns, transfers and sets over
unto Assignee, and Assignee hereby accepts, all of Assignor's right, title and
interest in and to (i) that certain Lease dated December 28, 1990 and Addendum
thereto, (ii) that certain Lease dated November 12, 1991 and Addendum thereto
and (iii) that certain Lease dated March 20, 1992 and Addendum thereto, each as
amended by that certain Amendment to Leases dated November 12, 1992 and by that
certain letter dated December 29, 1992, copies of which are attached hereto as,
respectively, Exhibits "A"-"E" and made a part hereof (collectively as amended,
"Leases"), each between TR Muirkirk Corp., successor-in-interest to Muirkirk
Manor Associates Limited Partnership, as landlord, and Assignor, assignee of Bio
Science Contract Production Corp., as tenant, which Leases pertain to Suites
260, 270, 280 and 290, 9000 Virginia Manor Road, Park Place, Beltsville, Prince
George's County, Maryland ("Premises"). This Assignment includes an assignment
to Assignee of all rights in and to all security deposits paid by Assignor under
the Leases, all allowances and amounts available for lessee improvements to the
Premises, and all refunds of rent or additional rent paid by Assignor under the
Leases.
2. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants
to Assignee that: (a) Assignor is the tenant under the Leases and the sole
occupant of the Premises, (b) the Leases are the only leases or agreements
whereby any person has been granted the right to use or occupy the Premises or
any part thereof, (c) Assignor has not previously assigned the Leases or sublet
the Premises and has received no notice of a prior assignment, hypothecation or
pledge of the Leases or the rent payable thereunder, (d) there exists no default
by Assignor or to Assignor's knowledge, the landlord, under the Leases, and, to
the best of Assignor's knowledge, no event, fact or circumstance which, with the
giving of notice or the passage of time, or both, would constitute a default
thereunder, (e) the security deposits due under the Leases have been paid in
full, the amount of the security deposits has not been reduced to Assignor's
knowledge, and Assignor's interest in the security deposits has not been
previously pledged, assigned or otherwise transferred, (f) the copies of the
Leases which are attached hereto are true, correct and complete and constitute
the entire agreement between Assignor and the landlord under the Leases, (g)
there are no actions or proceedings, whether voluntary or involuntary, pending
with respect to Assignor under any bankruptcy, insolvency, debt adjustment or
similar law of the United States or any state thereof, (h) to Assignor's
knowledge, the landlord under the Leases has fulfilled all of its
representations, warranties and agreements under the Leases, and (i) the
construction and installation of all "lessee improvements" to the Premises have
<PAGE>
been completed in all respects in accordance with the Leases, there are no
payments due the landlord under the Leases or any other party from Assignor or
due Assignor from the landlord under the Leases in connection with any such
work, and the amount of $0.00 remains available for use in completing such work.
3. PERFORMANCE. Assignor shall be responsible for the observance
and performance of all agreements and obligations of the "Lessee" under the
Leases arising prior to the Effective Date (defined below). Assignee, and not
Assignor, shall be responsible for the observance and performance of all
agreements and obligations of the "Lessee" under the Leases arising on or after
the Effective Date.
4. EFFECTIVE DATE. Notwithstanding anything to the contrary
contained herein, this Assignment shall not become effective until such date
("Effective Date"), if ever, that Assignor and Assignee (i) enter into an Assets
Purchase Agreement providing for Assignee's acquisition of certain assets of
Assignor located on the Premises and (ii) consummate the transactions
contemplated thereunder.
5. INDEMNITIES. Assignor shall defend, protect, indemnify and save
harmless Assignee from and against any and all liabilities, suits, actions,
losses, damages, costs and expenses, including, without limitation, counsel fees
and court costs, suffered or incurred by Assignee resulting from or relating to
any failure by Assignor to observe or perform any of its agreements or
obligations under the Leases prior to the Effective Date. Assignee shall defend,
protect, indemnify and save harmless Assignor and Cephalon, Inc. from and
against any and all liabilities, suits, actions, losses, damages, costs and
expenses, including, without limitation, counsel fees and court costs, suffered
or incurred by Assignor or Cephalon, Inc. resulting from or relating to any
failure by Assignee to observe or perform any of its agreements or obligations
under the Leases accruing at or after the Effective Date.
6. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Assignment shall be
binding upon and inure to the benefit of Assignor and Assignee and their
respective successors and assigns.
7. FURTHER ASSURANCES. At Assignee's request, Assignor will execute
and deliver such documents and instruments and take such other actions as may be
requested reasonably from time to time by Assignee as necessary, appropriate or
desirable to carry out, evidence and confirm the intended purposes of this
Assignment.
8. GOVERNING LAW. This Assignment shall be governed by and
interpreted and enforced in accordance with the laws of the State of Maryland,
without giving effect to conflicts or laws principles.
- 2 -
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written.
ATTEST: CEPHALON PROPERTY MANAGEMENT, INC.
/s/ Barbara S. Schilberg By:/s/ J. Kevin Buchi
- -------------------------- ---------------------
Name: Barbara S. Schilberg Name: J. Kevin Buchi
-------------------- ---------------
Title: Assistant Secretary Title: Vice President
------------------- ---------------
(Corporate Seal)
ATTEST: NORTH AMERICAN VACCINE, INC.
/s/ Russell P. Wilson By:/s/ Daniel J. Abdun-Nabi
- --------------------- ------------------------
Name: Russell P. Wilson Name: Daniel J. Abdun-Nabi
--------------------- --------------------
Title: Assistant Secretary Title: Senior Vice President
------------------- - Legal Affairs
---------------------
(Corporate Seal)
- 3 -
<PAGE>
EXHIBIT "A"
FIRST LEASE
-----------
LEASE
-----
(PARK PLACE)
THIS LEASE, made as of this 28th day of December, 1990, by and between
MUIRKIRK MANOR ASSOCIATES LIMITED PARTNERSHIP, a Maryland Limited partnership
("Lessor"), and BIO SCIENCE CONTRACT PRODUCTION CORP., a Maryland corporation,
("Lessee").
W I T N E S S E T H:
-------------------
That in consideration of the rent and mutual covenants and agreements
contained herein, and intending to be legally bound hereby, Lessor and Lessee
agree as follows:
1. DEMISED PREMISES
----------------
The Lessor leases to the Lessee all of that certain space
described as Suite No. 290, 9000 Virginia Manor Road, containing approximately
14,200 square feet of gross leasable area, as is outlined in red on the plat
attached to and made a part of this Lease as Exhibit "A" (the "Leased
Premises"), and located in Park Place, Prince George's County, Maryland. Lessor
shall construct and complete the Leased Premises in compliance with the plans
and specifications set forth in Exhibit "B" attached hereto and made part
hereof. "Delivery of Possession" of the Leased Premises by Lessor to Lessee
shall be deemed to have been made when Lessor's architect certifies in writing
that construction of the Leased Premises shall have been completed.
2. TERM
----
The term (the "Term") of this Lease shall be for a term of Ten
(10) years, commencing on the 1st day of March, 1991, (the "Commencement Date")
and shall expire on the last day of February, 2001. If the Term of the Lease
does not begin on the date specified herein for reasons other than the fault of
Lessee, then the expiration date shall be moved for the commensurate amount of
the delay and the rent shall be prorated accordingly. If the term commences or
ends in mid-month, the rent payable for that month (including, without
limitation, Additional Rent) shall be prorated and paid on the date of
commencement or termination.
3. RENT
----
(a) The rent (the "Base Rent") shall be:
- 4 -
<PAGE>
Year Square Foot Rate
---- ----------------
1 $ 6.75
2 $ 7.75
3 $ 8.75
4 $ 9.50
5 $ 10.00
6 $ 10.30
7 $ 10.61
8 $ 10.93
9 $ 11.26
10 $ 11.59
The term "Lease Year" shall mean each twelve (12) month period during the term
of this Lease commencing on the Commencement Date. The Base Rent shall be
payable, in advance, in equal monthly installments, the first monthly
installment to be due and payable on the Commencement Date and each subsequent
monthly installment to be due and payable on the first day of each and every
month thereafter during the term of this Lease.
(b) All moneys payable by Lessee under the terms of this Lease,
other than Base Rent, as adjusted from time to time, shall be deemed "Additional
Rent."
(c) Lessee shall make all payments of Base Rent and Additional
Rent on a timely basis, without demand and without deduction, setoff or
counterclaim, except as expressly permitted in Paragraph 29(b) hereof. All
payments of Rent and Additional Rent shall be made by good and valid check,
payable to The Anastasi Stephens Group, Inc., agent, 4483 Forbes Boulevard,
Lanham, Maryland 20706, or to such other party or to such other address as
Lessor may designate from time to time by written notice to Lessee. If Lessor
shall at any time or times accept Base Rent or Additional Rent after it shall
become due and payable, such acceptance shall not excuse delay upon subsequent
occasions, or constitute, or be construed as, a waive of any or all of Lessor's
rights hereunder. If any payment of Base Rent or Additional Rent is not made
within ten (10) days of when due, a late charge of five percent (5%) of the
amount of such payment shall be imposed, Lessor shall be entitled to require the
payment of Base Rent and Additional Rent by certified check if the check for any
payment by Lessee shall be dishonored by its Bank.
(d) Except for the obligations of Lessor expressly set forth
herein, this Lease is a "net lease" and Lessor shall receive the Base Rent
hereinabove provided as net income from the Leased Premises, not diminished by
any imposition of any expenses or charges required to be paid to maintain and
carry the Leased Premises or to continue the ownership of Lessor, other than
payments under any mortgages now existing or hereafter created by Lessor, and
Lessor is not and shall not be required to render any services of any kind to
Lessee.
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4. SECURITY DEPOSIT
----------------
(a) Lessee has, simultaneously with the execution of this Lease,
deposited with Lessor, in cash or by check subject to collection, the sum of Ten
Thousand and No/100 Dollars ($10,000.00). Said deposit shall be held as security
for the faithful performance by Lessee of the terms, covenants, provisions and
conditions of this Lease. It is agreed that in the event Lessee defaults in
respect to any of the terms, covenants, provisions and conditions of this Lease,
including (but not limited to) the payment of Base Rent or Additional Rent, and
fails to cure any such defaults within applicable grace periods, Lessor may use,
apply or appropriate the whole or any part of the security so deposited to the
extent required for the payment of any Base Rent or Additional Rent or for the
curing of any defaults by Lessee hereunder pursuant to Paragraph 29 hereof;
provided, however, that no such use, application, or appropriation of the
deposit shall be deemed to relieve Lessee of any breach of this Lease and shall
be in addition to other remedies under this Lease.
(b) Should the entire deposit or any portion thereof be
appropriated and applied by Lessor under the foregoing provisions, then Lessee
shall (upon the written demand of Lessor) forthwith remit to Lessor a sufficient
amount in cash to restore said security to the original sum deposited, and
Lessee's failure to do so within ten (10) days after receipt of such demand
shall itself constitute an event of default under this Lease.
(c) The security deposit (less any amounts applied as provided in
subsection (a) above) shall be returned to Lessee within thirty (30) days after
the date fixed as the end of the Term of this Lease and delivery of entire
possession of the Leased Premises to Lessor.
(d) In the event of a sale, leasing or other transfer of the land
and building of which the Leased Premises forms a part, Lessor shall have the
right to transfer the security and be released by Lessee from all liability for
the return of such security deposit. Lessee shall look to the new Lessor solely
for the return of said deposit. The provisions of this Paragraph 4(d) shall
apply to every transfer or assignment made of the security deposit to a new
Lessor.
(e) Lessee covenants that it will not assign or encumber or
attempt to assign to encumber the security deposited herein and that neither
Lessor nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
(f) Lessee shall not be entitled to any interest on the security
deposit, and such funds need not be segregated or held as escrow by Lessor.
(g) It is expressly understood and agreed that, in the event of
any termination of this Lease or re-entry upon or reletting of the Leased
Premises on account of any default on the part of Lessee under this Lease, then,
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and in such event, the deposit shall be retained and be subject to appropriation
by Lessor until this Lease would, by its terms, have expired absent such
default.
5. USE
---
Lessee will use and occupy the Leased Premises solely for the
purpose of Offices and operation of a vaccine research and production facility.
The Leased Premises may not be used for any other purpose without the prior
written consent of Lessor, which consent shall not be unreasonably withheld. The
Leased Premises shall not be used for the storage, distribution or sale of any
pornographic or "adult rated" materials. Lessee shall not use the Leased
Premises for any purpose or activity which is noxious or unreasonably offensive
because of the emission of noise, smoke, dust, vibration or odors. Tenant shall
not use the plumbing facilities for any purpose injurious to same or dispose of
any garbage or any other foreign substance therein, nor place a load on any
floor in the Leased Premises exceeding the floor load of 250 per square foot
which such floor was designed to carry, nor install, operate and/or maintain in
the Leased Premises and heavy equipment which could cause injury to the Lease
Premises, nor install, operate and/or maintain in the Leased Premises any
electrical equipment which will overload the electrical system therein, or any
part hereof, beyond its capacity for proper and safe operation as determined by
the Lessor or which does not bear underwriter's approval. Lessee shall not use
the Leased Premises in any manner or for any purpose which violates any rule,
regulation, law, ordinance, or requirements of any governmental agency.
6. TAXES
(a) As additional rent hereunder, at least thirty (30) days
before any fine, penalty or interest or cost may be added thereto for the
non-payment thereof (or sooner if elsewhere herein required), Lessee shall pay
throughout the term of this Lease all levies, taxes, assessments, water and
sewer rents and charges, liens, charges for public utilities and all other
charges, imposts or burdens of whatsoever kind and nature which at any time
during the term of this Lease may be assessed or imposed by any federal, state
or municipal government or public authority, or under any law, ordinance
regulation thereof or pursuant to any recorded covenants or agreements (all of
which are hereinafter referred to as "Impositions"), upon or with respect to the
Leased Premises, any improvements made thereto, or this Lease. Additionally,
Lessee shall pay a proportionate share of any imposition which is not imposed
upon the Leased Premises as a separate entity but which is imposed upon the land
or the building or upon the appurtenances, leases, rents, transactions or
documents relating to the lot or the building. Provided, however, that any
imposition shall be apportioned for the first and last fiscal tax years covered
by the term hereof. "Impositions" shall include, but not be limited to, any and
all governmental or quasi-governmental levies, fees, assessments, taxes and
charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, of any kind and nature whatsoever, with respect to such land and
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building (excluding taxes paid on Lessor's income but including sales tax or
excise tax imposed by any governmental authority upon the Base Rent payable by
Lessee hereunder).
(b) Notwithstanding the foregoing provisions of this Article 6,
Lessor shall have the right, at its option, to require Lessee to pay to Lessor
or to any mortgagee, at the time when the monthly installment of Base Rent is
payable, an amount equal to one-twelfth (1/12) of the annual Impositions as
estimated by Lessor. If Lessor elects to have Lessee make such payments, Lessee
also shall pay to Lessor or to such mortgagee, as the case may be, at least
thirty (30) days before any fine, penalty, interest or cost may be added thereto
for the non-payment thereof, the amount by which the Impositions becoming due
exceed the monthly installment payments on account thereof previously made by
Lessee. Should Lessee's monthly installment payments on account of Lessee's
share of Impositions for any tax year exceed the actual amount of Lessee's share
of such Impositions, the excess amount shall be credited against Lessee's
installments for Impositions thereafter becoming due. The amounts paid by Lessee
pursuant to this paragraph (b) shall be used to pay the Impositions, but such
amounts shall not be deemed to be trust funds and no interest shall be payable
thereon.
(c) During any part of the Term of this Lease which shall be less
than a full tax fiscal year, any Taxes shall be pro rated on a daily basis
between the parties, to the end that Lessee only shall pay its share of Taxes
attributable to the portion of the tax fiscal years occurring within the term of
this Lease.
(d) Lessee shall pay promptly, and when due, all taxes, fees,
licenses, assessments and other charges levied or imposed upon the business of
the Tenant or upon any fixtures, furnishings or equipment in the Leased
Premises.
(e) If due to a future change in the method of taxation or in the
taxing authority, a franchise, gross receipts, transit, rent or other tax or
other governmental imposition, however designated, shall be levied against
Lessor in substitution (in whole or in part) for, or in addition to, said
"Impositions" as currently defined), then such franchise, gross receipts,
transit, rent or other tax or governmental Impositions shall be deemed to be
included within the definition of "Impositions" for the purposes of this Lease.
The term "Impositions" also includes all costs reasonably incurred in any
proceeding brought by Lessor to reduce said Taxes.
(f) Lessor may institute any proceedings with respect to the
assessed valuation of Park Place or any part thereof, and Lessee shall cooperate
with, and participate in, any and all such proceedings. If, after Lessee shall
have made the required payment of Taxes hereunder, Lessor shall receive a refund
of any portion thereof, then, within thirty (30) days after Lessor's receipt of
such refund, Lessor shall pay to Lessee Lessee's pro rata share of the amount of
the refund, less all costs and expenses (including, but not limited to,
attorneys' and appraiser' fees) expended for incurred in obtaining such refund.
Lessee may not institute any proceedings with respect to the assessed valuation
of Park Place or any part thereof.
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7. UTILITIES
---------
Starting with the Commencement Date and continuing throughout the Term
of this Lease, Lessee shall be solely responsible for and shall pay, as and when
the same become due and payable and as hereinafter provided, all rents, rates,
costs and charges for water services, sewer service, electricity, gas, heat,
steam, power, telephone (and other communication services), and any other
utilities or services rendered or supplied to, upon or in connection with, or
used or consumed within or in servicing, the Leased Premises, and all other
utility costs and expenses involved in the use of the Leased Premises throughout
the term of this Lease, and Lessee shall indemnify Lessor and save Lessor
harmless against any costs liability or damages on such account. Unless
otherwise agreed in writing by Lessor or Lessee, Lessee shall, promptly upon
Delivery of Possession of the Leased Premises and at Lessee's own expense, pay
for the installation of separate meters for all utilities servicing the Leased
Premises and place said meters and related utility accounts in Lessee's own
name. Lessee shall pay all separately metered charges to the respective public
utility companies. With respect to each utility which is not separately metered
for the Leased Premises, Lessee shall pay Lessor, as Additional Rent, Lessee's
proportionate share of the total cost and fees therefore attributable to those
areas of the warehouse/office buildings which are not separately metered.
8. COMMON AREA MAINTENANCE
-----------------------
(a) Subject to the provisions of this Lease, Lessor grants to
Lessee, its employees, agents, customers and invitees during the Term hereof the
non-exclusive use, in common with Lessor and other tenants and occupants of Park
Place and their respective employees, agents, customers and invitees and in
common with such others as Lessor may designate from time to time, of all
non-allocated parking areas within Park Place for pedestrian and vehicular
ingress and egress and the accommodation and parking areas within Park Place for
pedestrian and vehicular ingress and egress and the accommodation and parking
automobiles as required by the Lessee in conducting normal business activities
of Lessee within the Leased Premises. Lessor reserves the right, however, to
designate certain portions of the parking areas within Park Place for parking of
trucks, vans, and other vehicles, and to designate for the specific account of
Lessee, or other tenants in Park Place, specific parking areas or spaces
constructed within Park Place. Notwithstanding anything contained in this Lease
to the contrary, Lessor shall have the right, at any time and from time to time,
to change the size, location and nature of the parking areas (so long as the
number of parking spaces is not reduced) and/or other common areas within Park
Place. All parking areas and related facilities which may be furnished by Lessor
in or near the Leased Premises, including employee parking areas, truck way or
ways, loading docks, pedestrian sidewalks and ramps, landscaped areas, and other
areas and improvements which may be provided by Lessor for the general use, in
common with Lessor and other tenants, and their respective employees, agents,
customers and invitees, shall at all time be subject to the exclusive control
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and management of Lessor, and Lessor shall have the right, from time to time, to
establish, modify and enforce reasonable rules and regulations with respect to
all parking areas and other facilities and areas mentioned in this paragraph.
Lessee agrees to abide by and conform with all such rules and regulations upon
notice thereof and to cause its employees, agents, customers and invitees to do
the same. Lessor shall have no liability to Lessee for use of the parking areas
by Lessor or other tenants and occupants of Park Place and their respective
employees, agents, customers, or other third parties. No provision of this Lease
shall be construed as a demise to Lessee of the parking or any other common
area) within Park Place. If any repairs (excluding repairs caused by Lessee's
normal use) to the parking or other common areas within Park Place are
necessitated by reason of any act or omission by Lessee or its employees,
agents, customers or invitees, then, if Lessor chooses to do so, Lessor may make
such repairs and Lessee shall promptly upon demand reimburse Lessor for the full
costs to the extent same are not covered by Lessor's insurance, or at Lessor's
option, Lessor may notify Lessee of the necessity for such repairs, and Lessee,
at its cost and expense, shall, with due diligence, commence and complete to
Lessor's satisfaction the repairs within ten (10) days of Lessee's receipt of
such notice.
(b) "Common Area Charges" means all of the costs and expenses
which are incurred by Lessor with respect to operation, management, maintenance
and security of the building including the parking and other designated common
areas in Park Place and the exterior walls of the buildings in Park Place, and
those areas of Park Place which house mechanical, electrical or other equipment
or are otherwise determined from time to time by Lessor to be used in operating
or maintaining Park Place. "Common Area Charges" include, but are not limited
to, the cost of maintaining, repairing, and replacing and repaving (when
necessary) the parking and other designated common areas; supplies, tools and
materials purchased and/or used in connection with repairs, maintenance and/or
replacements; wages, salaries, and fringe benefits of all employees of the
Lessor for the portion of time they are directly engaged in the operation,
maintenance and security of Park Place, including license and fees (but
excluding wages, salaries and benefits of executive employees); removing snow,
ice, and debris from the roadways and parking areas for Lessee's use during
normal business hours; removal of customary and normal trash; maintaining and
repairing or repainting (when necessary) directional signs, pavement markings,
and parking lot striping; repairing and replacing (when necessary) outdoor
lighting facilities; maintaining the grass and otherwise caring for the
replanting (when necessary) all shrubbery and landscape areas; providing such
security as Lessor, in its sole discretion, deems advisable; accounting and
legal fees for common areas at Park Place; utilities, heating, ventilation and
air-conditioning charges allocable to designated common areas and other building
service areas.
(c) Starting with the Commencement Date and continuing throughout
the Terms of this Lease, Lessee shall pay Lessor in advance as hereinafter
described and as Additional Rent, Lessee's Pro-Rata Share of all Common Area
Charges for said period. "Lessee's Pro-Rata Share" shall be a fraction, the
numerator of which shall be the floor area within the Leased Premises and the
denominator of which shall be the total floor area within all buildings in Park
Place. The Initial Lessee's Pro-Rata Share shall be 8%.
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<PAGE>
(d) On or before the Commencement Date, on or before the end of
each and every Lease year, and at such other time(s) as is deemed desirable by
lessor in its sole discretion, Lessor shall forward to Lessee a "Common Area
Charges Statement", which shall contain Lessor's latest estimate of the Common
Area Charges for the then current or the then upcoming (as the case may be)
Lease Year, and a statement of Lessee's Pro-Rata Share thereof. Landlord's
failure to forward, or to timely forward, any Common Area Charges Statement
shall not excuse Lessee from its liability for Lessee's Pro-Rata Share of Common
Area Charges.
(e) Each month during the Term of this Lease, along with each
monthly installment of Base Rent, beginning with the Commencement Date, Lessee
shall pay to Lessor, in advance, an amount equal to one-twelfth (1/12th) of
Lessee's Pro-Rata Share of the Common Area Charges as set forth in the then
latest Statement. If the Commencement Date is a day other than the first day of
a calendar month, then the amount of Common Area Charges due for the first month
and the last month of the Term shall be pro rated on the basis of a thirty (30)
day month. As soon as practicable near the end of each and every Lease Year, but
no later than 90 days after the end of the Lease year, Lessor shall submit to
Lessee an "Actual Common Area Charges Statement" prepared by Lessor showing what
the Common Area Charges for the then preceding Lease Year actually were. With
the next monthly installment of Base Rent due after Lessee's receipt of such
Statement, Lessee shall pay Lessor or Lessor shall credit Lessee, as the case
may be the difference between Lessee's Pro-Rata Share of the actual Common Area
Charges for said Lease Year as shown on said Statement and the total of all
Common Area Charges paid by Lessee to Lessor for said Lease Year.
9. NON-LIABILITY OF LESSOR
-----------------------
(a) Except as otherwise expressly provided in this Lease or
unless caused by the negligence or intentional misconduct of Lessor or Lessor's
employees, agents and contractors while acting within the scope of their
employment, Lessor shall not be responsible or liable to Lessee for any loss or
damage to persons or property, or any interference or interruption of Lessee's
use of the Leased Premises, that may be occasioned by (i) water, gas, steam,
wind or the bursting, stoppage or leaking of any pipes, sewer or water lines, or
other conduits, fixtures or equipment; (ii) the interruption of any utility
services to the Leased Premises caused by the utility company; (iii) any
repairs, alterations, maintenance or additions to the Leased Premises or land
and building of which they are a part; (iv) any casualty; (v) theft or other
criminal conduct; or (vi) the acts or omissions of persons occupying any space
adjacent to the Leased Premises.
(b) No provisions of this lease shall be deemed to confer any
rights upon any persons or entities other than the parties to this Lease,
permitted successors and assigns and mortgages.
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(c) Notwithstanding anything to the contrary provided in this
Lease, it is specifically understood and agreed that there shall be absolutely
no personal liability on the part of Lessor, including partners in Lessor and
their respective successors and assigns, with respect to its performance or
observance of any of the terms, covenants and conditions of this Lease, and that
Lessee shall look solely to the equity of the Lessor in the land and building of
which the Leased Premises form a part for the satisfaction of each and every
remedy of Lessee in the event of any breach by Lessor of any of the terms,
covenants and conditions of this Lease to be performed or observed by Lessor,
such exculpation of personal liability to be absolute and without any exception
whatsoever.
(d) If Lessor shall fail to comply fully with any of its
obligations under this Lease, Lessee may seek and enforce specific performance
of the Lease against Lessor and pursue such other equitable remedies as may be
available to Lessee. Notwithstanding the foregoing, the result of such action
shall be subject to the provisions of Paragraph 9(c) hereof.
10. INDEMNITY
---------
Lessee agrees to indemnify and save Lessor harmless from and
against any and all claims, demands, costs and expenses (including, but not
limited to, reasonable attorneys' fees and litigation costs) for, or in
connection with, any accident, injury or damage whatsoever to any person or
property (i) arising directly or indirectly out of Lessee's use or occupation of
the Leased Premises, (ii) occurring in, on or about the Leased Premises or on
the sidewalks adjoining the same, or (iii) arising directly or indirectly from
any act or omission of Lessee or any of Lessee's licenses, servants, agents,
employees or contractors. The foregoing indemnity shall not apply to any such
claim or demand proximately caused by the negligence or misconduct of Lessor, or
its employees, agents and contractors while acting within the scope of their
employment.
11. LIABILITY INSURANCE
-------------------
(a) Lessee, at Lessee's sole expense, shall obtain and maintain
in effect at all times starting with the Commencement Date and continuing
throughout the term of this Lease, a policy or policies of comprehensive general
public liability insurance, insuring Lessor, Lessor's mortgagee(s) and Lessee
against any liability for injury, death or property damage occurring upon, in or
about any part of the Leased Premises or any appurtenances thereto, affording
protection to the limits of not less than One Million Dollars ($1,000,000.00)
with respect to bodily injury or death of any one person, and not less than
Three Million Dollars ($3,000,000.00) with respect to any one incident, and not
less than Five Hundred Thousand Dollars ($500,000.00) with respect to property
damage. The foregoing minimum limits may, at Lessor's option and upon thirty
(30) days' notice to Lessee, be increased from time to time to reflect inflation
or changed conditions.
(b) The insurance policy(ies) required to be procured by Lessee
under this Lease:
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(i) Shall be issued by a reputable insurance company licensed to
do business in the State of Maryland and shall have such form and content as
shall be approved by Lessor.
(ii) Shall be written as primary policy coverage and not
contributing with, or in excess of, any coverage which Lessor may carry.
(iii) Shall have an endorsement thereto to the effect that no act
or omission by Lessee shall affect the obligation of the insurer to pay Lessor
the full amount of any loss sustained by Lessor and shall contain an express
waiver of any right of subrogation by the insurance company against Lessor, its
agents and employees.
(iv) Shall name Lessor as an additional named insured.
(c) On or before the Commencement Date, and at least fifteen (15)
days before the expiration date of the policy, Lessee shall deliver to Lessor a
certificate of insurance evidencing the existence and good standing of the
liability policy referred to in Paragraph 11(a), together with evidence of
payment of all premiums. The insurance required to be carried under this Lease
may be carried under a blanket policy covering the Leased Premises and other
locations of Lessee. The insurance policy required to be carried by Lessee shall
provide that such insurance policy shall not be canceled unless Lessor and
Lessor's mortgagee(s) shall have received thirty (30) days' prior written notice
of cancellation. In the event that Lessee shall, prior to the thirtieth (30th)
day before any insurance policy will lapse or terminate, fail to furnish
evidence of the coverage and pay the premium therefor for a period not exceeding
one year, and the premiums so paid by Lessor shall be payable by Lessee, on
demand, as Additional Rent.
12. HAZARD INSURANCE
----------------
(a) Starting with the Commencement Date and continuing throughout
the Term of this Lease, Lessee shall pay to Lessor, or such other party as
Lessor shall designate by written notice to Lessee, as Additional Rent, Lessee's
Pro-Rata Share, as defined in Paragraph 12(e) hereof, of the premiums and other
charges (the "Premiums") that may be incurred or contracted for or by Lessor for
fire and casualty insurance coverage for the land and buildings of which the
Leased Premises form a part, including protection from such perils as may be
insured against under a broad form extended coverage endorsement or on all risk
of physical loss policy, and further including loss of rental coverage in an
amount equal to the Rent for one (1) Lease Year. The premiums for all insurance
to be obtained by Lessor under this Paragraph 12(a) shall be reasonably
competitive with the premiums charged for similar insurance protection by
reputable insurers for comparable properties. Lessee agrees that it will not
store gasoline or other explosive, flammable or toxic material in the Leased
Premises or do anything which may cause Lessor's insurance company to void the
policy covering the Leased Premises or to increase the premium thereon, and that
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Lessee will immediately conform to all rules and regulations from time to time
made or established by Lessor's insurance company or insurance rating bureau.
Lessor will do everything reasonably possible and consistent with the conduct of
Lessee's business to obtain the lowest possible rates for insurance on the
Leased Premises. If, however, the cost to Lessor of obtaining insurance on the
Leased Premises (or the building which the Leased Premises are located) is
increased due to the Lessee's occupancy thereof, and the Lessor's insurer
provides evidence that said increase is the direct cause of Lessee's occupancy,
Lessee agrees to pay, promptly upon demand, as additional rental, any such
increase.
(b) On or before the Commencement Date and before the due date of
each and every bill for the Premiums, Lessor shall forward to Lessee an
"Insurance Statement" which shall contain an estimated statement of the amount
due from Lessee from time to time as Lessee's Pro-Rata Share of the Premiums.
Lessor's failure to forward, or to timely forward, any Insurance Statement shall
not excuse Lessee from its liability for Lessee's Pro-Rata Share of the
Premiums.
(c) Each and every month during the Term of this Lease, along
with its monthly installment of Fixed Rent, beginning on the Commencement Date,
Lessee shall pay Lessor an amount equal to one-twelfth (1/12) of Lessee's
Pro-Rata Share of the Premiums as set forth in the then latest Insurance
Statement, which shall be credited toward Lessee's Pro-Rata Share of the
Premiums when the same are due and payable. Should Lessee's monthly installment
payments on account of Lessee's Pro-Rata Share of the Premiums for the period to
which the Premiums relate exceed the actual amount of Lessee's Pro Rata Share of
such Premiums, the excess amount shall be credited against Lessee's installments
for Premiums thereafter becoming due. If the Commencement Date is other than the
first day of a period to which the Premiums relate, then the installments of the
Premiums due from the Lessee shall be pro rated on the basis of a thirty (30)
day month.
(d) Notwithstanding the provisions of Paragraph 12(c) above,
Lessor may, upon ten (10) days' written notice to Lessee, require Lessee to pay
Lessee's Pro- Rata Share of the necessary increased Premiums due to Lessee's
occupancy at such times as the Premiums are due and payable to the respective
insurance company or companies or in such manner as is required of Lessor under
any mortgage, whether such payments be in lump sum or other installments.
(e) Lessee's Pro-Rata of the Premiums shall be of all the
Premiums due for the land and building of which the Leased Premises form a part.
As used in this Paragraph 12, "Lessee's Pro Rata Share" shall be a fraction, the
numerator of which shall be the floor area within the Leased Premises and the
denominator of which shall be the total floor area within the building of which
the Leased Premises form a part.
(f) Lessor hereby releases Lessee from any liability and
responsibility to Lessor to anyone claiming through or under Lessor by way of
subrogation or otherwise, for any and all loss or damage to the Leased Premises
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caused by fire or any casualty covered by insurance to the extent insurance
proceeds are received therefor, even if such fire or other casualty shall have
been caused by the fault or negligence of Lessee, or anyone for whom Lessee may
have been responsible. Lessor's insurance policies shall include appropriate
clauses (i) waiving all rights of subrogation against Lessee with respect to
losses payable under such policies, and (ii) agreeing that such policies shall
not be invalidated should the insured waive in writing prior to a loss any and
all rights of recovery against the other party hereto for losses covered by such
policies.
13. DAMAGE TO THE DEMISED PREMISES
------------------------------
(a) In the event of partial or total damage or destruction of the
Leased Premises by fire, other casualty, or any cause whatsoever (except
condemnation), Lessee shall give immediate notice to Lessor. If the damage or
destruction is insured against by Lessor, this Lease shall continue in full
force and effect, and, to the extent that insurance proceeds respecting such
damage or destruction are subject to being utilized and, in fact, may be
utilized by Lessor for repair, Lessor shall cause such damage or destruction to
be repaired with reasonable speed at the expense of Lessor, except as otherwise
hereinafter provided in this Paragraph 13. If in the reasonable opinion of
Lessor the damage or destruction is such that repair thereof cannot reasonably
be completed within ninety (90) days of the date the damage or destruction
occurs, Lessor shall have the right to terminate this Lease by the giving of
written notice to such effect to Lessee within thirty (30) days of the date of
Lessor's receipt of Lessee's notice of damage or destruction. In no event shall
Lessor be required to restore or repair Lessee's personal property or other
contents within the Leased Premises. Due allowance shall be made for reasonable
delay which may arise by reason of Lessor's adjustment of loss under insurance
policies and on account of labor troubles or any other cause beyond Lessor's
control. To the extent that the Leased Premises are rendered untenantable, the
Rent and Additional Rent shall proportionately abate. If the damage or
destruction is not covered by insurance maintained by Lessor or if insurance
proceeds respecting the damage or destruction are not subject to being utilized
for repair and, in fact, may be not so utilized, Lessor shall not be required to
repair the damage or destruction. In the event the damage or destruction is so
extensive to the building of which the Leased Premises are a part as to render
it uneconomical, in Lessor's opinion, to restore the Leased Premises, the Lease,
at the option of Lessor, shall be terminated upon written notice to Lessee and
Lessee shall immediately thereafter vacate the Leased Premises and surrender the
same to Lessor. No such termination shall release Lessee from any liability to
Lessor from any of the obligations or duties imposed on Lessee under this Lease
prior to the damage. Upon any termination of this Lease pursuant to his
Paragraph 13(a), Rent and Additional Rent shall be prorated and adjusted to the
date of such termination.
(b) Lessee hereby waives any and all right of recovery which it
might otherwise have against Lessor, its agents and employees, for loss or
damage to Lessee's contents, furniture, furnishings, fixtures and other property
removable by Lessee under the provisions of this Lease to the extent that the
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same is to be covered by Lessee's insurance thereunder, except where such loss
or damage may result from the negligence of fault of Lessor, its agents,
employees or contractors.
14. EMINENT DOMAIN
--------------
(a) If during the term of this Lease, the Leased Premises, or such
a substantial portion of the Leased Premises as shall prevent Lessee from
conducting its normal business, shall be taken by proper authority for public or
quasi-public use, then Lessee may terminate this Lease by giving Lessor written
notice of termination within thirty (30) days after receipt of notice of the
taking, and Lessee's obligation to pay rent, taxes, and other charges shall
terminate as of the date of the termination notice. If only a part of the Leased
Premises is taken and the part not taken shall be reasonably sufficient for the
purpose of conducting Lessee's normal business, this Lease shall remain in full
force and effect, except that the Rent and Additional Rent shall be
proportionately reduced.
(b) All compensation awarded for any taking shall belong to and be
the property of Lessor. Nothing contained herein, however, shall be construed to
preclude Lessee from prosecuting any claim directly against the condemning
authority for loss of business or depreciation, damage or cost of removal of
personal property belonging to Lessee so long as the claim does not diminish or
otherwise adversely affect Lessor's award or the award otherwise payable to
Lessor's mortgagee.
15. CONDITION OF LEASED PREMISES; MAINTENANCE AND REPAIR
----------------------------------------------------
(a) Except for the repairs that Lessor is specifically obligated
to make under Paragraph 15(b) hereof, and except for repairs covered by
contractor warranties held by Lessor for Lessor's benefit, during the term of
this Lease, Lessee, at Lessee's sole cost and expense, shall promptly make all
repairs, perform all maintenance, perform all custodial services and make all
replacements in and to the Lease Premises that are necessary in order to keep
the Leased Premises in good order and repair and in a safe and tenantable
condition. Without limiting the generality of the foregoing, Lessee, at its sole
cost and expense, is specifically required to make promptly all repairs to (i)
any pipes, water and waste lines, ducts, wires or conduits beneath or in the
Leased Premises or within the ceiling of the Leased Premises; (ii) any glass
windows included within the Leased Premises; (iii) Leasee's sign(s); (iv) any
electrical, natural gas (if any), heating, ventilating and air conditioning,
plumbing, and other systems, equipment, fixtures and items installed in or
servicing the Leased Premises; (v) the floors, ceilings and walls of the Leased
Premises; (vi) the entrance and exit and auxiliary driveways, if any, which are
part of and service the Leased Premises; and (vii) any portion of the Leased
Premises damaged by Lessee's use or occupancy of the Leased Premises or by any
act, omission or negligence of Lessee, or any of its respective employees,
agents, invitees, licensees or contractors. All repairs, and replacements made
by Lessee shall utilize materials and equipment which are at least equal in
quality and usefulness to those originally used in the Leased Premises. Lessee,
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at Lessee's expense, shall enter into one (1) or more service contracts for the
maintenance of the heating, ventilating and air conditioning systems and
equipment. Lessee shall keep the Leased Premises free of all insects, rodents,
vermin and pests of every type and kind. Lessee shall also, promptly and at its
own expense, keep any sidewalks and curbs adjacent to the Leased Premises clean
and free from snow, ice, dirt and rubbish. Lessee shall not (directly or by
sufferance) place any equipment, materials or debris on the roof of the Leased
Premises, or cut, drive nails into or otherwise mutilate such roof.
(b) Lessor shall within thirty (30) days (or such longer period of
time as may reasonably be required by Lessor) after written notice from Lessee
with respect thereto, make necessary structural repairs to the exterior walls
and shall keep in good order, condition and repair the exterior foundations,
downspouts, gutters and roof of the Leased Premises and the portion of the
plumbing and sewage system located outside the building in which the Leased
Premises are located (it being understood and agreed that Landlord's obligations
exclude the exterior and interior of all windows, doors, plate glass and signs,
and repairs required by any casualty except as otherwise covered by Paragraph 13
herein). Lessee shall, upon demand, reimburse Lessor for reasonable costs of
making any such repairs or replacements caused by Lessee's use or occupancy of
the Leased Premises or by any act, omission or negligence of Lessee, any
subtenant or concessionaire of Lessee, or their respective employees, agents,
invitees, licensees or contractors (excluding repairs or replacements caused by
Lessee's normal use).
(c) Lessee hereby covenants to contain all garbage, rubbish,
waste, trash and debris generated in conjunction with its use of the Leased
Premises in containers provided by Lessor (which shall be emptied no more than
three times per week, but at least once a week) so as not to constitute a safety
or fire hazard.
16. ALTERATIONS
-----------
Lessee shall not make any non-structural interior alterations,
additions or improvements in or to the Leased Premises without the prior written
consent of Lessor in each instance, which consent shall not be unreasonably
withheld or delayed. Lessee shall not take any structural or exterior
alterations, additions or improvements to the Leased Premises without the prior
written consent of Lessor. Should Lessor fail to respond within fifteen (15)
working days after Lessor's receipt of any written request from Lessee for
Lessor's consent to any proposed alterations, additions or improvements,
Lessor's consent shall be deemed to have been granted. All permitted
alterations, additions and improvements made by Lessee shall be performed (i) in
a good and workmanlike manner, (ii) in accordance with all applicable legal and
insurance requirements, (iii) only after receipt by Lessee and presentation to
Lessor of all necessary permits and licenses, and (iv) at Lessee's sole expense.
Except for Lessee's removable trade fixtures, and all improvement made by Tenant
in the processing and storage areas, all improvements, repairs, alterations and
additions and all other non-trade fixtures, whether installed before or after
the execution of this Lease, shall remain upon the Leased Premises at the
expiration or sooner termination of this Lease and become the property of Lessor
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without payment therefor by Lessor, unless prior to the termination of this
Lease, Lessor shall have given written notice to Lessee to remove the same, in
which event Lessee, at its expense, will remove such alterations, improvements,
additions and/or fixtures and repair and restore any and all damage to the
Leased Premises caused by the installation and/or removal thereof.
17. SIGNS
-----
Lessee may not install any sign without Lessor's prior written
consent. All signs shall be in strict compliance with the sign criteria set
forth in Exhibit "C" attached hereto and made part hereof. Lessee shall install
all exterior signs for the Leased Premises at the cost and expense of Lessee. No
sign, advertisement or notice shall be inscribed, painted, affixed or otherwise
displayed on any part of the outside or the inside of the Leased Premises or the
building of which the Leased Premises are a part, unless Lessor shall have
approved the sign, advertisement, or notice in writing prior to installation of
the same. If any sign, advertisement, or notice is exhibited by Lessee without
having first obtained Lessor's approval thereof, Lessor shall have the right to
remove the same and Lessee shall be liable for any and all expenses incurred by
Lessor in said removal. No signs made of paper and visible from outside of the
Leased Premises shall be allowed in the Leased Premises. No mobile sign, such as
may be affixed to the side of a truck or a trailer or a mobile platform shall be
permitted in the parking area.
18. LAWS AND INSURANCE STANDARDS
----------------------------
Lessee shall, at Lessee's sole expense, promptly comply in every
respect with all applicable laws, ordinances, rules and regulations of all
federal, state, county, and municipal governments now in force or that may be
enacted in the future, all applicable and enforcement directions, rules and
regulations of the fire marshall, health officer, building inspector or other
proper officers of any governmental agency having jurisdiction, and the
applicable standards established from time to time by the National Board of Fire
Underwriters, the National Fire Protective Association, or any similar bodies.
Lessee expressly covenants and agrees to indemnify and save Lessor harmless from
any penalties, damages or charges imposed for any violation of the foregoing.
Notwithstanding the foregoing, Lessee shall not be required to make any changes
or modifications to the Leased Premises, unless (a) the same are required due to
Lessee's specific use and/or occupancy of the Leased Premises, (b) the same are
required due to structural specifications (beyond building standard) required by
Lessee, or (c) the same relate to repairs, maintenance or other responsibilities
of Lessee under this Lease, e.g., Paragraph 15(a) hereof.
19. MECHANIC'S LIENS
----------------
Lessee shall do all things necessary to prevent the filing of any
mechanics' or other liens against the Leased Premises, or the land the building
of which the Leased Premises are part, by reason of work, labor, services or
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materials supplied or claimed to have been supplied to Lessee or anyone holding
the Leased premises, through or under Lessee. If any lien shall at any time be
filed, Lessee shall either cause the lien to be discharged of record within ten
(10) days after knowledge of its filing or, if Lessee in its discretion and good
faith determines that the lien should be contested, shall furnish such security
as may be necessary to prevent the filing of any foreclosure proceedings during
the pendency of the contest. If Lessee shall fail to discharge any lien within
such period or fail to furnish such security, then, in addition to any other
right or remedy, Lessor may, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge of
lien by deposit in court or by giving security or in such other manner as is or
may be prescribed by law. Lessee shall repay to Lessor on demand all sums
disbursed or deposited by Lessor pursuant to the foregoing provisions, including
the expenses and reasonable attorneys' fees incurred by Lessor. Nothing
contained in this Lease shall imply that Lessee has any authority or consent
from Lessor to subject Lessor's estate to any mechanics', materialman's or other
lien.
20. ASSIGNMENT AND SUBLETTING
-------------------------
(a) Lessee shall not assign, mortgage or encumber any interest in
this Lease or sublet all or any part of the Leased Premises without the prior
written consent of Lessor. Lessor shall not unreasonably withhold or delay its
consent to an assignment or subletting of this Lease.
(b) No permitted assignment or subletting shall release, discharge
or affect the liabilities of Lessee as provided for in this Lease, and Lessee
shall at all times remain primarily liable under this Lease. An assignment by
operation of law shall be deemed a prohibited assignment under this Paragraph.
21. INSOLVENCY
----------
Lessor may, at its option, declare this Lessee terminated and
reenter and resume possession of the Leased Premises, if Lessee shall be
adjudicated a bankrupt or insolvent, or if a receiver or trustee shall be
appointed for Lessee's business or property, or if Lessee shall file a petition
in bankruptcy or insolvency, or if a petition or other proceeding shall be filed
by or against Lessee seeking corporate or other reorganization, liquidation or
other similar relief or if Lessee shall make an assignment or an arrangement for
the benefit of creditors, or if an involuntary petition shall be filed against
Lessee in bankruptcy or insolvency and such petition shall not be dismissed
within sixty (60) days.
22. REMEDIES CUMULATIVE
-------------------
The various rights, elections and remedies of Lessor contained in
this Lease shall be cumulative, and no one of them shall be construed as
exclusive of any of the others, or of any right, priority or remedy allowed or
provided for by law.
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23. WAIVER OR DEFAULT
-----------------
The waiver by either party of any default in the performance by
the other of any covenant shall not be construed to be a waiver of any preceding
or subsequent default of the same or any other covenant contained herein. The
subsequent acceptance of Rent or other sums by Lessor shall not be deemed a
waiver of any preceding default other than the failure of Lessee to pay the
particular rental or other sum so accepted.
24. HOLDING OVER
------------
If Lessee shall hold possession of the Leased Premises after the
end of the term or other termination of this Lease, Leases shall be deemed to be
occupying the Leased Premises as a tenant from month to month, subject to all of
the conditions, provisions and obligations of this Lease; provided, however,
Lessee shall be liable for any and all damages and expense that Lessor may
sustain by virtue of Lessee's holding over, including, but not limited to, any
amount for which Lessor may be liable under, or as a result of, any other lease
entered into by Lessor for a term beginning at or after the expiration of the
term of this Lease. Nothing contained in this Lease shall be construed as a
consent by Lessor to the occupancy or possession of the Leased Premises by
Lessee after the expiration of the term of this Lease. Rather, at the end of the
term of the Lease, Lessor shall be entitled to the benefit of all laws or
ordinances relating to the recovery of the possession of lands and tenements
held over by tenants that now may be in force or hereafter may be enacted, and
Lessor may proceed under such laws or ordinances, without notice to Lessee, all
statutory notice requirements being expressly waived by Lessee.
25. SURRENDER
---------
Upon the expiration of the term of this Lease, Lessee immediately
shall surrender the Leased Premises broom-clean and in good order and condition,
ordinary wear and tear excepted. All of Lessee's personal property at or about
the Leased Premises (but not permanently affixed parts of the Leased Premises)
shall be removed by Lessee at or before the expiration of this Lease or shall be
deemed abandoned by Lessee. Any damage to the Leased Premises caused by such
removal shall be repaired by Lessee at its own expense.
26. DEFAULT
-------
(a) If Lessee fails to pay any Rent or Additional Rent when due
and such failure continues for a period of five (5) days after Lessor shall have
made written demand on Lessee for payment, or if Lessee otherwise is at any time
in default under this Lease and continues in such default for a period of thirty
(30) days after Lessor shall have demanded in writing to Lessee that such
default be cured, or if such latter default is not capable of being cured within
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a fifteen (15) day period, such additional time (not to exceed forty-five (45)
days) as is reasonably necessary to cure such default, provided Lessee promptly
commences and diligently pursues to cure such default, then Lessor may, at
Lessor's option, terminate this Lease (without releasing Lessee of liability)
and by summary proceedings or other manner prescribed by law, reenter and take
possession of the Leased Premises. If Lessor should so terminate this Lease,
Lessee shall pay to Lessor as damages, upon demand, all expenses (including,
without limitation, attorneys' fees) of any proceedings necessary in order for
Lessor to recover possession of the Leased Premises and the expenses of
reletting the Leased Premises (including, without limitation, reasonable
attorneys' fees, brokerage commissions, and the costs of putting the Leaded
Premises in good order and preparing it for reletting, plus either:
(i) Liquidated damages in an amount equal to the excess, if
any, of the Rent and Additional Rent that would have been payable over the
unexpired portion of the term of this Lease over the rental value of the Leased
Premises for such unexpired portion of the term of this Lease, as discounted at
the then publicly declared prime rate of the Federal Bank in Baltimore,
Maryland; or
(ii) Damages in an amount to the excess, if any, of the
monthly Rent and Additional Rent over the monthly rentals, if any, if fact
collected by Lessor as the result of a reletting of the Leased Premises at such
rent and upon such terms as Lessor, in its sole discretion, elects to accept.
Separate actions may be maintained each month by Lessor to recover the damages
then due as provided for in this subparagraph (ii) and any such action shall not
prejudice the rights of Lessor to collect damages for any subsequent month in a
similar proceeding.
(b) No re-entry or reletting of the Leased Premises, whether or
not the term of such reletting extends beyond the term of this Lease, shall be
construed as an election by Lessor to: (i) accept a surrender of the Leased
Premises, or (ii) release Lessee of any of its obligations under this Lease.
(c) Should Lessor, pursuant to its rights under Paragraph 26(a)
hereof, elect to terminate this Lease and reenter and take possession of the
Leased Premises, Lessor shall use commercially reasonable efforts, under then
prevailing circumstances, to relet the Leased Premises.
27. ACCESS TO LEASED PREMISES
-------------------------
(a) Lessor and its designees shall have the right (subject to
being accompanied by Lessee's representative at all times for security reasons)
to enter upon the Leased Premises at all reasonable hours, after 24 hours
notice, (and in emergencies, at all times): (i) to inspect the same; (ii) to
make repairs, additions, or alterations to the Leased Premises or the building
in which the same are located or any property owned or controlled by Landlord;
(iii) to exhibit the Leased Premises to any prospective buyer, lessee or
mortgagee or their respective agents or representatives; and (iv) for any lawful
purpose.
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(b) For a period commencing three (3) months prior to the end of
the term, Lessor may have reasonable access to the Premises for the purpose of
exhibiting the same to prospective tenants and to post any "For Rent" or "For
Lease" signs upon the Leased Premises.
28. SUBORDINATION AND ATTORNMENT
----------------------------
(a) This Lease is subject and subordinate to the lien of all
present and future mortgages and/or deeds of trust encumbering the Leased
Premises, all present and future advances under such mortgages and/or deeds of
trust, and all renewals, extensions, modifications, recastings or refinancings
of such mortgages and/or deeds of trust. Lessee agrees that, in the event any
proceedings are brought under or for the foreclosure of any such mortgage and/or
deed of trust, Lessee shall, if requested to do so by the beneficiary under or
holder of such mortgage and/or deed of trust or by any successor in interest to
such beneficiary or holder, automatically become the lessee of such beneficiary,
holder or successor in interest and shall automatically attorn to such
beneficiary, holder and/or successor in interest and recognize such beneficiary,
holder and/or successor in interest as the Lessor under this Lease. In
confirmation of such attornment, however, Lessee shall, at the request of Lessor
or any beneficiary, holder or successor in interest, promptly execute any
requisite or appropriate certificate or other document for the benefit of such
beneficiary, holder and/or successor in interest.
(b) In the event that, after the date of this Lease, a bona fide
loan shall be made by an insurance company, savings bank, commercial bank, trust
company, or other lender and secured by a mortgage or deed of trust constituting
a lien against any portion of the Leased Premises and said lender shall
complete, execute and acknowledge a subordination, attornment, and
non-disturbance agreement, then and in that event, Lessee shall subordinate this
Lease to said mortgage or deed of trust by executing and acknowledging the said
subordination, attornment and non-disturbance agreement.
(c) Upon any assignment or termination of Lessor's interest in
the Leased Premises, Lessee shall, upon request, attorn in writing to the new
owner of the Leased Premises and shall pay to the new owner all rents and other
monies required to be paid and perform all of the other obligations of Lessee
under this Lease. Following any sale by Lessor of the property of which the
Leased Premises are a part, all obligations to the assigning Lessor to Lessee
shall cease and termination and Lessee shall look solely to the successor for
the performance of Lessor's duties hereunder.
(d) Notwithstanding the foregoing, this Lease shall not be
terminated so long as Lessee is not in default of any provisions in this Lease.
(e) Lessor shall, within fifteen (15) days after the date hereof
(or prior to the effective date of any encumbrance mentioned in this Section 28
created after the date hereof) obtain from the holder of any such encumbrance,
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an agreement whereby if such holder or any successor in interest shall come into
possession of the Leased Premises, or any part thereof, by dispossession,
foreclosure or otherwise, or shall become the owner of such property, or take
over the rights of Lessor to such property, said holder shall not disturb the
possession, use or enjoyment of the Leased Premises by Lessee, its successors or
assigns, nor disaffirm this Lease or Lessee's rights or estate granted
hereunder, so long as Lessee performs all of its obligations in accordance with
the terms of this Lease.
29. RIGHT TO CURE DEFAULTS
----------------------
(a) If Lessee shall fail to comply fully with any of its
obligations under this Lease, then, in addition to Lessor's other rights, but
not the duty, to cure such breach at Lessee's expense. Lessee agrees to
reimburse Lessor, within fifteen (15) days after Lessor submits a statement of
the amount due, as Additional Rent, for all expenses incurred by Lessor as a
result of any efforts made by Lessor to cure any such breach.
(b) If Lessor shall fail to comply fully with any of its
obligations under this Lease, then, in addition to Lessee's other rights and
remedies under this Lease at law and in equity, Lessee shall have the right, but
not the duty, to cure such breach at Lessor's expense; provided that prior to
the exercise of such right to cure, Lessee shall give Lessor written notice
specifying the nature of the breach and Lessor shall be entitled to ten (10)
days after receipt of such notice within which to cure said breach or such
additional time as may be necessary if such breach is not susceptible to cure
within said ten (10) days, in which case Lessor shall commence to cure within
said ten (10) day period. Lessor agrees to reimburse Lessee, within fifteen (15)
days after Lessee submits a statement of the amount due, for all expenses
incurred by Lessee as a result of any efforts by Lessee to cure any such breach.
If Lessor fails to reimburse Lessee as aforesaid, Lessee may offset the amount
due against the payments of Rent becoming due hereunder unless Lessor give
written notice of dispute within said fifteen (15) day period either to the
existence of any default or the reasonableness of the amount expended to cure.
In the event such notice of dispute is given, the provisions of subparagraph (c)
shall govern. The right to setoff against Rent shall be subordinate to and there
shall be no setoff against the holder of any mortgages or deed of trust or any
purchaser at foreclosure or deed in lieu thereof on all or any portion of the
Leased Premises. The amount of all setoffs shall be limited to the cumulative
sum of One Hundred Thousand Dollars ($100,000.00).
(c) If Lessor has given notice of dispute as provided in
subparagraph (b), Lessee may have the issues of whether the Lessor is in default
of its obligations or the reasonableness of the amount of expenditures
determined by arbitration. Pending the results of such arbitration, there shall
be no setoff. In the event the arbitrators determine that Lessor was in default,
Lessor shall pay all costs of arbitration and Lessee shall have the right to
offset all of its costs and expenses of remedying such default (including
unreimbursed costs of the arbitration proceeding) against the payments of Rent
becoming due hereunder, subject to the limitations set forth in subparagraph (b)
above. If the arbitrators determine that Lessor was not in default, then Lessee
will pay all of the arbitration.
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(d) If Lessor is determined to be in default in its obligations
under Paragraph 15(c) of this Lease and Lessee shall remedy such default in
accordance with the preceding paragraph, Lessee shall be entitled to offset one
hundred fifteen percent (115%) of the costs and expenses of remedying such
default, with the additional fifteen percent (15%) being to reimburse Lessee for
its overhead.
30. BROKERAGE
---------
Lessor hereby acknowledges that THE MICHAEL COMPANIES, INC.
("Broker") has served as Lessor's agent in connection with this Lease and agrees
to pay said Broker a commission as per a separate agreement between Lessor and
Broker. Lessor warrants to Lessee and Lessee warrants to Lessor that it has not
dealt with any other broker or real estate agent or finder in connection with
this Lease and that, except for the aforesaid commission payable to Broker, no
right or claim for commission or other compensation has been created by its
actions with respect to this Lease. Lessor and Lessee shall indemnify and hold
each other harmless against all loss, liability or expense, including reasonable
attorney's fees and litigation costs, incurred by the other to the extent one or
the other is shown to be in breach of the foregoing warranties.
31. EFFECT OF CONVEYANCE
--------------------
If during the term of this Lease Lessor sells its interest in the
Leased Premises or this Lease, then from and after the effective date of such
sale, Lessor shall be released and discharged from any and all further
obligations and responsibilities under this Lease except those already accrued.
Any such sale shall be subject to this Lease and Lessor shall require any
purchaser to acknowledge the existence of Lessee's tenancy.
32. INTERPRETATION
--------------
The captions by which the paragraphs of this Lease are identified
are for convenience only and shall have no effect upon the interpretation of
this Lease. Whenever the context so requires, the singular number shall include
the plural, and plural shall refer to the singular and the neuter gender shall
include the masculine and feminine genders. If any provision of this Lease shall
be held to be unenforceable by a court, the remaining provisions shall remain in
effect and shall in no way be impaired.
33. ENTIRE INSTRUMENT
-----------------
All of the agreements previously and contemporaneously made by the
parties are contained in this Lease, and this Lease cannot be modified in any
respect except by a writing executed by Lessor and Lessee.
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34. ESTOPPEL CERTIFICATES
---------------------
Recognizing that both parties may find it necessary to establish
to third parties, such as accountants, banks, mortgagees or the like, the then
current status of performance hereunder, either party, on the written request of
one to the other made from time to time, will promptly furnish a written
certificate on the status of any matter pertaining to this Lease in such form
and substances as may from time to time be reasonably required.
35. NOTICES
-------
Any notices and other communications required or permitted to be
given by either party to the other shall be in writing and shall be deemed to
have been served when hand delivered or, if the United States Mail is used, on
the second business day after the notice is deposited in the United States Mail,
postage prepaid, registered or certified mail, or by overnight delivery service,
and addressed to the parties as follows:
To Lessee: Jacques R. Rubin
President
Bio Science Contract Product Corp.
4406 Bel Pre Road
Rockville, Maryland 20853
To Lessor: Muirkirk Manor Associates Limited Partnership
c/o The Anastasi Stephens Group, Inc.
4483 Forbes Boulevard
Lanham, Maryland 20706
Either party, by written notice to the other, may change its address to which
notices are to be sent.
36. WAIVER
------
Any waiver of either Lessor or Lessee of any default, breach or
failure by the other to comply with any term, condition, or provision of this
Lease shall not constitute a waiver of any other default, breach or failure by
such defaulting party. No covenant, term or condition of this Lease shall be
deemed to have been waived by either party unless such waiver be in writing and
signed by the party to be charged therewith.
37. QUIET ENJOYMENT
---------------
So long as Lessee is not in default beyond applicable grace
periods, Lessee shall have peaceful and quiet use and possession of the Leased
Premises without hindrance on the part of Lessor or any person claiming by,
through or under Lessor.
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38. RECORDING THIS LEASE
--------------------
Lessee may not record either this Lease nor a memorandum thereof
among or in any public records without Lessor's prior written consent.
39. GOVERNING LAW
-------------
All questions with respect to construction of this Lease and the
rights and liabilities of the parties shall be determined in accordance with the
laws of the State of Maryland.
40. BENEFIT
-------
Subject to the restrictions on assignment and subletting set forth
in Paragraph 20, the covenants, terms and conditions of this Lease shall inure
to the benefit of and be binding upon Lessor and Lessee and their respective
successors and assigns.
41. REASONABLE CONSENT
------------------
Wherever in this Lease Lessor or Lessee is required to obtain the
consent or approval of the other, it is agreed that such consent or approval
shall not be unreasonably withheld or delayed.
42. TIME OF ESSENCE
---------------
Time is of the essence in the performance of all of Lessor and
Lessee's obligations under this Lease.
(See Lease Addendum for Paragraphs 43 and 44)
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IN WITNESS WHEREOF, the parties have executed this Lease on the
day and year first above written.
WITNESS: LESSOR:
MUIRKIRK MANOR ASSOCIATES
LIMITED PARTNERSHIP,
a Maryland limited partnership
By: THE ANASTASI STEPHENS GROUP, INC.
its general partner
/s/ Richelle J. Darnell By: /s/ Joseph Anastasi (Seal)
- ------------------------- ----------------------------
WITNESS: LESSEE:
BIO SCIENCE CONTRACT PRODUCTION CORP.
a Maryland corporation
/s/ Richelle J. Darnell By: /s/ Jacques R. Rubin
- ------------------------ ---------------------
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EXHIBIT "A" (PART II)
LEASE ADDENDUM
--------------
(PARK PLACE)
THIS LEASE ADDENDUM made as of the 28th day of December, 1990, is
attached to and made part of that certain Lease of even date herewith (the
"Lease") by and between MUIRKIRK MANOR ASSOCIATES LIMITED PARTNERSHIP, a
Maryland limited partnership ("Lessor"), and BIO SCIENCE CONTRACT PRODUCTDION
CORP., a Maryland corporation ("Lessee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, LESSOR and LESSEE have agreed to amend, supplement and/or
modify the Lease as herein provided, Lessor and Lessee hereby agree as follows:
2. TERM - OPTION
-------------
Lessee, at its option, shall have the right to extend the Term of
this Lease on the same terms and conditions as the original term thereof, except
as otherwise provided in this Addendum with respect to the amount of Base Rent
during the respective extension period, for two (2) additional consecutive terms
of five (5) years each (the "Extension Periods") subject to the satisfaction of
the following conditions:
(i) Lessee's option to extend the Lease for each of the
Extension Periods shall be exercisable only by written notice to Leasor at least
ninety (90) days prior to the commencement date of each Extension Period. If
Lessee does not give Lessor written notice as aforesaid, Lessee shall be deemed
to have not exercised its respective extension option.
(ii) At the time of exercise of the option and at the
commencement of each Extension Period, Lessee shall not be in default under the
Lease beyond any applicable grace period.
(iii) Upon exercising the option, the Base Rent will be the
product obtained by multiplying the Base Rent for the immediately preceding
Lease Year by one hundred four percent (104%).
3. RENT
----
For months 1, 2, 3 and 4 of the first base year, Lessee's
obligation to pay 1/2 of the monthly base rent is hereby waived. It is agreed
that Common Area Maintenance charges and Additional Rent, if any, will be
collected on the first day of occupancy, pursuant to Paragraph 8.(c).
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43. LESSEE IMPROVEMENTS
-------------------
(d) The term "force majeure" as used herein shall include,
without limitation, the following: acts of God, strikes, lockouts or other
industrial disturbances; acts of public enemies; orders of any kind of the
government of the United States or of the State in which the Leased Premises are
located or of any subdivision thereof or any local government, or any of their
departments, agencies or officials, or any civil or military authority;
insurrections; riots; epidemics; landslides; lightning; earthquakes; fire;
hurricanes; storms; floods; washouts; droughts; arrests; restraint of government
and people; civil disturbances; explosions; breakage or accident to machinery,
transmission pipes or canals; partial or entire failure of utilities; or any
other cause or event not reasonably within the control of the Lessee.
(e) Tenant requires that certain improvements be made to the
Leased Premises for its use. The parties have agreed on the scope of the work
(the "Work") to be done and have approved construction drawings for the work.
The Work is to be done under a construction contract (the "Construction
Contract") between Landlord and Barber Construction Corporation ("Contractor").
The Construction Contract has been approved by Landlord and Tenant. Landlord
will be responsible for the supervision and timely completion of the work,
regardless of the performance of the Contractor.
The Work is to be completed no later than March 1, 1991 for a
contract price of $231,148.70 of which Landlord will pay $200,000 and Tenant
will pay $31,148.70, provided that the amount to be paid by Tenant will be
reduced by any amount that the contract price is reduced for any reason. Prior
to commencement of the Work as provided in the Construction Contract, Tenant
will pay its contribution of $31,138.70 in escrow with C. Lawrence Wisor
("Escrow Agent"), as escrow agent, to be paid by the Escrow Agent to the
Contractor as the terms of the Construction Contract provide after the Landlord
has paid all of its $200,000 contribution, less retainage, to the Contractor.
Any changes to the approved construction drawings shall be
signed or initialed by Landlord and Tenant and change orders made to the
Construction Contract. Tenant agrees to pay to the Escrow Agent the contract
price for any change orders at the time such change orders are signed. Payment
is to be made by the Escrow Agent to the Contractor upon submission of invoices
approved by the Landlord. Tenant shall be responsible to Landlord for any delay
in completion of the work as a result of such changes. Neither the commencement
date of the Lease nor the commencement of rents due shall be deferred because of
any such changes but will be deferred if the Work is not completed by the
completion date given above for any reason other than the effect of any such
change order.
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44. GROUND LEASE
------------
Lessor has leasehold ownership of the project known as Park Place,
of which the Leased Premises are a part, under a long-term ground lease (the
"Ground Lease"), the term of which exceeds the initial term and extension
periods of this Lease. Lessor represents that the Ground Lease is in full force
and effect and that there are no defaults thereunder. Lessor further agrees that
so long as this Lease in effect, it will timely perform all of its obligations
under the Ground Lease.
Lessor shall, within fifteen (15) days after the date hereof
obtain from the Lessor (the "Ground Lessor") under the Ground Lease, an
agreement whereby if the Ground Lessor terminates the Ground Lease, the Ground
Lessor shall not disturb the possession, use or enjoyment of the Leased Premises
by Lessee, its successors or assigns, nor disaffirm this Lease or Lessee's
rights or estate granted hereunder, so long as Lessee performs all of its
obligations in accordance with the terms of this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease Addendum on
the day and year first above written.
ATTEST: LESSOR:
MUIRKIRK MANOR ASSOCIATES
LIMITED PARTNERSHIP,
a Maryland limited partnership
By: THE ANASTASI STEPHENS GROUP, INC.
its general partner
/s/ Richelle J. Darnell By: /s/ Joseph Anastasi (Seal)
- ------------------------- ----------------------------------
LESSEE:
BIO SCIENCE CONTRACT PRODUCTION CORP.
a Maryland corporation
/s/ Richelle J. Darnell By: /s/ Jacques R. Rubin
- ------------------------- ---------------------
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<PAGE>
EXHIBIT "B"
SECOND LEASE
------------
LEASE
-----
(PARK PLACE)
THIS LEASE, made as of this 12th day of November, 1991, by and between
MUIRKIRK MANOR ASSOCIATES LIMITED PARTNERSHIP, a Maryland Limited partnership
("Lessor"), and BIO SCIENCE CONTRACT PRODUCTION CORP., a Maryland corporation,
("Lessee").
W I T N E S S E T H:
- - - - - - - - - -
That in consideration of the rent and mutual covenants and agreements
contained herein, and intending to be legally bound hereby, Lessor and Lessee
agree as follows:
1. DEMISED PREMISES
----------------
The Lessor leases to the Lessee all of that certain space
described as Suite No. 270, 280, 9000 Virginia Manor Road, containing
approximately 12,731 square feet of gross leasable area, as is outlined in red
on the piat attached to and made a part of this Lease as Exhibit "A" (the
"Leased Premises"), and located in Park Place, Prince George's County, Maryland.
Lessor shall construct and complete the Leased Premises in compliance with the
plans and specifications set forth in Exhibit "B" attached hereto and made part
hereof. "Delivery of Possession" of the Lease Premises by Lessor to Lessee shall
be deemed to have been made when Lessor's architect certifies in writing that
construction of the Leased Premises shall have been completed.
2. TERM
----
The term (the "Term") of this Lease shall be for a term of nine
(9) years, and two (2) months, commencing on the 1st day of January, 1992, (the
"Commencement Date") and shall expire on the last day of February, 2001. If the
Term of the Lease does not begin on the date specified herein for reasons other
than the fault of Lessee, then the expiration date shall be moved for the
commensurate amount of the delay and the rent shall be prorated accordingly. If
the term commences or ends in mid-month, the rent payable for that month
(including, without limitation, Additional Rent) shall be prorated and paid on
the date of commencement or termination.
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<PAGE>
3. RENT
----
(a) The rent (the "Base Rent") shall be:
Year Square Foot Rate
---- -----------------
1 $ 9.06
2 $ 9.39
3 $ 9.77
4 $ 10.16
5 $ 10.57
6 $ 10.99
7 $ 11.43
8 $ 11.89
9 $ 12.36
The term "Lease Year" shall mean each twelve (12) month period during the term
of this Lease commencing on the Commencement Date. The Base Rent shall be
payable, in advance, in equal monthly installments, the first monthly
installment to be due and payable on the Commencement Date and each subsequent
monthly installment to be due and payable on the first day of each and every
month thereafter during the term of this Lease.
(b) All moneys payable by Lessee under the terms of this Lease,
other than Base Rent, as adjusted from time to time, shall be deemed "Additional
Rent."
(c) Lessee shall make all payments of Base Rent and Additional
Rent on a timely basis, without demand and without deduction, setoff or
counterclaim, except as expressly permitted in Paragraph 29(b) hereof. All
payments of Rent and Additional Rent shall be made by good and valid check,
payable to The Anastasi Stephens Group, Inc., agent, 4483 Forbes Boulevard,
Lanham, Maryland 20706, or to such other party or to such other address as
Lessor may designate from time to time by written notice to Lessee. If Lessor
shall at any time or times accept Base Rent or Additional Rent after it shall
become due and payable, such acceptance shall not excuse delay upon subsequent
occasions, or constitute, or be construed as, a waive of any or all of Lessor's
rights hereunder. If any payment of Base Rent or Additional Rent is not made
within ten (10) days of when due, a late charge of five percent (5%) of the
amount of such payment shall be imposed, Lessor shall be entitled to require the
payment of Base Rent and Additional Rent by certified check if the check for any
payment by Lessee shall be dishonored by its Bank.
(d) Except for the obligations of Lessor expressly set forth
herein, this Lease is a "net lease" and Lessor shall receive the Base Rent
hereinabove provided as net income from the Leased Premises, not diminished by
any imposition of any expenses or charges required to be paid to maintain and
carry the Leased Premises or to continue the ownership of Lessor, other than
payments under any mortgages now existing or hereafter created by Lessor, and
Lessor is not and shall not be required to render any services of any kind to
Lessee.
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<PAGE>
4. SECURITY DEPOSIT
----------------
(a) Lessee has, simultaneously with the execution of this Lease,
deposited with Lessor, in cash or by check subject to collection, the sum of
eight thousand and 00/100 ($8,000.00). Said deposit shall be held as security
for the faithful performance by Lessee of the terms, covenants, provisions and
conditions of this Lease. It is agreed that in the event Lessee defaults in
respect to any of the terms, covenants, provisions and conditions of this Lease,
including (but not limited to) the payment of Base Rent or Additional Rent, and
fails to cure any such defaults within applicable grace periods, Lessor may use,
apply or appropriate the whole or any part of the security so deposited to the
extent required for the payment of any Base Rent or Additional Rent or for the
curing of any defaults by Lessee hereunder pursuant to Paragraph 29 hereof;
provided, however, that no such use, application, or appropriation of the
deposit shall be deemed to relieve Lessee of any breach of this Lease and shall
be in addition to other remedies under this Lease.
(b) Should the entire deposit or any portion thereof be
appropriated and applied by Lessor under the foregoing provisions, then Lessee
shall (upon the written demand of Lessor) forthwith remit to Lessor a sufficient
amount in cash to restore said security to the original sum deposited, and
Lessee's failure to do so within ten (10) days after receipt of such demand
shall itself constitute an event of default under this Lease.
(c) The security deposit (less any amounts applied as provided in
subsection (a) above) shall be returned to Lessee within thirty (30) days after
the date fixed as the end of the Term of this Lease and delivery of entire
possession of the Leased Premises to Lessor.
(d) In the event of a sale, leasing or other transfer of the land
and building of which the Leased Premises forms a part, Lessor shall have the
right to transfer the security and be released by Lessee from all liability for
the return of such security deposit. Lessee shall look to the new Lessor solely
for the return of said deposit. The provisions of this Paragraph 4(d) shall
apply to every transfer or assignment made of the security deposit to a new
Lessor.
(e) Lessee covenants that it will not assign or encumber or
attempt to assign to encumber the security deposited herein and that neither
Lessor nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
(f) Lessee shall not be entitled to any interest on the security
deposit, and such funds need not be segregated or held as escrow by Lessor.
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<PAGE>
(g) It is expressly understood and agreed that, in the event of
any termination of this Lease or re-entry upon or reletting of the Leased
Premises on account of any default on the part of Lessee under this Lease, then,
and in such event, the deposit shall be retained and be subject to appropriation
by Lessor until this Lease would, by its terms, have expired absent such
default.
5. USE
---
Lessee will use and occupy the Leased Premises solely for the
purpose of Offices and operation of a vaccine research and production facility,
The Leased Premises may not be used for any other purpose without the prior
written consent of Lessor, which consent shall not be unreasonably withheld. The
Leased Premises shall not be used for the storage, distribution or sale of any
pornographic or "adult rated" materials. Lessee shall not use the Leased
Premises for any purpose or activity which is noxious or unreasonably offensive
because of the emission of noise, smoke, dust, vibration or odors. Tenant shall
not use the plumbing facilities for any purpose injurious to same or dispose of
any garbage or any other foreign substance therein, nor place a load on any
floor in the Leased Premises exceeding the floor load of 250 per square foot
which such floor was designed to carry, nor install, operate and/or maintain in
the Leased Premises and heavy equipment which could cause injury to the Lease
Premises, nor install, operate and/or maintain in the Leased Premises any
electrical equipment which will overload the electrical system therein, or any
part hereof, beyond its capacity for proper and safe operation as determined by
the Lessor or which does not bear underwriter's approval. Lessee shall not use
the Leased Premises in any manner or for any purpose which violates any rule,
regulation, law, ordinance, or requirements of any governmental agency.
6. TAXES
-----
(a) As additional rent hereunder, at least thirty (30) days
before any fine, penalty or interest or cost may be added thereto for the
non-payment thereof (or sooner if elsewhere herein required), Lessee shall pay
throughout the term of this Lease all levies, taxes, assessments, water and
sewer rents and charges, liens, charges for public utilities and all other
charges, imposts or burdens of whatsoever kind and nature which at any time
during the term of this Lease may be assessed or imposed by any federal, state
or municipal government or public authority, or under any law, ordinance
regulation thereof or pursuant to any recorded covenants or agreements (all of
which are hereinafter referred to as "Impositions"), upon or with respect to the
Leased Premises, any improvements made thereto, or this Lease. Additionally,
Lessee shall pay a proportionate share of any Imposition which is not imposed
upon the Leased Premises as a separate entity but which is imposed upon the land
or the building or upon the appurtenances, leases, rents, transactions or
documents relating to the lot or the building. Provided, however, that any
Imposition shall be apportioned for the first and last fiscal tax years covered
by the term hereof. "Impositions" shall include, but not be limited to, any and
all governmental or quasi-governmental levies, fees, assessments, taxes and
charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, of any kind and nature whatsoever, with respect to such land and
building (excluding taxes paid on Lessor's income but including sales tax or
excise tax imposed by any governmental authority upon the Base Rent payable by
Lessee hereunder).
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<PAGE>
(b) Notwithstanding the foregoing provisions of this Article 6,
Lessor shall have the right, at its option, to require Lessee to pay to Lessor
or to any mortgagee, at the time when the monthly installment of Base Rent is
payable, an amount equal to one-twelfth (1/12) of the annual Impositions as
estimated by Lessor. If Lessor elects to have Lessee make such payments, Lessee
also shall pay to Lessor or to such mortgagee, as the case may be, at least
thirty (30) days before any fine, penalty, interest or cost may be added thereto
for the non-payment thereof, the amount by which the Impositions becoming due
exceed the monthly installment payments on account thereof previously made by
Lessee. Should Lessee's monthly installment payments on account of Lessee's
share of Impositions for any tax year exceed the actual amount of Lessee's share
of such Impositions, the excess amount shall be credited against Lessee's
installments for Impositions thereafter becoming due. The amounts paid by Lessee
pursuant to this paragraph (b) shall be used to pay the Impositions, but such
amounts shall not be deemed to be trust funds and no interest shall be payable
thereon.
(c) During any part of the Term of this Lease which shall be less
than a full tax fiscal year, any Taxes shall be pro rated on a daily basis
between the parties, to the end that Lessee only shall pay its share of Taxes
attributable to the portion of the tax fiscal years occurring within the term of
this Lease.
(d) Lessee shall pay promptly, and when due, all taxes, fees,
licenses, assessments and other charges levied or imposed upon the business of
the Tenant or upon any fixtures, furnishings or equipment in the Leased
Premises.
(e) If due to a future change in the method of taxation or in the
taxing authority, a franchise, gross receipts, transit, rent or other tax or
other governmental imposition, however designated, shall be levied against
Lessor in substitution (in whole or in part) for, or in addition to, said
"Impositions" as currently defined), then such franchise, gross receipts,
transit, rent or other tax or governmental impositions shall be deemed to be
included within the definition of "Impositions" for the purposes of this Lease.
The term "Impositions" also includes all costs reasonably incurred in any
proceeding brought by Lessor to reduce said Taxes.
(f) Lessor may institute any proceedings with respect to the
assessed valuation of Park Place or any part thereof, and Lessee shall cooperate
with, and participate in, any and all such proceedings. If, after Lessee shall
have made the required payment of Taxes hereunder, Lessor shall receive a refund
of any portion thereof, then, within thirty (30) days after Lessor's receipt of
such refund, Lessor shall pay to Lessee Lessee's pro rata share of the amount of
the refund, less all costs and expenses (including, but not limited to,
attorneys' and appraiser' fees) expended for incurred in obtaining such refund.
Lessee may not institute any proceedings with respect to the assessed valuation
of Park Place or any part thereof.
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<PAGE>
7. UTILITIES
---------
Starting with the Commencement Date and continuing throughout the
Term of the Lease, Lessee shall be solely responsible for and shall pay, as and
when the same become due and payable and as hereinafter provided, all rents,
rates, costs and charges for water services, sewer service, electricity, gas,
heat, steam, power, telephone (and other communication services), and any other
utilities or services rendered or supplied to, upon or in connection with, or
used or consumed within or in servicing, the Leased Premises, and all other
utility costs and expenses involved in the use of the Leased Premises throughout
the term of this Lease, and Lessee shall indemnify Lessor and save Lessor
harmless against any costs liability or damages on such account. Unless
otherwise agreed in writing by Lessor or Lessee, Lessee shall, promptly upon
Delivery of Possession of the Leased Premises and at Lessee's own expense, pay
for the installation of separate meters for all utilities servicing the Leased
Premises and place said meters and related utility accounts in Lessee's own
name. Lessee shall pay all separately metered charges to the respective public
utility companies. With respect to each utility which is not separately metered
for the Leased Premises, Lessee shall pay Lessor, as Additional Rent, Lessee's
proportionate share of the total cost and fees therefore attributable to those
areas of the warehouse/office buildings which are not separately metered.
8. COMMON AREA MAINTENANCE
-----------------------
(a) Subject to the provisions of this Lease, Lessor grants to
Lessee, its employees, agents, customers and invitees during the Term hereof the
non-exclusive use, in common with Lessor and other tenants and occupants of Park
Place and their respective employees, agents, customers and invitees and in
common with such others as Lessor may designate from time to time, of all
non-allocated parking areas within Park Place for pedestrian and vehicular
ingress and egress and the accommodation and parking areas within Park Place for
pedestrian and vehicular ingress and egress and the accommodation and parking
automobiles as required by the Lessee in conducting normal business activities
of Lessee within the Leased Premises. Lessor reserves the right, however, to
designate certain portions of the parking areas within Park Place for parking of
trucks, vans, and other vehicles, and to designate for the specific account of
Lessee, or other tenants in Park Place, specific parking areas or spaces
constructed with Park Place. Notwithstanding anything contained in this Lease to
the contrary, Lessor shall have the right, at any time and from time to time, to
change the size, location and nature of the parking areas (so long as the number
of parking spaces is not reduced) and/or other common areas within Park Place.
All parking areas and related facilities which may be furnished by Lessor in or
near the Leased Premises, including employee parking areas, truck way or ways,
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<PAGE>
loading docks, pedestrian sidewalks and ramps, landscaped areas, and other areas
and improvements which may be provided by Lessor for the general use, in common
with Lessor and other tenants, and their respective employees, agents, customers
and invitees, shall at all time be subject to the exclusive control and
management of Lessor, and Lessor shall have the right, from time to time, to
establish, modify and enforce reasonable rules and regulations with respect to
all parking areas and other facilities and areas mentioned in this paragraph.
Lessee agrees to abide by and conform with all such rules and regulations upon
notice thereof and to cause its employees, agents, customers and invitees to do
the same. Lessor shall have no liability to Lessee for use of the parking areas
by Lessor or other tenants and occupants of Park Place and their respective
employees, agents, customers, or other third parties. No provision of this Lease
shall be construed as a demise to Lessee of the parking or any other common
area) within Park Place. If any repairs (excluding repairs caused by Lessee's
normal use) to the parking or other common areas within Park Place are
necessitated by reason of any act or omission by Lessee or its employees,
agents, customers or invitees, then, if Lessor chooses to do so, Lessor may make
such repairs and Lessee shall promptly upon demand reimburse Lessor for the full
costs to the extent same are not covered by Lessor's insurance, or at Lessor's
option, Lessor may notify Lessee of the necessity for such repairs, and Lessee,
at its cost and expense, shall, with due diligence, commence and complete to
Lessor's satisfaction the repairs within ten (10) days of Lessee's receipt of
such notice.
(b) "Common Area Charges" means all of the costs and expenses
which are incurred by Lessor with respect to operation, management, maintenance
and security of the building including the parking and other designated common
areas in Park Place and the exterior walls of the buildings in Park Place, and
those areas of Park Place which house mechanical, electrical or other equipment
or are otherwise determined from time to time by Lessor to be used in operating
or maintaining Park Place. "Common Area Charges" include, but are not limited
to, the cost of maintaining, repairing, and replacing and repaving (when
necessary) the parking and other designated common areas; supplies, tools and
materials purchased and/or used in connection with repairs, maintenance and/or
replacements; wages, salaries, and fringe benefits of all employees of the
Lessor for the portion of time they are directly engaged in the operation,
maintenance and security of Park Place, including license and fees (but
excluding wages, salaries and benefits of executive employees); removing snow,
ice, and debris from the roadways and parking areas for Lessee's use during
normal business hours; removal of customary and normal trash; maintaining and
repairing or repainting (when necessary) directional signs, pavement markings,
and parking lot striping; repairing and replacing (when necessary) outdoor
lighting facilities; maintaining the grass and otherwise caring for the
replanting (when necessary) all shrubbery and landscape areas; providing such
security as Lessor, in its sole discretion, deems advisable; accounting and
legal fees for common areas at Park Place; utilities, heating, ventilation and
air-conditioning charges allocable to designated common areas and other building
service areas.
(c) Starting with the Commencement Date and continuing throughout
the Terms of this Lease, Lessee shall pay Lessor in advance as hereinafter
described and as Additional Rent, Lessee's Pro-Rata Share of all Common Area
Charges for said period. "Lessee's Pro-Rata Share" shall be a fraction, the
numerator of which shall be the floor area within the Leased Premises and the
denominator of which shall be the total floor area within all buildings in Park
Place. The Initial Lessee's Pro-Rata Share shall be 7%.
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<PAGE>
(d) On or before the Commencement Date, on or before the end of
each and every Lease year, and at such other time(s) as is deemed desirable by
lessor in its sole discretion, Lessor shall forward to Lessee a "Common Area
Charges Statement", which shall contain Lessor's latest estimate of the Common
Area Charges for the then current or the then upcoming (as the case may be)
Lease Year, and a statement of Lessee's Pro-Rata Share thereof. Landlord's
failure to forward, or to timely forward, any Common Area Charges Statement
shall not excuse Lessee from its liability for Lessee's Pro-Rata Share of Common
Area Charges.
(e) Each month during the Term of this Lease, along with each
monthly installment of Base Rent, beginning with the Commencement Date, Lessee
shall pay to Lessor, in advance, an amount equal to one-twelfth (1/12th) of
Lessee's Pro-Rata Share of the Common Area Charges as set forth in the then
latest Statement. If the Commencement Date is a day other than the first day of
a calendar month, then the amount of Common Area Charges due for the first month
and the last month of the Term shall be pro rated on the basis of a thirty (30)
day month. As soon as practicable near the end of each and every Lease Year, but
no later than 90 days after the end of the Lease year, Lessor shall submit to
Lessee an "Actual Common Area Charges Statement" prepared by Lessor showing that
the Common Area Charges for the then preceding Lease Year actually were. With
the next monthly installment of Base Rent due after Lessee's receipt of such
Statement, Lessee shall pay Lessor or Lessor shall credit Lessee, as the case
may be the difference between Lessee's Pro-Rata Share of the actual Common Area
Charges for said Lease Year as shown on said Statement and the total of all
Common Area Charges paid by Lessee to Lessor for said Lease Year.
9. NON-LIABILITY OF LESSOR
-----------------------
(a) Except as otherwise expressly provided in this Lease or
unless caused by the negligence or intentional misconduct of Lessor or Lessor's
employees, agents and contractors while acting within the scope of their
employment, Lessor shall not be responsible or liable to Lessee for any loss or
damage to persons or property, or any interference or interruption of Lessee's
use of the Leased Premises, that may be occasioned by (I) water, gas, steam,
wind or the bursting, stoppage or leaking of any pipes, sewer or water lines, or
other conduits, fixtures or equipment; (ii) the interruption of any utility
services to the Leased Premises caused by the utility company; (iii) any
repairs, alterations, maintenance or additions to the Leased Premises or land
and building of which they are a part; (iv) any casualty; (v) theft or other
criminal conduct; or (vi) the acts or omissions of persons occupying any space
adjacent to the Leased Premises.
(b) No provisions of this Lease shall be deemed to confer any
rights upon any person or entities other than the parties to this Lease,
permitted successors and assigns and mortgages.
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<PAGE>
(c) Notwithstanding anything to the contrary provided in this
Lease, it is specifically understood and agreed that there shall be absolutely
no personal liability on the part of Lessor, including partners in Lessor and
their respective successors and assigns, with respect to its performance or
observance of any of the terms, covenants and conditions of this Lease, and that
Lessee shall look solely to the equity of the Lessor in the land and building of
which the Leased Premises form a part for the satisfaction of each and every
remedy of Lessee in the event of any breach by Lessor of any of the terms,
covenants and conditions of this Lease to be performed or observed by Lessor,
such exculpation of personal liability to be absolute and without any exception
whatsoever.
(d) If Lessor shall fail to comply fully with any of its
obligations under this Lease, Lessee may seek and enforce specific performance
of the Lease against Lessor and pursue such other equitable remedies as may be
available to Lessee. Notwithstanding the foregoing, the result of such action
shall be subject to the provisions of Paragraph 9(c) hereof.
10. INDEMNITY
---------
Lessee agrees to indemnify and save Lessor harmless from and
against any and all claims, demands, costs and expenses (including, but not
limited to, reasonable attorneys' fees and litigation costs) for, or in
connection with, any accident, injury or damage whatsoever to any person or
property (I) arising directly or indirectly out of Lessee's use of occupation of
the Leased Premises, (ii) occurring in, on or about the Leased Premises or on
the sidewalks adjoining the same, or (iii) arising directly or indirectly from
any act or omission of Lessee or any of Lessee's licenses, servants, agents,
employees or contractors. The foregoing indemnity shall not apply to any such
claim or demand proximately caused by the negligence or misconduct of Lessor, or
its employees, agents and contractors while acting within the scope of their
employment.
11. LIABILITY INSURANCE
-------------------
(a) Lessee, at Lessee's sole expense, shall obtain and maintain
in effect at all times starting with the Commencement Date and continuing
throughout the term of this Lease, a policy or policies of comprehensive general
public liability insurance, insuring Lessor, Lessor's mortgagee(s) and Lessee
against any liability for injury, death or property damage occurring upon, in or
about any part of the Leased Premises or any appurtenances thereto, affording
protection to the limits of not less than One Million Dollars ($1,000,000.00)
with respect to bodily injury or death of any one person, and not less than
Three Million Dollars ($3,000,000.00) with respect to any one incident, and not
less than Five Hundred Thousand Dollars ($500,000.00) with respect to property
damage. The foregoing minimum limits may, at Lessor's option and upon thirty
(30) days' notice to Lessee, be increased from time to time to reflect inflation
or changed conditions.
(b) The insurance policy(ies) required to be procured by Lessee
under this Lease:
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(i) Shall be issued by a reputable insurance company
licensed to do business in the State of Maryland and shall have such form and
content as shall be approved by Lessor.
(ii) Shall be written as primary policy coverage and not
contributing with, or in excess of, any coverage which Lessor may carry.
(iii) Shall have an endorsement thereto to the effect that no
act or omission by Lessee shall affect the obligation of the insurer to pay
Lessor the full amount of any loss sustained by Lessor and shall contain an
express waiver of any right of subrogation by the insurance company against
Lessor, its agents and employees.
(iv) Shall name Lessor as an additional named insured.
(c) On or before the Commencement Date, and at least fifteen (15)
days before the expiration date of the policy, Lessee shall deliver to Lessor a
certificate of insurance evidencing the existence and good standing of the
liability policy referred to in Paragraph 11(a), together with evidence of
payment of all premiums. The insurance required to be carried under this Lease
may be carried under a blanket policy covering the Leased Premises and other
locations of Lessee. The insurance policy required to be carried by Lessee shall
provide that such insurance policy shall not be canceled unless Lessor and
Lessor's mortgagee(s) shall have received thirty (30) days' prior written notice
of cancellation. In the event that Lessee shall, prior to the thirtieth (30th)
day before any insurance policy will lapse or terminate, fail to furnish
evidence of the coverage and pay the premium therefor for a period not exceeding
one year, and the premiums so paid by Lessor shall be payable by Lessee, on
demand, as Additional Rent.
12. HAZARD INSURANCE
----------------
(a) Starting with the Commencement Date and continuing throughout
the Term of this Lease, Lessee shall pay to Lessor, or such other party as
Lessor shall designate by written notice to Lessee, as Additional Rent, Lessee's
Pro-Rata Share, as defined in Paragraph 12(e) hereof, of the premiums and other
charges (the "Premiums") that may be incurred or contracted for or by Lessor for
fire and casualty insurance coverage for the land and buildings of which the
Leased Premises form a part, including protection from such perils as may be
insured against under a broad form extended coverage endorsement or on all risk
of physical loss policy, and further including loss of rental coverage in an
amount equal to the Rent for one (1) Lease Year. The premiums for all insurance
to be obtained by Lessor under this Paragraph 12(a) shall be reasonably
competitive with the premiums charged for similar insurance protection by
reputable insurers for comparable properties. Lessee agrees that it will not
store gasoline or other explosive, flammable or toxic material in the Leased
Premises or do anything which may cause Lessor's insurance company to void the
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policy covering the Leased Premises or to increase the premium thereon, and that
Lessee will immediately conform to all rules and regulations from time to time
made or established by Lessor's insurance company or insurance rating bureau.
Lessor will do everything reasonably possible and consistent with the conduct of
Lessee's business to obtain the lowest possible rates for insurance on the
Leased Premises. If, however, the cost to Lessor of obtaining insurance on the
Leased Premises (or the building which the Leased Premises are located) is
increased due to the Lessee's occupancy thereof, and the Lessor's insurer
provides evidence that said increase is the direct cause of Lessee's occupancy,
Lessee agrees to pay, promptly upon demand, as additional rental, any such
increase.
(b) On or before the Commencement Date and before the due date of
each and every bill for the Premiums, Lessor shall forward to Lessee an
"Insurance Statement" which shall contain an estimated statement of the amount
due from Lessee from time to time as Lessee's Pro-Rata Share of the Premiums.
Lessor's failure to forward, or to timely forward, any Insurance Statement shall
not excuse Lessee from its liability for Lessee's Pro-Rata Share of the
Premiums.
(c) Each and every month during the Term of this Lease, along
with its monthly installment of Fixed Rent, beginning on the Commencement Date,
Lessee shall pay Lessor an amount equal to one-twelfth (1/12) of Lessee's
Pro-Rata Share of the Premiums as set forth in the then latest Insurance
Statement, which shall be credited toward Lessee's Pro-Rata Share of the
Premiums when the same are due and payable. Should Lessee's monthly installment
payments on account of Lessee's Pro-Rata Share of the Premiums for the period to
which the Premiums relate exceed the actual amount of Lessee's Pro Rata Share of
such Premiums, the excess amount shall be credited against Lessee's installments
for Premium thereafter becoming due. If the Commencement Date is other than the
first day of a period to which the Premiums relate, then the installments of the
Premiums due from the Lessee shall be pro rated on the basis of a thirty (30)
day month.
(d) Notwithstanding the provisions of Paragraph 12(c) above,
Lessor may, upon ten (10) days' written notice to Lessee, require Lessee to pay
Lessee's Pro- Rata Share of the necessary Increased Premiums due to Lessee's
occupancy at such times as the Premiums are due and payable to the respective
insurance company or companies or in such manner as is required of Lessor under
any mortgage, whether such payments be in lump sum or other installments.
(e) Lessee's Pro-Rata of the Premiums shall be of all the
Premiums due for the land and building of which the Leased Premises form a part.
As used in this Paragraph 12, "Lessee's Pro Rata Share" shall be a fraction, the
numerator of which shall be the floor area within the Leased Premises and the
denominator of which shall be the total floor area within the building of which
the Leased Premises form a part.
(f) Lessor hereby releases Lessee from any liability and
responsibility to Lessor to anyone claiming through or under Lessor by way of
subrogation or otherwise, for any and all loss or damage to the Leased Premises
caused by fire or any casualty covered by insurance to the extent insurance
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proceeds are received therefor, even if such fire or other casualty shall have
been caused by the fault or negligence of Lessee, or anyone for whom Lessee may
have been responsible. Lessor's insurance policies shall include appropriate
clauses (i) waiving all rights of subrogation against Lessee with respect to
losses payable under such policies, and (ii) agreeing that such policies shall
not be invalidated should the insured waive in writing prior to a loss any and
all rights of recovery against the other party hereto for losses covered by such
policies.
13. DAMAGE TO THE DEMISED PREMISES
------------------------------
(a) In the event of partial or total damage or destruction of the
Leased Premises by fire, other casualty, or any cause whatsoever (except
condemnation), Lessee shall give immediate notice to Lessor. If the damage or
destruction is insured against by Lessor, this Lease shall continue in full
force and effect, and, to the extent that insurance proceeds respecting such
damage or destruction are subject to being utilized and, in fact, may be
utilized by Lessor for repair, Lessor shall cause such damage or destruction to
be repaired with reasonable speed at the expense of Lessor, except as otherwise
hereinafter provided in this Paragraph 13. If in the reasonable opinion of
Lessor the damage or destruction is such that repair thereof cannot reasonably
be completed within ninety (90) days of the date the damage or destruction
occurs, Lessor shall have the right to terminate this Lease by the giving of
written notice to such effect to Lessee within thirty (30) days of the date of
Lessor's receipt of Lessee's notice of damage or destruction. In no event shall
Lessor be required to restore or repair Lessee's personal property or other
contents within the Leased Premises. Due allowance shall be made for reasonable
delay which may arise by reason of Lessor's adjustment of loss under insurance
policies and on account of labor troubles or any other cause beyond Lessor's
control. To the extent that the Leased Premises are rendered untenantable, the
Rent and Additional Rent shall proportionately abate. If the damage or
destruction is not covered by insurance maintained by Lessor or if insurance
proceeds respecting the damage or destruction are not subject to being utilized
for repair and, in fact, may be not so utilized, Lessor shall not be required to
repair the damage or destruction. In the event the damage or destruction is so
extensive to the building of which the Leased Premises are a part as to render
it uneconomical, in Lessor's opinion, to restore the Leased Premises, the Lease,
at the option of Lessor, shall be terminated upon written notice to Lessee and
Lessee shall immediately thereafter vacate the Leased Premises and surrender the
same to Lessor. No such termination shall release Lessee from any liability to
Lessor from any of the obligations or duties imposed on Lessee under this Lease
prior to the damage. Upon any termination of this Lease pursuant to his
Paragraph 13(a), Rent and Additional Rent shall be prorated and adjusted to the
date of such termination.
(b) Lessee hereby waives any and all right of recovery which it
might otherwise have against Lessor, its agents and employees, for loss or
damage to Lessee's contents, furniture, furnishings, fixtures and other property
removable by Lessee under the provisions of this Lease to the extent that the
same is to be covered by Lessee's insurance thereunder, except where such loss
or damage may result from the negligence of fault of Lessor, its agents,
employees or contractors.
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14. EMINENT DOMAIN
--------------
(a) If during the term of this Lease, the Leased Premises, or
such a substantial portion of the Leased Premises as shall prevent Lessee from
conducting its normal business, shall be taken by proper authority for public or
quasi-public use, then Lessee may terminate this Lease by giving Lessor written
notice of termination within thirty (30) days after receipt of notice of the
taking, and Lessee's obligation to pay rent, taxes, and other charges shall
terminate as of the date of the termination notice. If only a part of the Leased
Premises is taken and the part not taken shall be reasonably sufficient for the
purpose of conducting Lessee's normal business, this Lease shall remain in full
force and effect, except that the Rent and Additional Rent shall be
proportionately reduced.
(b) All compensation awarded for any taking shall belong to and
be the property of Lessor. Nothing contained herein, however, shall be construed
to preclude Lessee from prosecuting any claim directly against the condemning
authority for loss of business or depreciation, damage or cost of removal of
personal property belonging to Lessee so long as the claim does not diminish or
otherwise adversely affect Lessor's award or the award otherwise payable to
Lessor's mortgagee.
15. CONDITION OF LEASED PREMISES; MAINTENANCE AND REPAIR
----------------------------------------------------
(a) Except for the repairs that Lessor is specifically obligated
to make under Paragraph 15(b) hereof, and except for repairs covered by
contractor warranties held by Lessor for Lessor's benefit, during the term of
this Lease, Lessee, at Lessee's sole cost and expense, shall promptly make all
repairs, perform all maintenance, perform all custodial services and make all
replacements in and to the Lease Premises that are necessary in order to keep
the Leased Premises in good order and repair and in a safe and tenantable
condition. Without limiting the generality of the foregoing, Lessee, at its sole
cost and expense, is specifically required to make promptly all repairs to (i)
any pipes, water and waste lines, ducts, wires or conduits beneath or in the
Leased Premises or within the ceiling of the Leased Premises; (ii) any glass
windows included within the Leased Premises; (iii) Leasee's sign(s); (iv) any
electrical, natural gas (if any), heating, ventilating and air conditioning,
plumbing, and other systems, equipment, fixtures and items installed in or
servicing the Leased Premises; (v) the floors, ceilings and walls of the Leased
Premises; (vi) the entrance and exit and auxiliary driveways, if any, which are
part of and service the Leased Premises; and (vii) any portion of the Leased
Premises damaged by Lessee's use or occupancy of the Leased Premises or by any
act, omission or negligence of Lessee, or any of its respective employees,
agents, invitees, licensees or contractors. All repairs, and replacements made
by Lessee shall utilize materials and equipment which are at least equal in
quality and usefulness to those originally used in the Leased Premises. Lessee,
at Lessee's expense, shall enter into one (1) or more service contracts for the
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maintenance of the heating, ventilating and air conditioning systems and
equipment. Lessee shall keep the Leased Premises free of all insects, rodents,
vermin and pests of every type and kind. Lessee shall also, promptly and at its
own expense, keep any sidewalks and curbs adjacent to the Leased Premises clean
and free from snow, ice, dirt and rubbish. Lessee shall not (directly or by
sufferance) place any equipment, materials or debris on the roof of the Leased
Premises, or cut, drive nails into or otherwise mutilate such roof.
(b) Lessor shall within thirty (30) days (or such longer period
of time as may reasonably be required by Lessor) after written notice from
Lessee with respect thereto, make necessary structural repairs to the exterior
walls and shall keep in good order, condition and repair the exterior
foundations, downspouts, gutters and roof of the Leased Premises and the portion
of the plumbing and sewage system located outside the building in which the
Leased Premises are located (it being understood and agreed that Landlord's
obligations exclude the exterior and interior of all windows, doors, plate glass
and signs, and repairs required by any casualty except as otherwise covered by
Paragraph 13 herein). Lessee shall, upon demand, reimburse Lessor for reasonable
costs of making any such repairs or replacements caused by Lessee's use or
occupancy of the Leased Premises or by any act, omission or negligence of
Lessee, any subtenant or concessionaire of Lessee, or their respective
employees, agents, invitees, licensees or contractors (excluding repairs or
replacements caused by Lessee's normal use).
(c) Lessee hereby covenants to contain all garbage, rubbish,
waste, trash and debris generated in conjunction with its use of the Leased
Premises in containers provided by Lessor (which shall be emptied no more than
three times per week, but at least once a week) so as not to constitute a safety
or fire hazard.
16. ALTERATIONS
-----------
Lessee shall not make any non-structural interior alterations,
additions or improvements in or to the Leased Premises without the prior written
consent of Lessor in each instance, which consent shall not be unreasonably
withheld or delayed. Lessee shall not take any structural or exterior
alterations, additions or improvements to the Leased Premises without the prior
written consent of Lessor. Should Lessor fail to respond within fifteen (15)
working days after Lessor's receipt of any written request from Lessee for
Lessor's consent to any proposed alterations, additions or improvements,
Lessor's consent shall be deemed to have been granted. All permitted
alterations, additions and improvements made by Lessee shall be performed (i) in
a good and workmanlike manner, (ii) in accordance with all applicable legal and
insurance requirements, (iii) only after receipt by Lessee and presentation to
Lessor of all necessary permits and licenses, and (iv) at Lessee's sole expense.
Except for Lessee's removable trade fixtures, and all improvement made by Tenant
in the processing and storage areas, all improvements, repairs, alterations and
additions and all other non-trade fixtures, whether installed before or after
the execution of this Lease, shall remain upon the Leased Premises at the
expiration or sooner termination of this Lease and become the property of Lessor
without payment therefor by Lessor, unless prior to the termination of this
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Lease, Lessor shall have given written notice to Lessee to remove the same, in
which event Lessee, at its expense, will remove such alterations, improvements,
additions and/or fixtures and repair and restore any and all damage to the
Leased Premises caused by the installation and/or removal thereof.
17. SIGNS
-----
Lessee may not install any sign without Lessor's prior written
consent. All signs shall be in strict compliance with the sign criteria set
forth in Exhibit "C" attached hereto and made part hereof. Lessee shall install
all exterior signs for the Leased Premises at the cost and expense of Lessee. No
sign, advertisement or notice shall be inscribed, painted, affixed or otherwise
displayed on any part of the outside or the inside of the Leased Premises or the
building of which the Leased Premises are a part, unless Lessor shall have
approved the sign, advertisement, or notice in writing prior to installation of
the same. If any sign, advertisement, or notice is exhibited by Lessee without
having first obtained Lessor's approval thereof, Lessor shall have the right to
remove the same and Lessee shall be liable for any and all expenses incurred by
Lessor in said removal. No signs made of paper and visible from outside of the
Leased Premises shall be allowed in the Leased Premises. No mobile sign, such as
may be affixed to the side of a truck or a trailer or a mobile platform shall be
permitted in the parking area.
18. LAWS AND INSURANCE STANDARDS
----------------------------
Lessee shall, at Lessee's sole expense, promptly comply in every
respect with all applicable laws, ordinances, rules and regulations of all
federal, state, county, and municipal governments now in force or that may be
enacted in the future, all applicable and enforceable directions, rules and
regulations of the fire marshall, health officer, building inspector or other
proper officers of any governmental agency having jurisdiction, and the
applicable standards established from time to time by the National Board of Fire
Underwriters, the National Fire Protective Association, or any similar bodies.
Lessee expressly covenants and agrees to indemnify and save Lessor harmless from
any penalties, damages or charges imposed for any violation of the foregoing.
Notwithstanding the foregoing, Lessee shall not be required to make any changes
or modifications to the Leased Premises, unless (a) the same are required due to
Lessee's specific use and/or occupancy of the Leased Premises, (b) the same are
required due to structural specifications (beyond building standard) required by
Lessee, or (c) the same relate to repairs, maintenance or other responsibilities
of Lessee under this Lease, e.g., Paragraph 15(a) hereof.
19. MECHANIC'S LIENS
----------------
Lessee shall do all things necessary to prevent the filing of any
mechanics' or other liens against the Leased Premises, or the land the building
of which the Leased Premises are part, by reason of work, labor, services or
materials supplied or claimed to have been supplied to Lessee or anyone holding
the Leased premises, through or under Lessee. If any lien shall at any time be
filed, Lessee shall either cause the lien to be discharged of record within ten
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(10) days after knowledge of its filing or, if Lessee in its discretion and good
faith determines that the lien should be contested, shall furnish such security
as may be necessary to prevent the filing of any foreclosure proceedings during
the pendency of the contest. If Lessee shall fail to discharge any lien within
such period or fail to furnish such security, then, in addition to any other
right or remedy, Lessor may, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge of
lien by deposit in court or by giving security or in such other manner as is or
may be prescribed by law. Lessee shall repay to Lessor on demand all sums
disbursed or deposited by Lessor pursuant to the foregoing provisions, including
the expenses and reasonable attorneys' fees incurred by Lessor. Nothing
contained in this Lease shall imply that Lessee has any authority or consent
from Lessor to subject Lessor's estate to any mechanics', materialman's or other
lien.
20. ASSIGNMENT AND SUBLETTING
-------------------------
(a) Lessee shall not assign, mortgage or encumber any interest in
this Lease or sublet all or any part of the Leased Premises without the prior
written consent of Lessor. Lessor shall not unreasonably withhold or delay its
consent to an assignment or subletting of this Lease.
(b) No permitted assignment or subletting shall release,
discharge or affect the liabilities of Lessee as provided for in this Lease, and
Lessee shall at all times remain primarily liable under this Lease. An
assignment by operation of law shall be deemed a prohibited assignment under
this Paragraph.
21. INSOLVENCY
----------
Lessor may, at its option, declare this Lessee terminated and
reenter and resume possession of the Leased Premises, if Lessee shall be
adjudicated a bankrupt or insolvent, or if a receiver or trustee shall be
appointed for Lessee's business or property, or if Lessee shall file a petition
in bankruptcy or insolvency, or if a petition or other proceeding shall be filed
by or against Lessee seeking corporate or other reorganization, liquidation or
other similar relief or if Lessee shall make an assignment or an arrangement for
the benefit of creditors, or if an involuntary petition shall be filed against
Lessee in bankruptcy or insolvency and such petition shall not be dismissed
within sixty (60) days.
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22. REMEDIES CUMULATIVE
-------------------
The various rights, elections and remedies of Lessor contained in
this Lease shall be cumulative, and no one of them shall be construed as
exclusive of any of the others, or of any right, priority or remedy allowed or
provided for by law.
23. WAIVER OR DEFAULT
-----------------
The waiver by either party of any default in the performance by
the other of any covenant shall not be construed to be a waiver of any preceding
or subsequent default of the same or any other covenant contained herein. The
subsequent acceptance of Rent or other sums by Lessor shall not be deemed a
waiver of any preceding default other than the failure of Lessee to pay the
particular rental or other sum so accepted.
24. HOLDING OVER
------------
If Lessee shall hold possession of the Leased Premises after the
end of the term or other termination of this Lease, Leases shall be deemed to be
occupying the Leased Premises as a tenant from month to month, subject to all of
the conditions, provisions and obligations of this Lease; provided, however,
Lessee shall be liable for any and all damages and expense that Lessor may
sustain by virtue of Lessee's holding over, including, but not limited to, any
amount for which Lessor may be liable under, or as a result of, any other lease
entered into by Lessor for a term beginning at or after the expiration of the
term of this Lease. Nothing contained in this Lease shall be construed as a
consent by Lessor to the occupancy or possession of the Leased Premises by
Lessee after the expiration of the term of this Lease. Rather, at the end of the
term of the Lease, Lessor shall be entitled to the benefit of all laws or
ordinances relating to the recovery of the possession of lands and tenements
held over by tenants that now may be in force or hereafter may be enacted, and
Lessor may proceed under such laws or ordinances, without notice to Lessee, all
statutory notice requirements being expressly waived by Lessee.
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25. SURRENDER
---------
Upon the expiration of the term of this Lease, Lessee immediately
shall surrender the Leased Premises broom-clean and in good order and condition,
ordinary wear and tear excepted. All of Lessee's personal property at or about
the Leased Premises (but not permanently affixed parts of the Leased Premises)
shall be removed by Lessee at or before the expiration of this Lease or shall be
deemed abandoned by Lessee. Any damage to the Leased Premises caused by such
removal shall be repaired by Lessee at its own expense.
26. DEFAULT
-------
(a) If Lessee fails to pay any Rent or Additional Rent when due
and such failure continues for a period of five (5) days after Lessor shall have
made written demand on Lessee for payment, or if Lessee otherwise is at any time
in default under this Lease and continues in such default for a period of thirty
(30) days after Lessor shall have demanded in writing to Lessee that such
default be cured, or if such latter default is not capable of being cured within
a fifteen (15) day period, such additional time (not to exceed forty-five (45)
days) as is reasonably necessary to cure such default, provided Lessee promptly
commences and diligently pursues to cure such default, then Lessor may, at
Lessor's option, terminate this Lease (without releasing Lessee of liability)
and by summary proceedings or other manner prescribed by law, reenter and take
possession of the Leased Premises. If Lessor should so terminate this Lease,
Lessee shall pay to Lessor as damages, upon demand, all expenses (including,
without limitation, attorneys' fees) of any proceedings necessary in order for
Lessor to recover possession of the Leased Premises and the expenses of
reletting the Leased Premises (including, without limitation, reasonable
attorneys' fees, brokerage commissions, and the costs of putting the Leaded
Premises in good order and preparing it for reletting, plus either:
(i) Liquidated damages in an amount equal to the excess, if
any, of the Rent and Additional Rent that would have been payable over the
unexpired portion of the term of this Lease over the rental value of the Leased
Premises for such unexpired portion of the term of this Lease, as discounted at
the then publicly declared prime rate of the Federal Bank in Baltimore,
Maryland; or
(ii) Damages in an amount to the excess, if any, of the
monthly Rent and Additional Rent over the monthly rentals, if any, if fact
collected by Lessor as the result of a reletting of the Leased Premises at such
rent and upon such terms as Lessor, in its sole discretion, elects to accept.
Separate actions may be maintained each month by Lessor to recover the damages
then due as provided for in this subparagraph (ii) and any such action shall not
prejudice the rights of Lessor to collect damages for any subsequent month in a
similar proceeding.
(b) No re-entry or reletting of the Leased Premises, whether or
not the term of such reletting extends beyond the term of this Lease, shall be
construed as an election by Lessor to: (i) accept a surrender of the Leased
Premises, or (ii) release Lessee of any of its obligations under this Lease.
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(c) Should Lessor, pursuant to its rights under Paragraph 26(a)
hereof, elect to terminate this Lease and reenter and take possession of the
Leased Premises, Lessor shall use commercially reasonable efforts, under then
prevailing circumstances, to relet the Leased Premises.
27. ACCESS TO LEASED PREMISES
-------------------------
(a) Lessor and its designees shall have the right (subject to
being accompanied by Lessee's representative at all times for security reasons)
to enter upon the Leased Premises at all reasonable hours, after 24 hours
notice, (and in emergencies, at all times): (i) to inspect the same; (ii) to
make repairs, additions, or alterations to the Leased Premises or the building
in which the same are located or any property owned or controlled by Landlord;
(iii) to exhibit the Leased Premises to any prospective buyer, lessee or
mortgagee or their respective agents or representatives; and (iv) for any lawful
purpose.
(b) For a period commencing three (3) months prior to the end of
the term, Lessor may have reasonable access to the Premises for the purpose of
exhibiting the same to prospective tenants and to post any "For Rent" or "For
Lease" signs upon the Leased Premises.
28. SUBORDINATION AND ATTORNMENT
----------------------------
(a) This Lease is subject and subordinate to the lien of all
present and future mortgages and/or deeds of trust encumbering the Leased
Premises, all present and future advances under such mortgages and/or deeds of
trust, and all renewals, extensions, modifications, recastings or refinancings
of such mortgages and/or deeds of trust. Lessee agrees that, in the event any
proceedings are brought under or for the foreclosure of any such mortgage and/or
deed of trust, Lessee shall, if requested to do so by the beneficiary under or
holder of such mortgage and/or deed of trust or by any successor in interest to
such beneficiary or holder, automatically become the lessee of such beneficiary,
holder or successor in interest and shall automatically attorn to such
beneficiary, holder and/or successor in interest and recognize such beneficiary,
holder and/or successor in interest as the Lessor under this Lease. In
confirmation of such attornment, however, Lessee shall, at the request of Lessor
or any beneficiary, holder or successor in interest, promptly execute any
requisite or appropriate certificate or other document for the benefit of such
beneficiary, holder and/or successor in interest.
(b) In the event that, after the date of this Lease, a bona fide
loan shall be made by an insurance company, savings bank, commercial bank, trust
company, or other lender and secured by a mortgage or deed of trust constituting
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a lien against any portion of the Leased Premises and said lender shall
complete, execute and acknowledge a subordination, attornment, and
non-disturbance agreement, then and in that event, Lessee shall subordinate this
Lease to said mortgage or deed of trust by executing and acknowledging the said
subordination, attornment and non-disturbance agreement.
(c) Upon any assignment or termination of Lessor's interest in
the Leased Premises, Lessee shall, upon request, attorn in writing to the new
owner of the Leased Premises and shall pay to the new owner all rents and other
monies required to be paid and perform all of the other obligations of Lessee
under this Lease. Following any sale by Lessor of the property of which the
Leased Premises are a part, all obligations to the assigning Lessor to Lessee
shall cease and terminate and Lessee shall look solely to the successor for the
performance of Lessor's duties hereunder.
(d) Notwithstanding the foregoing, this Lease shall not be
terminated so long as Lessee is not in default of any provisions in this Lease.
(e) Lessor shall, within fifteen (15) days after the date hereof
(or prior to the effective date of any encumbrance mentioned in this Section 28
created after the date hereof) obtain from the holder of any such encumbrance,
an agreement whereby if such holder or any successor in interest shall come into
possession of the Leased Premises, or any part thereof, by dispossession,
foreclosure or otherwise, or shall become the owner of such property, or take
over the rights of Lessor to such property, said holder shall not disturb the
possession, use or enjoyment of the Leased Premises by Lessee, its successors or
assigns, nor disaffirm this Lease or Lessee's rights or estate granted
hereunder, so long as Lessee performs all of its obligations in accordance with
the terms of this Lease.
29. RIGHT TO CURE DEFAULTS
----------------------
(a) If Lessee shall fail to comply fully with any of its
obligations under this Lease, then, in addition to Lessor's other rights, but
not the duty, to cure such breach at Lessee's expense. Lessee agrees to
reimburse Lessor, within fifteen (15) days after Lessor submits a statement of
the amount due, as Additional Rent, for all expenses incurred by Lessor as a
result of any efforts made by Lessor to cure any such breach.
(b) If Lessor shall fail to comply fully with any of its
obligations under this Lease, then, in addition to Lessee's other rights and
remedies under this Lease at law and in equity, Lessee shall have the right, but
not the duty, to cure such breach at Lessor's expense; provided that prior to
the exercise of such right to cure, Lessee shall give Lessor written notice
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specifying the nature of the breach and Lessor shall be entitled to ten (10)
days after receipt of such notice within which to cure said breach or such
additional time as may be necessary if such breach is not susceptible to cure
within said ten (10) days, in which case Lessor shall commence to cure within
said ten (10) day period. Lessor agrees to reimburse Lessee, within fifteen (15)
days after Lessee submits a statement of the amount due, for all expenses
incurred by Lessee as a result of any efforts by Lessee to cure any such breach.
If Lessor fails to reimburse Lessee as aforesaid, Lessee may offset the amount
due against the payments of Rent becoming due hereunder unless Lessor give
written notice of dispute within said fifteen (15) day period either to the
existence of any default or the reasonableness of the amount expended to cure.
In the event such notice of dispute is given, the provisions of subparagraph (c)
shall govern. The right to setoff against Rent shall be subordinate to and there
shall be no setoff against the holder of any mortgages or deed of trust or any
purchaser at foreclosure or deed in lieu thereof on all or any portion of the
Leased Premises. The amount of all setoffs shall be limited to the cumulative
sum of One Hundred Thousand Dollars ($100,000.00).
(c) If Lessor has given notice of dispute as provided in
subparagraph (b), Lessee may have the issues of whether the Lessor is in default
of its obligations or the reasonableness of the amount of expenditures
determined by arbitration. Pending the results of such arbitration, there shall
be no setoff. In the event the arbitrators determine that Lessor was in default,
Lessor shall pay all costs of arbitration and Lessee shall have the right to
offset all of its costs and expenses of remedying such default (including
unreimbursed costs of the arbitration proceeding) against the payments of Rent
becoming due hereunder, subject to the limitations set forth in subparagraph (b)
above. If the arbitrators determine that Lessor was not in default, then Lessee
will pay all of the arbitration.
(d) If Lessor is determined to be in default in its obligations
under Paragraph 15(c) of this Lease and Lessee shall remedy such default in
accordance with the preceding paragraph, Lessee shall be entitled to offset one
hundred fifteen percent (115%) of the costs and expenses of remedying such
default, with the additional fifteen percent (15%) being to reimburse Lessee for
its overhead.
30. BROKERAGE
---------
Lessor hereby acknowledges that Montgomery Realty ("Broker") has
served as Lessor's agent in connection with this Lease and agrees to pay said
Broker a commission as per a separate agreement between Lessor and Broker.
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Lessor warrants to Lessee and Lessee warrants to Lessor that it has not dealt
with any other broker or real estate agent or finder in connection with this
Lease and that, except for the aforesaid commission payable to Broker, no right
or claim for commission or other compensation has been created by its actions
with respect to this Lease. Lessor and Lessee shall indemnify and hold each
other harmless against all loss, liability or expense, including reasonable
attorney's fees and litigation costs, incurred by the other to the extent one or
the other is shown to be in breach of the foregoing warranties.
31. EFFECT OF CONVEYANCE
--------------------
If during the term of this Lease Lessor sells its interest in the
Leased Premises or this Lease, then from and after the effective date of such
sale, Lessor shall be released and discharged from any and all further
obligations and responsibilities under this Lease except those already accrued.
Any such sale shall be subject to this Lease and Lessor shall require any
purchaser to acknowledge the existence of Lessee's tenancy.
32. INTERPRETATION
--------------
The captions by which the paragraphs of this Lease are identified
are for convenience only and shall have no effect upon the interpretation of
this Lease. Whenever the context so requires, the singular number shall include
the plural, and plural shall refer to the singular and the neuter gender shall
include the masculine and feminine genders. If any provision of this Lease shall
be held to be unenforceable by a court, the remaining provisions shall remain in
effect and shall in no way be impaired.
33. ENTIRE INSTRUMENT
-----------------
All of the agreements previously and contemporaneously made by the
parties are contained in this Lease, and this Lease cannot be modified in any
respect except by a writing executed by Lessor and Lessee.
34. ESTOPPEL CERTIFICATES
---------------------
Recognizing that both parties may find it necessary to establish
to third parties, such as accountants, banks, mortgagees or the like, the then
current status of performance hereunder, either party, on the written request of
one to the other made from time to time, will promptly furnish a written
certificate on the status of any matter pertaining to this Lease in such form
and substances as may from time to time be reasonably required.
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35. NOTICES
-------
Any notices and other communications required or permitted to be
given by either party to the other shall be in writing and shall be deemed to
have been served when hand delivered or, if the United States Mail is used, on
the second business day after the notice is deposited in the United States Mail,
postage prepaid, registered or certified mail, or by overnight delivery service,
and addressed to the parties as follows:
To Lessee: Jacques R. Rubin
9000 Virginia Manor Road, Suite 290
Beltsville, Maryland 20705
To Lessor: Muirkirk Manor Associates Limited Partnership
9000 Virginia Manor Road, Suite 201
Beltsville, Maryland 20705
Either party, by written notice to the other, may change its address to which
notices are to be sent.
36. WAIVER
------
Any waiver of either Lessor or Lessee of any default, breach or
failure by the other to comply with any term, condition, or provision of this
Lease shall not constitute a waiver of any other default, breach or failure by
such defaulting party. No covenant, term or condition of this Lease shall be
deemed to have been waived by either party unless such waiver be in writing and
signed by the party to be charged therewith.
37. QUIET ENJOYMENT
---------------
So long as Lessee is not in default beyond applicable grace
periods, Lessee shall have peaceful and quiet use and possession of the Leased
Premises without hindrance on the part of Lessor or any person claiming by,
through or under Lessor.
38. RECORDING THIS LEASE
--------------------
Lessee may not record either this Lease nor a memorandum thereof
among or in any public records without Lessor's prior written consent.
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39. GOVERNING LAW
-------------
All questions with respect to construction of this Lease and the
rights and liabilities of the parties shall be determined in accordance with the
laws of the State of Maryland.
40. BENEFIT
-------
Subject to the restrictions on assignment and subletting set forth
in Paragraph 20, the covenants, terms and conditions of this Lease shall inure
to the benefit of and be binding upon Lessor and Lessee and their respective
successors and assigns.
41. REASONABLE CONSENT
------------------
Wherever in this Lease Lessor or Lessee is required to obtain the
consent or approval of the other, it is agreed that such consent or approval
shall not be unreasonably withheld or delayed.
42. TIME OF ESSENCE
---------------
Time is of the essence in the performance of all of Lessor and
Lessee's obligations under this Lease.
(See Lease Addendum for Paragraphs 43 and 44)
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IN WITNESS WHEREOF, the parties have executed this Lease on the day and
year first above written.
WITNESS: LESSOR:
MUIRKIRK MANOR ASSOCIATES
LIMITED PARTNERSHIP,
a Maryland limited partnership
By: THE ANASTASI STEPHENS GROUP, INC.
/s/ Cindi R. Caplan /s/ Joseph Anastasi
- ------------------- -------------------
WITNESS: LESSEE:
BIO SCIENCE CONTRACT PRODUCTION CORP.
a Maryland corporation
/s/ Cindi R. Caplan /s/ Jacques R. Rubin, President
- ------------------- -------------------------------
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EXHIBIT "B" (PART II)
LEASE ADDENDUM
--------------
(PARK PLACE)
THIS LEASE ADDENDUM made as of the 12 day of November, 1991, is
attached to and made part of that certain Lease of even date herewith (the
"Lease") by and between MUIRKIRK MANOR ASSOCIATES LIMITED PARTNERSHIP, a
Maryland limited partnership ("Lessor"), and Bio Science Contract Production
Corp., a Maryland corporation ("Lessee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lessor and Lessee have agreed to amend, supplement and/or
modify the Lease as herein provided, Landlord and Tenant hereby agree as
follows:
2. TERM - OPTION
-------------
Lessee, at its option, shall have the right to extend the Term of this
Lease on the same terms and conditions, as the original term thereof, except as
otherwise provided in this Addendum with respect to the amount of Base Rent due
during the respective extension period, for Two (2) additional consecutive term
of Five (5) years (the "Extension Period"), subject to the satisfaction of the
following conditions:
(i) Lessee's option to extend the Lease for the Extension Period shall
be exercisable only by written notice to Lessor at least ninety (90) days prior
to the commencement date of the Extension Period. If Lessee does not give Lessor
written notice as aforesaid, Lessee shall be deemed to have not exercised its
respective extension option.
(ii) At the time of exercise of the option and at the commencement of
the Extension Period, Lessee shall not be in default under the Lease beyond any
applicable grace period.
(iii) Upon exercising the option, the Base Rent will be the product
obtained by multiplying the Base Rent for the immediately preceding Lease Year
by one hundred four percent (104%).
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LESSEE IMPROVEMENTS
-------------------
(a) Lessor has agreed to construct and complete the installation
of lessee improvements, as set forth in Exhibit "B" to the Lease, within a
budget of one hundred and twenty thousand and 00/100 ($120,000.00) toward the
improvements requested by the lessee and it is agreed that the demising wall and
.60 per S.F. for design is part of the above allowance. It is agreed that all
plans, specifications, the General Contractor and its sub contractors, as well
as their work schedule, will be approved by the lessor or its Architect.
Payments to the General Contractor will be made in accordance with the schedule
and method established by the lessor and its lender.
(b) In the event that the cost of constructing and installing the
lessee improvements to the Leased Premises exceeds the $120,000.00, lessee shall
pay directly to the General Contractor the difference between the cost and the
allowance.
(c) It is further agreed that the Lessee accepts Suite 280
(formerly occupied by Homes Oil) in as is condition and the above allowance in
(a) will be used for improvements, if any, in that suite.
IN WITNESS WHEREOF, the parties have executed this Lease Addendum on
the day and year first above written.
ATTEST: LESSOR:
MUIRKIRK MANOR ASSOCIATES LIMITED
PARTNERSHIP,
A Maryland limited partnership
By: THE ANASTASI STEPHENS GROUP, INC.,
its general partner
/s/ Cindi R. Caplan By: /s/ Joseph Anastasi
- ------------------- -------------------
LESSEE:
BIO SCIENCE CONTRACT PRODUCTION CORP.
a MARYLAND corporation
/s/ Cindi R. Caplan By: /s/ Jacques R. Rubin, President
- ------------------- -------------------------------
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EXHIBIT "C"
THIRD LEASE
-----------
LEASE
-----
(PARK PLACE)
THIS LEASE, made as of this 20th day of March, 1992, by and between
MUIRKIRK MANOR ASSOCIATES LIMITED PARTNERSHIP, a Maryland Limited partnership
("Lessor"), and BIO SCIENCE CONTRACT PRODUCTION CORP., a Maryland corporation
("Lessee").
W I T N E S S E T H:
- - - - - - - - - -
That in consideration of the rent and mutual covenants and agreements
contained herein, and intending to be legally bound hereby, Lessor and Lessee
agree as follows:
1. DEMISED PREMISES
----------------
The Lessor leases to the Lessee all of that certain space
described as Suite No. 260, 9000 Virginia Manor Road, containing approximately
8,100 square feet of gross leasable area, as is outlined in red on the plat
attached to and made a part of this Lease as Exhibit "A" (the "Leased
Premises"), and located in Park Place, Prince George's County, Maryland. Lessor
shall construct and complete the Leased Premises in compliance with the plans
and specifications set forth in Exhibit "B" attached hereto and made part
hereof. "Delivery of Possession" of the Leased Premises by Lessor to Lessee
shall be deemed to have been made when Lessor's architect certifies in writing
that construction of the Leased Premises shall have been completed.
2. TERM
----
The term (the "Term") of this Lease shall be for a term of Eight
(8) years, eleven (11) months, commencing on the 1sT day of April, 1992, (the
"Commencement Date") and shall expire on the last day of February, 2001. If the
Term of the Lease does not begin on the date specified herein for reasons other
than the fault of Lessee, then the expiration date shall be moved for the
commensurate amount of the delay and the rent shall be prorated accordingly. If
the term commences or ends in mid-month, the rent payable for that month
(including, without limitation, Additional Rent) shall be prorated and paid on
the date of commencement or termination.
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3. RENT
----
(a) The rent (the "Base Rent") shall be:
Year Square Foot Rate
---- ----------------
1 $ 9.50
2 $ 9.53
3 $ 10.18
4 $ 10.53
5 $ 10.90
6 $ 11.28
7 $ 11.68
8 $ 12.09
9 $ 12.51
The term "Lease Year" shall mean each twelve (12) month period during the term
of this Lease commencing on the Commencement Date. The Base Rent shall be
payable, in advance, in equal monthly installments, the first monthly
installment to be due and payable on the Commencement Date and each subsequent
monthly installment to be due and payable on the first day of each and every
month thereafter during the term of this Lease.
(b) All moneys payable by Lessee under the terms of this Lease,
other than Base Rent, as adjusted from time to time, shall be deemed "Additional
Rent."
(c) Lessee shall make all payments of Base Rent and Additional
Rent on a timely basis, without demand and without deduction, setoff or
counterclaim, except as expressly permitted in Paragraph 29(b) hereof. All
payments of Rent and Additional Rent shall be made by good and valid check,
payable to The Anastasi Stephens Group, Inc., agent, 9000 Virginia Manor Road,
Suite 201, Beltsville, Maryland 20705, or to such other party or to such other
address as Lessor may designate from time to time by written notice to Lessee.
If Lessor shall at any time or times accept Base Rent or Additional Rent after
it shall become due and payable, such acceptance shall not excuse delay upon
subsequent occasions, or constitute, or be construed as, a waive of any or all
of Lessor's rights hereunder. If any payment of Base Rent or Additional Rent is
not made within ten (10) days of when due, a late charge of five percent (5%) of
the amount of such payment shall be imposed, Lessor shall be entitled to require
the payment of Base Rent and Additional Rent by certified check if the check for
any payment by Lessee shall be dishonored by its Bank.
(d) Except for the obligations of Lessor expressly set forth
herein, this Lease is a "net lease" and Lessor shall receive the Base Rent
hereinabove provided as net income from the Leased Premises, not diminished by
any imposition of any expenses or charges required to be paid to maintain and
carry the Leased Premises or to continue the ownership of Lessor, other than
payments under any mortgages now existing or hereafter created by Lessor, and
Lessor is not and shall not be required to render any services of any kind to
Lessee.
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4. SECURITY DEPOSIT
----------------
(a) Lessee has, simultaneously with the execution of this Lease,
deposited with Lessor, in cash or by check subject to collection, the sum of
eight thousand ($8,000.00). Said deposit shall be held as security for the
faithful performance by Lessee of the terms, covenants, provisions and
conditions of this Lease. It is agreed that in the event Lessee defaults in
respect to any of the terms, covenants, provisions and conditions of this Lease,
including (but not limited to) the payment of Base Rent or Additional Rent, and
fails to cure any such defaults within applicable grace periods, Lessor may use,
apply or appropriate the whole or any part of the security so deposited to the
extent required for the payment of any Base Rent or Additional Rent or for the
curing of any defaults by Lessee hereunder pursuant to Paragraph 29 hereof;
provided, however, that no such use, application, or appropriation of the
deposit shall be deemed to relieve Lessee of any breach of this Lease and shall
be in addition to other remedies under this Lease.
(b) Should the entire deposit or any portion thereof be
appropriated and applied by Lessor under the foregoing provisions, then Lessee
shall (upon the written demand of Lessor) forthwith remit to Lessor a sufficient
amount in cash to restore said security to the original sum deposited, and
Lessee's failure to do so within ten (10) days after receipt of such demand
shall itself constitute an event of default under this Lease.
(c) The security deposit (less any amounts applied as provided in
subsection (a) above) shall be returned to Lessee within thirty (30) days after
the date fixed as the end of the Term of this Lease and delivery of entire
possession of the Leased Premises to Lessor.
(d) In the event of a sale, leasing or other transfer of the land
and building of which the Leased Premises forms a part, Lessor shall have the
right to transfer the security and be released by Lessee from all liability for
the return of such security deposit. Lessee shall look to the new Lessor solely
for the return of said deposit. The provisions of this Paragraph 4(d) shall
apply to every transfer or assignment made of the security deposit to a new
Lessor.
(e) Lessee covenants that it will not assign or encumber or
attempt to assign to encumber the security deposited herein and that neither
Lessor nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
(f) Lessee shall not be entitled to any interest on the security
deposit, and such funds need not be segregated or held as escrow by Lessor.
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(g) It is expressly understood and agreed that, in the event of
any termination of this Lease or re-entry upon or reletting of the Leased
Premises on account of any default on the part of Lessee under this Lease, then,
and in such event, the deposit shall be retained and be subject to appropriation
by Lessor until this Lease would, by its terms, have expired absent such
default.
5. USE
---
Lessee will use and occupy the Leased Premises solely for the
purpose of Offices and operation of a vaccine research and production facility.
The Leased Premises may not be used for any other purpose without the prior
written consent of Lessor, which consent shall not be unreasonably withheld. The
Leased Premises shall not be used for the storage, distribution or sale of any
pornographic or "adult rated" materials. Lessee shall not use the Leased
Premises for any purpose or activity which is noxious or unreasonably offensive
because of the emission of noise, smoke, dust, vibration or odors. Tenant shall
not use the plumbing facilities for any purpose injurious to same or dispose of
any garbage or any other foreign substance therein, nor place a load on any
floor in the Leased Premises exceeding the floor load of 250 per square foot
which such floor was designed to carry, nor install, operate and/or maintain in
the Leased Premises and heavy equipment which could cause injury to the Lease
Premises, nor install, operate and/or maintain in the Leased Premises any
electrical equipment which will overload the electrical system therein, or any
part hereof, beyond its capacity for proper and safe operation as determined by
the Lessor or which does not bear underwriter's approval. Lessee shall not use
the Leased Premises in any manner or for any purpose which violates any rule,
regulation, law, ordinance, or requirements of any governmental agency.
6. TAXES
-----
(a) As additional rent hereunder, at least thirty (30) days
before any fine, penalty or interest or cost may be added thereto for the
non-payment thereof (or sooner if elsewhere herein required), Lessee shall pay
throughout the term of this Lease all levies, taxes, assessments, water and
sewer rents and charges, liens, charges for public utilities and all other
charges, imposts or burdens of whatsoever kind and nature which at any time
during the term of this Lease may be assessed or imposed by any federal, state
or municipal government or public authority, or under any law, ordinance
regulation thereof or pursuant to any recorded covenants or agreements (all of
which are hereinafter referred to as "Impositions"), upon or with respect to the
Leased Premises, any improvements made thereto, or this Lease. Additionally,
Lessee shall pay a proportionate share of any Imposition which is not imposed
upon the Leased Premises as a separate entity but which is imposed upon the land
or the building or upon the appurtenances, leases, rents, transactions or
documents relating to the lot or the building. Provided, however, that any
Imposition shall be apportioned for the first and last fiscal tax years covered
by the term hereof. "Impositions" shall include, but not be limited to, any and
all governmental or quasi-governmental levies, fees, assessments, taxes and
charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, of any kind and nature whatsoever, with respect to such land and
building (excluding taxes paid on Lessor's income but including sales tax or
excise tax imposed by any governmental authority upon the Base Rent payable by
Lessee hereunder).
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(b) Notwithstanding the foregoing provisions of this Article 6,
Lessor shall have the right, at its option, to require Lessee to pay to Lessor
or to any mortgagee, at the time when the monthly installment of Base Rent is
payable, an amount equal to one-twelfth (1/12) of the annual impositions as
estimated by Lessor. If Lessor elects to have Lessee make such payments, Lessee
also shall pay to Lessor or to such mortgagee, as the case may be, at least
thirty (30) days before any fine, penalty, interest or cost may be added thereto
for the non-payment thereof, the amount by which the impositions becoming due
exceed the monthly installment payments on account thereof previously made by
Lessee. Should Lessee's monthly installment payments on account of Lessee's
share of impositions for any tax year exceed the actual amount of Lessee's share
of such impositions, the excess amount shall be credited against Lessee's
installments for impositions thereafter becoming due. The amounts paid by Lessee
pursuant to this paragraph (b) shall be used to pay the impositions, but such
amounts shall not be deemed to be trust funds and no interest shall be payable
thereon.
(c) During any part of the Term of this Lease which shall be less
than a full tax fiscal year, any Taxes shall be pro rated on a daily basis
between the parties, to the end that Lessee only shall pay its share of Taxes
attributable to the portion of the tax fiscal years occurring within the term of
this Lease.
(d) Lessee shall pay promptly, and when due, all taxes, fees,
licenses, assessments and other charges levied or imposed upon the business of
the Tenant or upon any fixtures, furnishings or equipment in the Leased
Premises.
(e) If due to a future change in the method of taxation or in the
taxing authority, a franchise, gross receipts, transit, rent or other tax or
other governmental imposition, however designated, shall be levied against
Lessor in substitution (in whole or in part) for, or in addition to, said
"Impositions" as currently defined), then such franchise, gross receipts,
transit, rent or other tax or governmental impositions shall be deemed to be
included within the definition of "Impositions" for the purposes of this Lease.
The term "Impositions" also includes all costs reasonably incurred in any
proceeding brought by Lessor to reduce said Taxes.
(f) Lessor may institute any proceedings with respect to the
assessed valuation of Park Place or any part thereof, and Lessee shall cooperate
with, and participate in, any and all such proceedings. If, after Lessee shall
have made the required payment of Taxes hereunder, Lessor shall receive a refund
of any portion thereof, then, within thirty (30) days after Lessor's receipt of
such refund, Lessor shall pay to Lessee Lessee's pro rata share of the amount of
the refund, less all costs and expenses (including, but not limited to,
attorneys' and appraiser' fees) expended for incurred in obtaining such refund.
Lessee may not institute any proceedings with respect to the assessed valuation
of Park Place or any part thereof.
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7. UTILITIES
---------
Starting with the Commencement Date and continuing throughout the
Term of the Lease, Lessee shall be solely responsible for and shall pay, as and
when the same become due and payable and as hereinafter provided, all rents,
rates, costs and charges for water services, sewer service, electricity, gas,
heat, steam, power, telephone (and other communication services), and any other
utilities or services rendered or supplied to, upon or in connection with, or
used or consumed within or in servicing, the Leased Premises, and all other
utility costs and expenses involved in the use of the Leased Premises throughout
the term of this Lease, and Lessee shall indemnify Lessor and save Lessor
harmless against any costs liability or damages on such account. Unless
otherwise agreed in writing by Lessor or Lessee, Lessee shall, promptly upon
Delivery of Possession of the Leased Premises and at Lessee's own expense, pay
for the installation of separate meters for all utilities servicing the Leased
Premises and place said meters and related utility accounts in Lessee's own
name. Lessee shall pay all separately metered charges to the respective public
utility companies. With respect to each utility which is not separately metered
for the Leased Premises, Lessee shall pay Lessor, as Additional Rent, Lessee's
proportionate share of the total cost and fees therefore attributable to those
areas of the warehouse/office buildings which are not separately metered.
8. COMMON AREA MAINTENANCE
-----------------------
(a) Subject to the provisions of this Lease, Lessor grants to
Lessee, its employees, agents, customers and invitees during the Term hereof the
non-exclusive use, in common with Lessor and other tenants and occupants of Park
Place and their respective employees, agents, customers and invitees and in
common with such others as Lessor may designate from time to time, of all
non-allocated parking areas within Park Place for pedestrian and vehicular
ingress and egress and the accommodation and parking areas within Park Place for
pedestrian and vehicular ingress and egress and the accommodation and parking
automobiles as required by the Lessee in conducting normal business activities
of Lessee within the Leased Premises. Lessor reserves the right, however, to
designate certain portions of the parking areas within Park Place for parking of
trucks, vans, and other vehicles, and to designate for the specific account of
Lessee, or other tenants in Park Place, specific parking areas or spaces
constructed with Park Place. Notwithstanding anything contained in this Lease to
the contrary, Lessor shall have the right, at any time and from time to time, to
change the size, location and nature of the parking areas (so long as the number
of parking spaces is not reduced) and/or other common areas within Park Place.
All parking areas and related facilities which may be furnished by Lessor in or
near the Leased Premises, including employee parking areas, truck way or ways,
loading docks, pedestrian sidewalks and ramps, landscaped areas, and other areas
and improvements which may be provided by Lessor for the general use, in common
with Lessor and other tenants, and their respective employees, agents, customers
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and invitees, shall at all time be subject to the exclusive control and
management of Lessor, and Lessor shall have the right, from time to time, to
establish, modify and enforce reasonable rules and regulations with respect to
all parking areas and other facilities and areas mentioned in this paragraph.
Lessee agrees to abide by and conform with all such rules and regulations upon
notice thereof and to cause its employees, agents, customers and invitees to do
the same. Lessor shall have no liability to Lessee for use of the parking areas
by Lessor or other tenants and occupants of Park Place and their respective
employees, agents, customers, or other third parties. No provision of this Lease
shall be construed as a demise to Lessee of the parking or any other common
area) within Park Place. If any repairs (excluding repairs caused by Lessee's
normal use) to the parking or other common areas within Park Place are
necessitated by reason of any act or omission by Lessee or its employees,
agents, customers or invitees, then, if Lessor chooses to do so, Lessor may make
such repairs and Lessee shall promptly upon demand reimburse Lessor for the full
costs to the extent same are not covered by Lessor's insurance, or at Lessor's
option, Lessor may notify Lessee of the necessity for such repairs, and Lessee,
at its cost and expense, shall, with due diligence, commence and complete to
Lessor's satisfaction the repairs within ten (10) days of Lessee's receipt of
such notice.
(b) "Common Area Charges" means all of the costs and expenses
which are incurred by Lessor with respect to operation, management, maintenance
and security of the building including the parking and other designated common
areas in Park Place and the exterior walls of the buildings in Park Place, and
those areas of Park Place which house mechanical, electrical or other equipment
or are otherwise determined from time to time by Lessor to be used in operating
or maintaining Park Place. "Common Area Charges" include, but are not limited
to, the cost of maintaining, repairing, and replacing and repaving (when
necessary) the parking and other designated common areas; supplies, tools and
materials purchased and/or used in connection with repairs, maintenance and/or
replacements; wages, salaries, and fringe benefits of all employees of the
Lessor for the portion of time they are directly engaged in the operation,
maintenance and security of Park Place, including license and fees (but
excluding wages, salaries and benefits of executive employees); removing snow,
ice, and debris from the roadways and parking areas for Lessee's use during
normal business hours; removal of customary and normal trash; maintaining and
repairing or repainting (when necessary) directional signs, pavement markings,
and parking lot striping; repairing and replacing (when necessary) outdoor
lighting facilities; maintaining the grass and otherwise caring for the
replanting (when necessary) all shrubbery and landscape areas; providing such
security as Lessor, in its sole discretion, deems advisable; accounting and
legal fees for common areas at Park Place; utilities, heating, ventilation and
air-conditioning charges allocable to designated common areas and other building
service areas.
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(c) Starting with the Commencement Date and continuing throughout
the Terms of this Lease, Lessee shall pay Lessor in advance as hereinafter
described and as Additional Rent, Lessee's Pro-Rata Share of all Common Area
Charges for said period. "Lessee's Pro-Rata Share" shall be a fraction, the
numerator of which shall be the floor area within the Leased Premises and the
denominator of which shall be the total floor area within all buildings in Park
Place. The Initial Lessee's Pro-Rata Share shall be 4.50%.
The Company is, and from time to time becomes, involved in various
claims and lawsuits that are incidental to its business. In the opinion of the
Company's management, there are no material legal proceedings pending against
the Company.
(d) On or before the Commencement Date, on or before the end of
each and every Lease year, and at such other time(s) as is deemed desirable by
lessor in its sole discretion, Lessor shall forward to Lessee a "Common Area
Charges Statement", which shall contain Lessor's latest estimate of the Common
Area Charges for the then current or the then upcoming (as the case may be)
Lease Year, and a statement of Lessee's Pro-Rata Share thereof. Landlord's
failure to forward, or to timely forward, any Common Area Charges Statement
shall not excuse Lessee from its liability for Lessee's Pro-Rata Share of Common
Area Charges.
(e) Each month during the Term of this Lease, along with each
monthly installment of Base Rent, beginning with the Commencement Date, Lessee
shall pay to Lessor, in advance, an amount equal to one-twelfth (1/12th) of
Lessee's Pro-Rata Share of the Common Area Charges as set forth in the then
latest Statement. If the Commencement Date is a day other than the first day of
a calendar month, then the amount of Common Area Charges due for the first month
and the last month of the Term shall be pro rated on the basis of a thirty (30)
day month. As soon as practicable near the end of each and every Lease Year, but
no later than 90 days after the end of the Lease year, Lessor shall submit to
Lessee an "Actual Common Area Charges Statement" prepared by Lessor showing that
the Common Area Charges for the then preceding Lease Year actually were. With
the next monthly installment of Base Rent due after Lessee's receipt of such
Statement, Lessee shall pay Lessor or Lessor shall credit Lessee, as the case
may be the difference between Lessee's Pro-Rata Share of the actual Common Area
Charges for said Lease Year as shown on said Statement and the total of all
Common Area Charges paid by Lessee to Lessor for said Lease Year.
9. NON-LIABILITY OF LESSOR
-----------------------
(a) Except as otherwise expressly provided in this Lease or
unless caused by the negligence or intentional misconduct of Lessor or Lessor's
employees, agents and contractors while acting within the scope of their
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employment, Lessor shall not be responsible or liable to Lessee for any loss or
damage to persons or property, or any interference or interruption of Lessee's
use of the Leased Premises, that may be occasioned by (i) water, gas, steam,
wind or the bursting, stoppage or leaking of any pipes, sewer or water lines, or
other conduits, fixtures or equipment; (ii) the interruption of any utility
services to the Leased Premises caused by the utility company; (iii) any
repairs, alterations, maintenance or additions to the Leased Premises or land
and building of which they are a part; (iv) any casualty; (v) theft or other
criminal conduct; or (vi) the acts or omissions of persons occupying any space
adjacent to the Leased Premises.
(b) No provisions of this Lease shall be deemed to confer any
rights upon any persons or entities other than the parties to this Lease,
permitted successors and assigns and mortgages.
(c) Notwithstanding anything to the contrary provided in this
Lease, it is specifically understood and agreed that there shall be absolutely
no personal liability on the part of Lessor, including partners in Lessor and
their respective successors and assigns, with respect to its performance or
observance of any of the terms, covenants and conditions of this Lease, and that
Lessee shall look solely to the equity of the Lessor in the land and building of
which the Leased Premises form a part for the satisfaction of each and every
remedy of Lessee in the event of any breach by Lessor of any of the terms,
covenants and conditions of this Lease to be performed or observed by Lessor,
such exculpation of personal liability to be absolute and without any exception
whatsoever.
(d) If Lessor shall fail to comply fully with any of its
obligations under this Lease, Lessee may seek and enforce specific performance
of the Lease against Lessor and pursue such other equitable remedies as may be
available to Lessee. Notwithstanding the foregoing, the result of such action
shall be subject to the provisions of Paragraph 9(c) hereof.
10. INDEMNITY
---------
Lessee agrees to indemnify and save Lessor harmless from and
against any and all claims, demands, costs and expenses (including, but not
limited to, reasonable attorneys' fees and litigation costs) for, or in
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connection with, any accident, injury or damage whatsoever to any person or
property (i) arising directly or indirectly out of Lessee's use of occupation of
the Leased Premises, (ii) occurring in, on or about the Leased Premises or on
the sidewalks adjoining the same, or (iii) arising directly or indirectly from
any act or omission of Lessee or any of Lessee's licenses, servants, agents,
employees or contractors. The foregoing indemnity shall not apply to any such
claim or demand proximately caused by the negligence or misconduct of Lessor, or
its employees, agents and contractors while acting within the scope of their
employment.
11. LIABILITY INSURANCE
-------------------
(a) Lessee, at Lessee's sole expense, shall obtain and maintain
in effect at all times starting with the Commencement Date and continuing
throughout the term of the Lease, a policy or policies of comprehensive general
public liability insurance, insuring Lessor, Lessor's mortgagee(s) and Lessee
against any liability for injury, death or property damage occurring upon, in or
about any part of the Leased Premises or any appurtenances thereto, affording
protection to the limits of not less than One Million Dollars ($1,000,000.00)
with respect to bodily injury or death of any one person, and not less than
Three Million Dollars ($3,000,000.00) with respect to any one incident, and not
less than Five Hundred Thousand Dollars ($500,000.00) with respect to property
damage. The foregoing minimum limits may, at Lessor's option and upon thirty
(30) days' notice to Lessee, be increased from time to time to reflect inflation
or changed conditions.
(b) The insurance policy(ies) required to be procured by Lessee
under this Lease:
(i) Shall be issued by a reputable insurance company
licensed to do business in the State of Maryland and shall have such form and
content as shall be approved by Lessor.
(ii) Shall be written as primary policy coverage and not
contributing with, or in excess of, any coverage which Lessor may carry.
(iii) Shall have an endorsement thereto to the effect that no
act or omission by Lessee shall affect the obligation of the insurer to pay
Lessor the full amount of any loss sustained by Lessor and shall contain an
express waiver of any right of subrogation by the insurance company against
Lessor, its agents and employees.
(iv) Shall name Lessor as an additional named insured.
(c) On or before the Commencement Date, and at least fifteen (15)
days before the expiration date of the policy, Lessee shall deliver to Lessor a
certificate of insurance evidencing the existence and good standing of the
liability policy referred to in Paragraph 11(a), together with evidence of
payment of all premiums. The insurance required to be carried under this Lease
may be carried under a blanket policy covering the Leased Premises and other
locations of Lessee. The insurance policy required to be carried by Lessee shall
provide that such insurance policy shall not be canceled unless Lessor and
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Lessor's mortgage(s) shall have received thirty (30) days' prior written notice
of cancellation. In the event that Lessee shall, prior to the thirtieth (30th)
day before any insurance policy will lapse or terminate, fail to furnish
evidence of the coverage and pay the premium therefor for a period not exceeding
one year, and the premiums so paid by Lessor shall be payable by Lessee, on
demand, as Additional Rent.
12. HAZARD INSURANCE
----------------
(a) Starting with the Commencement Date and continuing throughout
the Term of this Lease, Lessee shall pay to Lessor, or such other party as
Lessor shall designate by written notice to Lessee, as Additional Rent, Lessee's
Pro-Rata Share, as defined in Paragraph 12(e) hereof, of the premiums and other
charges (the "Premiums") that may be incurred or contracted for or by Lessor for
fire and casualty insurance coverage for the land and buildings of which the
Leased Premises form a part, including protection from such perils as may be
insured against under a broad form extended coverage endorsement or on all risk
of physical loss policy, and further including loss of rental coverage in an
amount equal to the Rent for one (1) Lease Year. The premiums for all insurance
to be obtained by Lessor under this Paragraph 12(a) shall be reasonably
competitive with the premiums charged for similar insurance protection by
reputable insurers for comparable properties. Lessee agrees that it will not
store gasoline or other explosive, flammable or toxic material in the Leased
Premises or do anything which may cause Lessor's insurance company to void the
policy covering the Leased Premises or to increase the premium thereon, and that
Lessee will immediately conform to all rules and regulations from time to time
made or established by Lessor's insurance company or insurance rating bureau.
Lessor will do everything reasonably possible and consistent with the conduct of
Lessee's business to obtain the lowest possible rates for insurance on the
Leased Premises. If, however, the cost to Lessor of obtaining insurance on the
Leased Premises (or the building which the Leased Premises are located) is
increased due to the Lessee's occupancy thereof, and the Lessor's insurer
provides evidence that said increase is the direct cause of Lessee's occupancy,
Lessee agrees to pay, promptly upon demand, as additional rental, any such
increase.
(b) On or before the Commencement Date and before the due date of
each and every bill for the Premiums, Lessor shall forward to Lessee an
"Insurance Statement" which shall contain an estimated statement of the amount
due from Lessee from time to time as Lessee's Pro-Rata Share of the Premiums.
Lessor's failure to forward, or to timely forward, any Insurance Statement shall
not excuse Lessee from its liability for Lessee's Pro-Rata Share of the
Premiums.
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(c) Each and every month during the Term of this Lease, along
with its monthly installment of Fixed Rent, beginning on the Commencement Date,
Lessee shall pay Lessor an amount equal to one-twelfth (1/12) of Lessee's
Pro-Rata Share of the Premiums as set forth in the then latest Insurance
Statement, which shall be credited toward Lessee's Pro-Rata Share of the
Premiums when the same are due and payable. Should Lessee's monthly installment
payments on account of Lessee's Pro-Rata Share of the Premiums for the period to
which the Premiums relate exceed the actual amount of Lessee's Pro Rata Share of
such Premiums, the excess amount shall be credited against Lessee's installments
for Premiums thereafter becoming due. If the Commencement Date is other than the
first day of a period to which the Premiums relate, then the installments of the
Premiums due from the Lessee shall be pro rated on the basis of a thirty (30)
day month.
(d) Notwithstanding the provisions of Paragraph 12(c) above,
Lessor may, upon ten (10) days' written notice to Lessee, require Lessee to pay
Lessee's Pro- Rata Share of the necessary increased Premiums due to Lessee's
occupancy at such times as the Premiums are due and payable to the respective
insurance company or companies or in such manner as is required of Lessor under
any mortgage, whether such payments be in lump sum or other installments.
(e) Lessee's Pro-Rata of the Premiums shall be of all the
Premiums due for the land and building of which the Leased Premises form a part.
As used in this Paragraph 12, "Lessee's Pro Rata Share" shall be a fraction, the
numerator of which shall be the floor area within the Leased Premises and the
denominator of which shall be the total floor area within the building of which
the Leased Premises form a part.
(f) Lessor hereby releases Lessee from any liability and
responsibility to Lessor to anyone claiming through or under Lessor by way of
subrogation or otherwise, for any and all loss or damage to the Leased Premises
caused by fire or any casualty covered by insurance to the extent insurance
proceeds are received therefor, even if such fire or other casualty shall have
been caused by the fault or negligence of Lessee, or anyone for whom Lessee may
have been responsible. Lessor's insurance policies shall include appropriate
clauses (i) waiving all rights of subrogation against Lessee with respect to
losses payable under such policies, and (ii) agreeing that such policies shall
not be invalidated should the insured waive in writing prior to a loss any and
all rights of recovery against the other party hereto for losses covered by such
policies.
13. DAMAGE TO THE DEMISED PREMISES
------------------------------
(a) In the event of partial or total damage or destruction of the
Leased Premises by fire, other casualty, or any cause whatsoever (except
condemnation), Lessee shall give immediate notice to Lessor. If the damage or
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destruction is insured against by Lessor, this Lease shall continue in full
force and effect, and, to the extent that insurance proceeds respecting such
damage or destruction are subject to being utilized and, in fact, may be
utilized by Lessor for repair, Lessor shall cause such damage or destruction to
be repaired with reasonable speed at the expense of Lessor, except as otherwise
hereinafter provided in this Paragraph 13. If in the reasonable opinion of
Lessor the damage or destruction is such that repair thereof cannot reasonably
be completed within ninety (90) days of the date the damage or destruction
occurs, Lessor shall have the right to terminate this Lease by the giving of
written notice to such effect to Lessee within thirty (30) days of the date of
Lessor's receipt of Lessee's notice of damage or destruction. In no event shall
Lessor be required to restore or repair Lessee's personal property or other
contents within the Leased Premises. Due allowance shall be made for reasonable
delay which may arise by reason of Lessor's adjustment of loss under insurance
policies and on account of labor troubles or any other cause beyond Lessor's
control. To the extent that the Leased Premises are rendered untenantable, the
Rent and Additional Rent shall proportionately abate. If the damage or
destruction is not covered by insurance maintained by Lessor or if insurance
proceeds respecting the damage or destruction are not subject to being utilized
for repair and, in fact, may be not so utilized, Lessor shall not be required to
repair the damage or destruction. In the event the damage or destruction is so
extensive to the building of which the Leased Premises are a part as to render
it uneconomical, in Lessor's opinion, to restore the Leased Premises, the Lease,
at the option of Lessor, shall be terminated upon written notice to Lessee and
Lessee shall immediately thereafter vacate the Leased Premises and surrender the
same to Lessor. No such termination shall release Lessee from any liability to
Lessor from any of the obligations or duties imposed on Lessee under this Lease
prior to the damage. Upon any termination of this Lease pursuant to his
Paragraph 13(a), Rent and Additional Rent shall be prorated and adjusted to the
date of such termination.
(b) Lessee hereby waives any and all right of recovery which it
might otherwise have against Lessor, its agents and employees, for loss or
damage to Lessee's contents, furniture, furnishings, fixtures and other property
removable by Lessee under the provisions of this Lease to the extent that the
same is to be covered by Lessee's insurance thereunder, except where such loss
or damage may result from the negligence of fault of Lessor, its agents,
employees or contractors.
14. EMINENT DOMAIN
--------------
(a) If during the term of this Lease, the Leased Premises, or
such a substantial portion of the Leased Premises as shall prevent Lessee from
conducting its normal business, shall be taken by proper authority for public or
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quasi-public use, then Lessee may terminate this Lease by giving Lessor written
notice of termination within thirty (30) days after receipt of notice of the
taking, and Lessee's obligation to pay rent, taxes, and other charges shall
terminate as of the date of the termination notice. If only a part of the Leased
Premises is taken and the part not taken shall be reasonably sufficient for the
purpose of conducting Lessee's normal business, this Lease shall remain in full
force and effect, except that the Rent and Additional Rent shall be
proportionately reduced.
(b) All compensation awarded for any taking shall belong to and
be the property of Lessor. Nothing contained herein, however, shall be construed
to preclude Lessee from prosecuting any claim directly against the condemning
authority for loss of business or depreciation, damage or cost of removal of
personal property belonging to Lessee so long as the claim does not diminish or
otherwise adversely affect Lessor's award or the award otherwise payable to
Lessor's mortgagee.
15. CONDITION OF LEASED PREMISES; MAINTENANCE AND REPAIR
----------------------------------------------------
(a) Except for the repairs that Lessor is specifically obligated
to make under Paragraph 15(b) hereof, and except for repairs covered by
contractor warranties held by Lessor for Lessor's benefit, during the term of
this Lease, Lessee, at Lessee's sole cost and expense, shall promptly make all
repairs, perform all maintenance, perform all custodial services and make all
replacements in and to the Lease Premises that are necessary in order to keep
the Leased Premises in good order and repair and in a safe and tenantable
condition. Without limiting the generality of the foregoing, Lessee, at its sole
cost and expense, is specifically required to make promptly all repairs to (i)
any pipes, water and waste lines, ducts, wires or conduits beneath or in the
Leased Premises or within the ceiling of the Leased Premises; (ii) any glass
windows included within the Leased Premises; (iii) Leasee's sign(s); (iv) any
electrical, natural gas (if any), heating, ventilating and air conditioning,
plumbing, and other systems, equipment, fixtures and items installed in or
servicing the Leased Premises; (v) the floors, ceilings and walls of the Leased
Premises; (vi) the entrance and exit and auxiliary driveways, if any, which are
part of and service the Leased Premises; and (vii) any portion of the Leased
Premises damaged by Lessee's use or occupancy of the Leased Premises or by any
act, omission or negligence of Lessee, or any of its respective employees,
agents, invitees, licensees or contractors. All repairs, and replacements made
by Lessee shall utilize materials and equipment which are at least equal in
quality and usefulness to those originally used in the Leased Premises. Lessee,
at Lessee's expense, shall enter into one (1) or more service contracts for the
maintenance of the heating, ventilating and air conditioning systems and
equipment. Lessee shall keep the Leased Premises free of all insects, rodents,
vermin and pests of every type and kind. Lessee shall also, promptly and at its
own expense, keep any sidewalks and curbs adjacent to the Leased Premises clean
and free from snow, ice, dirt and rubbish. Lessee shall not (directly or by
sufferance) place any equipment, materials or debris on the roof of the Leased
Premises, or cut, drive nails into or otherwise mutilate such roof.
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(b) Lessor shall within thirty (30) days (or such longer period
of time as may reasonably be required by Lessor) after written notice from
Lessee with respect thereto, make necessary structural repairs to the exterior
walls and shall keep in good order, condition and repair the exterior
foundations, downspouts, gutters and roof of the Leased Premises and the portion
of the plumbing and sewage system located outside the building in which the
Leased Premises are located (it being understood and agreed that Landlord's
obligations exclude the exterior and interior of all windows, doors, plate glass
and signs, and repairs required by any casualty except as otherwise covered by
Paragraph 13 herein). Lessee shall, upon demand, reimburse Lessor for reasonable
costs of making any such repairs or replacements caused by Lessee's use or
occupancy of the Leased Premises or by any act, omission or negligence of
Lessee, any subtenant or concessionaire of Lessee, or their respective
employees, agents, invitees, licensees or contractors (excluding repairs or
replacements caused by Lessee's normal use).
(c) Lessee hereby covenants to contain all garbage, rubbish,
waste, trash and debris generated in conjunction with its use of the Leased
Premises in containers provided by Lessor (which shall be emptied no more than
three times per week, but at least once a week) so as not to constitute a safety
or fire hazard.
16. ALTERATIONS
-----------
Lessee shall not make any non-structural interior alterations,
additions or improvements in or to the Leased Premises without the prior written
consent of Lessor in each instance, which consent shall not be unreasonably
withheld or delayed. Lessee shall not take any structural or exterior
alterations, additions or improvements to the Leased Premises without the prior
written consent of Lessor. Should Lessor fail to respond within fifteen (15)
working days after Lessor's receipt of any written request from Lessee for
Lessor's consent to any proposed alterations, additions or improvements,
Lessor's consent shall be deemed to have been granted. All permitted
alterations, additions and improvements made by Lessee shall be performed (i) in
a good and workmanlike manner, (ii) in accordance with all applicable legal and
insurance requirements, (iii) only after receipt by Lessee and presentation to
Lessor of all necessary permits and licenses, and (iv) at Lessee's sole expense.
Except for Lessee's removable trade fixtures, and all improvement made by Tenant
in the processing and storage areas, all improvements, repairs, alterations and
additions and all other non-trade fixtures, whether installed before or after
the execution of this Lease, shall remain upon the Leased Premises at the
expiration or sooner termination of this Lease and become the property of Lessor
without payment therefor by Lessor, unless prior to the termination of this
Lease, Lessor shall have given written notice to Lessee to remove the same, in
which event Lessee, at its expense, will remove such alterations, improvements,
additions and/or fixtures and repair and restore any and all damage to the
Leased Premises caused by the installation and/or removal thereof.
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17. SIGNS
-----
Lessee may not install any sign without Lessor's prior written
consent. All signs shall be in strict compliance with the sign criteria set
forth in Exhibit "C" attached hereto and made part hereof. Lessee shall install
all exterior signs for the Leased Premises at the cost and expense of Lessee. No
sign, advertisement or notice shall be inscribed, painted, affixed or otherwise
displayed on any part of the outside or the inside of the Leased Premises or the
building of which the Leased Premises are a part, unless Lessor shall have
approved the sign, advertisement, or notice in writing prior to installation of
the same. If any sign, advertisement, or notice is exhibited by Lessee without
having first obtained Lessor's approval thereof, Lessor shall have the right to
remove the same and Lessee shall be liable for any and all expenses incurred by
Lessor in said removal. No signs made of paper and visible from outside of the
Leased Premises shall be allowed in the Leased Premises. No mobile sign, such as
may be affixed to the side of a truck or a trailer or a mobile platform shall be
permitted in the parking area.
18. LAWS AND INSURANCE STANDARDS
----------------------------
Lessee shall, at Lessee's sole expense, promptly comply in every
respect with all applicable laws, ordinances, rules and regulations of all
federal, state, county, and municipal governments now in force or that may be
enacted in the future, all applicable and enforcement directions, rules and
regulations of the fire marshall, health officer, building inspector or other
proper officers of any governmental agency having jurisdiction, and the
applicable standards established from time to time by the National Board of Fire
Underwriters, the National Fire Protective Association, or any similar bodies.
Lessee expressly covenants and agrees to indemnify and save Lessor harmless from
any penalties, damages or charges imposed for any violation of the foregoing.
Notwithstanding the foregoing, Lessee shall not be required to make any changes
or modifications to the Leased Premises, unless (a) the same are required due to
Lessee's specific use and/or occupancy of the Leased Premises, (b) the same are
required due to structural specifications (beyond building standard) required by
Lessee, or (c) the same relate to repairs, maintenance or other responsibilities
of Lessee under this Lease, e.g., Paragraph 15(a) hereof.
19. MECHANIC'S LIENS
----------------
Lessee shall do all things necessary to prevent the filing of any
mechanics' or other liens against the Leased Premises, or the land the building
of which the Leased Premises are part, by reason of work, labor, services or
materials supplied or claimed to have been supplied to Lessee or anyone holding
the Leased Premises, through or under Lessee. If any lien shall at any time be
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filed, Lessee shall either cause the lien to be discharged of record within ten
(10) days after knowledge of its filing or, if Lessee in its discretion and good
faith determines that the lien should be contested, shall furnish such security
as may be necessary to prevent the filing of any foreclosure proceedings during
the pendency of the contest. If Lessee shall fail to discharge any lien within
such period or fail to furnish such security, then, in addition to any other
right or remedy, Lessor may, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge of
lien by deposit in court or by giving security or in such other manner as is or
may be prescribed by law. Lessee shall repay to Lessor on demand all sums
disbursed or deposited by Lessor pursuant to the foregoing provisions, including
the expenses and reasonable attorneys' fees incurred by Lessor. Nothing
contained in this Lease shall imply that Lessee has any authority or consent
from Lessor to subject Lessor's estate to any mechanics', materialman's or other
lien.
20. ASSIGNMENT AND SUBLETTING
-------------------------
(a) Lessee shall not assign, mortgage or encumber any interest in
this Lease or sublet all or any part of the Leased Premises without the prior
written consent of Lessor. Lessor shall not unreasonably withhold or delay its
consent to an assignment or subletting of this Lease.
(b) No permitted assignment or subletting shall release,
discharge or affect the liabilities of Lessee as provided for in this Lease, and
Lessee shall at all times remain primarily liable under this Lease. An
assignment by operation of law shall be deemed a prohibited assignment under
this Paragraph.
21. INSOLVENCY
----------
Lessor may, at its option, declare this Lessee terminated and
reenter and resume possession of the Leased Premises, if Lessee shall be
adjudicated a bankrupt or insolvent, or if a receiver or trustee shall be
appointed for Lessee's business or property, or if Lessee shall file a petition
in bankruptcy or insolvency, or if a petition or other proceeding shall be filed
by or against Lessee seeking corporate or other reorganization, liquidation or
other similar relief or if Lessee shall make an assignment or an arrangement for
the benefit of creditors, or if an involuntary petition shall be filed against
Lessee in bankruptcy or insolvency and such petition shall not be dismissed
within sixty (60) days.
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22. REMEDIES CUMULATIVE
-------------------
The various rights, elections and remedies of Lessor contained in
this Lease shall be cumulative, and no one of them shall be construed as
exclusive of any of the others, or of any right, priority or remedy allowed or
provided for by law.
23. WAIVER OR DEFAULT
-----------------
The waiver by either party of any default in the performance by
the other of any covenant shall not be construed to be a waiver of any preceding
or subsequent default of the same or any other covenant contained herein. The
subsequent acceptance of Rent or other sums by Lessor shall not be deemed a
waiver of any preceding default other than the failure of Lessee to pay the
particular rental or other sum so accepted.
24. HOLDING OVER
------------
If Lessee shall hold possession of the Leased Premises after the
end of the term or other termination of this Lease, Leases shall be deemed to be
occupying the Leased Premises as a tenant from month to month, subject to all of
the conditions, provisions and obligations of this Lease; provided, however,
Lessee shall be liable for any and all damages and expense that Lessor may
sustain by virtue of Lessee's holding over, including, but not limited to, any
amount for which Lessor may be liable under, or as a result of, any other lease
entered into by Lessor for a term beginning at or after the expiration of the
term of this Lease. Nothing contained in this Lease shall be construed as a
consent by Lessor to the occupancy or possession of the Leased Premises by
Lessee after the expiration of the term of this Lease. Rather, at the end of the
term of the Lease, Lessor shall be entitled to the benefit of all laws or
ordinances relating to the recovery of the possession of lands and tenements
held over by tenants that now may be in force or hereafter may be enacted, and
Lessor may proceed under such laws or ordinances, without notice to Lessee, all
statutory notice requirements being expressly waived by Lessee.
25. SURRENDER
---------
Upon the expiration of the term of this Lease, Lessee immediately
shall surrender the Leased Premises broom-clean and in good order and condition,
ordinary wear and tear excepted. All of Lessee's personal property at or about
the Leased Premises (but not permanently affixed parts of the Leased Premises)
shall be removed by Lessee at or before the expiration of this Lease or shall be
deemed abandoned by Lessee. Any damage to the Leased Premises caused by such
removal shall be repaired by Lessee at its own expense.
26. DEFAULT
-------
(a) If Lessee fails to pay any Rent or Additional Rent when due
and such failure continues for a period of five (5) days after Lessor shall have
made written demand on Lessee for payment, or if Lessee otherwise is at any time
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in default under this Lease and continues in such default for a period of thirty
(30) days after Lessor shall have demanded in writing to Lessee that such
default be cured, or if such latter default is not capable of being cured within
a fifteen (15) day period, such additional time (not to exceed forty-five (45)
days) as is reasonably necessary to cure such default, provided Lessee promptly
commences and diligently pursues to cure such default, then Lessor may, at
Lessor's option, terminate this Lease (without releasing Lessee of liability)
and by summary proceedings or other manner prescribed by law, reenter and take
possession of the Leased Premises. If Lessor should so terminate this Lease,
Lessee shall pay to Lessor as damages, upon demand, all expenses (including,
without limitation, attorneys' fees) of any proceedings necessary in order for
Lessor to recover possession of the Leased Premises and the expenses of
reletting the Leased Premises (including, without limitation, reasonable
attorneys' fees, brokerage commissions, and the costs of putting the Leaded
Premises in good order and preparing it for reletting, plus either:
(i) Liquidated damages in an amount equal to the excess, if
any, of the Rent and Additional Rent that would have been payable over the
unexpired portion of the term of this Lease over the rental value of the Leased
Premises for such unexpired portion of the term of this Lease, as discounted at
the then publicly declared prime rate of the Federal Bank in Baltimore,
Maryland; or
(ii) Damages in an amount to the excess, if any, of the
monthly Rent and Additional Rent over the monthly rentals, if any, if fact
collected by Lessor as the result of a reletting of the Leased Premises at such
rent and upon such terms as Lessor, in its sole discretion, elects to accept.
Separate actions may be maintained each month by Lessor to recover the damages
then due as provided for in this subparagraph (ii) and any such action shall not
prejudice the rights of Lessor to collect damages for any subsequent month in a
similar proceeding.
(b) No re-entry or reletting of the Leased Premises, whether or
not the term of such reletting extends beyond the term of this Lease, shall be
construed as an election by Lessor to: (i) accept a surrender of the Leased
Premises, or (ii) release Lessee of any of its obligations under this Lease.
(c) Should Lessor, pursuant to its rights under Paragraph 26(a)
hereof, elect to terminate this Lease and reenter and take possession of the
Leased Premises, Lessor shall use commercially reasonable efforts, under then
prevailing circumstances, to relet the Leased Premises.
27. ACCESS TO LEASED PREMISES
-------------------------
(a) Lessor and its designees shall have the right (subject to
being accompanied by Lessee's representative at all times for security reasons)
to enter upon the Leased Premises at all reasonable hours, after 24 hours
notice, (and in emergencies, at all times): (i) to inspect the same; (ii) to
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make repairs, additions, or alterations to the Leased Premises or the building
in which the same are located or any property owned or controlled by Landlord;
(iii) to exhibit the Leased Premises to any prospective buyer, lessee or
mortgagee or their respective agents or representatives; and (iv) for any lawful
purpose.
(b) For a period commencing three (3) months prior to the end of
the term, Lessor may have reasonable access to the Premises for the purpose of
exhibiting the same to prospective tenants and to post any "For Rent" or "For
Lease" signs upon the Leased Premises.
28. SUBORDINATION AND ATTORNMENT
----------------------------
(a) This Lease is subject and subordinate to the lien of all
present and future mortgages and/or deeds of trust encumbering the Leased
Premises, all present and future advances under such mortgages and/or deeds of
trust, and all renewals, extensions, modifications, recastings or refinancings
of such mortgages and/or deeds of trust. Lessee agrees that, in the event any
proceedings are brought under or for the foreclosure of any such mortgage and/or
deed of trust, Lessee shall, if requested to do so by the beneficiary under or
holder of such mortgage and/or deed of trust or by any successor in interest to
such beneficiary or holder, automatically become the lessee of such beneficiary,
holder or successor in interest and shall automatically attorn to such
beneficiary, holder and/or successor in interest and recognize such beneficiary,
holder and/or successor in interest as the Lessor under this Lease. In
confirmation of such attornment, however, Lessee shall, at the request of Lessor
or any beneficiary, holder or successor in interest, promptly execute any
requisite or appropriate certificate or other document for the benefit of such
beneficiary, holder and/or successor in interest.
(b) In the event that, after the date of this Lease, a bona fide
loan shall be made by an insurance company, savings bank, commercial bank, trust
company, or other lender and secured by a mortgage or deed of trust constituting
a lien against any portion of the Leased Premises and said lender shall
complete, execute and acknowledge a subordination, attornment, and
non-disturbance agreement, then and in that event, Lessee shall subordinate this
Lease to said mortgage or deed of trust by executing and acknowledging the said
subordination, attornment and non-disturbance agreement.
(c) Upon any assignment or termination of Lessor's interest in
the Leased Premises, Lessee shall, upon request, attorn in writing to the new
owner of the Leased Premises and shall pay to the new owner all rents and other
monies required to be paid and perform all of the other obligations of Lessee
under this Lease. Following any sale by Lessor of the property of which the
Leased Premises are a part, all obligations to the assigning Lessor to Lessee
shall cease and terminate and Lessee shall look solely to the successor for the
performance of Lessor's duties hereunder.
(d) Notwithstanding the foregoing, this Lease shall not be
terminated so long as Lessee is not in default of any provisions in this Lease.
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(e) Lessor shall, within fifteen (15) days after the date hereof
(or prior to the effective date of any encumbrance mentioned in this Section 28
created after the date hereof) obtain from the holder of any such encumbrance,
an agreement whereby if such holder or any successor in interest shall come into
possession of the Leased Premises, or any part thereof, by dispossession,
foreclosure or otherwise, or shall become the owner of such property, or take
over the rights of Lessor to such property, said holder shall not disturb the
possession, use or enjoyment of the Leased Premises by Lessee, its successors or
assigns, nor disaffirm this Lease or Lessee's rights or estate granted
hereunder, so long as Lessee performs all of its obligations in accordance with
the terms of this Lease.
29. RIGHT TO CURE DEFAULTS
----------------------
(a) If Lessee shall fail to comply fully with any of its
obligations under this Lease, then, in addition to Lessor's other rights, but
not the duty, to cure such breach at Lessee's expense. Lessee agrees to
reimburse Lessor, within fifteen (15) days after Lessor submits a statement of
the amount due, as Additional Rent, for all expenses incurred by Lessor as a
result of any efforts made by Lessor to cure any such breach.
(b) If Lessor shall fail to comply fully with any of its
obligations under this Lease, then, in addition to Lessee's other rights and
remedies under this Lease at law and in equity, Lessee shall have the right, but
not the duty, to cure such breach at Lessor's expense; provided that prior to
the exercise of such right to cure, Lessee shall give Lessor written notice
specifying the nature of the breach and Lessor shall be entitled to ten (10)
days after receipt of such notice within which to cure said breach or such
additional time as may be necessary if such breach is not susceptible to cure
within said ten (10) days, in which case Lessor shall commence to cure within
said ten (10) day period. Lessor agrees to reimburse Lessee, within fifteen (15)
days after Lessee submits a statement of the amount due, for all expenses
incurred by Lessee as a result of any efforts by Lessee to cure any such breach.
If Lessor fails to reimburse Lessee as aforesaid, Lessee may offset the amount
due against the payments of Rent becoming due hereunder unless Lessor gives
written notice of dispute within said fifteen (15) day period either to the
existence of any default or the reasonableness of the amount expended to cure.
In the event such notice of dispute is given, the provisions of subparagraph (c)
shall govern. The right to setoff against Rent shall be subordinate to and there
shall be no setoff against the holder of any mortgages or deed of trust or any
purchaser at foreclosure or deed in lieu thereof on all or any portion of the
Leased Premises. The amount of all setoffs shall be limited to the cumulative
sum of One Hundred Thousand Dollars ($100,000.00).
(c) If Lessor has given notice of dispute as provided in
subparagraph (b), Lessee may have the issues of whether the Lessor is in default
of its obligations or the reasonableness of the amount of expenditures
determined by arbitration. Pending the results of such arbitration, there shall
be no setoff. In the event the arbitrators determine that Lessor was in default,
Lessor shall pay all costs of arbitration and Lessee shall have the right to
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offset all of its costs and expenses of remedying such default (including
unreimbursed costs of the arbitration proceeding) against the payments of Rent
becoming due hereunder, subject to the limitations set forth in subparagraph (b)
above. If the arbitrators determine that Lessor was not in default, then Lessee
will pay all of the arbitration.
(d) If Lessor is determined to be in default in its obligations
under Paragraph 15(c) of this Lease and Lessee shall remedy such default in
accordance with the preceding paragraph, Lessee shall be entitled to offset one
hundred fifteen percent (115%) of the costs and expenses of remedying such
default, with the additional fifteen percent (15%) being to reimburse Lessee for
its overhead.
30. BROKERAGE
---------
Lessor hereby acknowledges that Montgomery Realty, Inc. ("Broker")
has served as Lessor's agent in connection with this Lease and agrees to pay
said Broker a commission as per a separate agreement between Lessor and Broker.
Lessor warrants to Lessee and Lessee warrants to Lessor that it has not dealt
with any other broker or real estate agent or finder in connection with this
Lease and that, except for the aforesaid commission payable to Broker, no right
or claim for commission or other compensation has been created by its actions
with respect to this Lease. Lessor and Lessee shall indemnify and hold each
other harmless against all loss, liability or expense, including reasonable
attorney's fees and litigation costs, incurred by the other to the extent one or
the other is shown to be in breach of the foregoing warranties.
31. EFFECT OF CONVEYANCE
--------------------
If during the term of this Lease Lessor sells its interest in the
Leased Premises or this Lease, then from and after the effective date of such
sale, Lessor shall be released and discharged from any and all further
obligations and responsibilities under this Lease except those already accrued.
Any such sale shall be subject to this Lease and Lessor shall require any
purchaser to acknowledge the existence of Lessee's tenancy.
32. INTERPRETATION
--------------
The captions by which the paragraphs of this Lease are identified
are for convenience only and shall have no effect upon the interpretation of
this Lease. Whenever the context so requires, the singular number shall include
the plural, and plural shall refer to the singular and the neuter gender shall
include the masculine and feminine genders. If any provision of this Lease shall
be held to be unenforceable by a court, the remaining provisions shall remain in
effect and shall in no way be impaired.
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33. ENTIRE INSTRUMENT
-----------------
All of the agreements previously and contemporaneously made by the
parties are contained in this Lease, and this Lease cannot be modified in any
respect except by a writing executed by Lessor and Lessee.
34. ESTOPPEL CERTIFICATES
---------------------
Recognizing that both parties may find it necessary to establish
to third parties, such as accountants, banks, mortgagees or the like, the then
current status of performance hereunder, either party, on the written request of
one to the other made from time to time, will promptly furnish a written
certificate on the status of any matter pertaining to this Lease in such form
and substances as may from time to time be reasonably required.
35. NOTICES
-------
Any notices and other communications required or permitted to be
given by either party to the other shall be in writing and shall be deemed to
have been served when hand delivered or, if the United States Mail is used, on
the second business day after the notice is deposited in the United States Mail,
postage prepaid, registered or certified mail, or by overnight delivery service,
and addressed to the parties as follows:
To Lessee: Jacques R. Rubin
President
Bio Science Contract Product Corp.
9000 Virginia Manor Road
Suite 290
Beltsville, Maryland 20705
To Lessor: Muirkirk Manor Associates Limited Partnership
c/o The Anastasi Stephens Group, Inc.
9000 Virginia Manor Road, Suite 201
Beltsville, Maryland 20705
Either party, by written notice to the other, may change its address to which
notices are to be sent.
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<PAGE>
36. WAIVER
------
Any waiver of either Lessor or Lessee of any default, breach or
failure by the other to comply with any term, condition, or provision of this
Lease shall not constitute a waiver of any other default, breach or failure by
such defaulting party. No covenant, term or condition of this Lease shall be
deemed to have been waived by either party unless such waiver be in writing and
signed by the party to be charged therewith.
37. QUIET ENJOYMENT
---------------
So long as Lessee is not in default beyond applicable grace
periods, Lessee shall have peaceful and quiet use and possession of the Leased
Premises without hindrance on the part of Lessor or any person claiming by,
through or under Lessor.
38. RECORDING THIS LEASE
--------------------
Lessee may not record either this Lease nor a memorandum thereof
among or in any public records without Lessor's prior written consent.
39. GOVERNING LAW
-------------
All questions with respect to construction of this Lease and the
rights and liabilities of the parties shall be determined in accordance with the
laws of the State of Maryland.
40. BENEFIT
-------
Subject to the restrictions on assignment and subletting set forth
in Paragraph 20, the covenants, terms and conditions of this Lease shall inure
to the benefit of and be binding upon Lessor and Lessee and their respective
successors and assigns.
41. REASONABLE CONSENT
------------------
Wherever in this Lease Lessor or Lessee is required to obtain the
consent or approval of the other, it is agreed that such consent or approval
shall not be unreasonably withheld or delayed.
42. TIME OF ESSENCE
---------------
Time is of the essence in the performance of all of Lessor and
Lessee's obligations under this Lease.
(See Lease Addendum for Paragraphs 43 and 44)
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the day and
year first above written.
WITNESS: LESSOR:
MUIRKIRK MANOR ASSOCIATES
LIMITED PARTNERSHIP,
a Maryland limited partnership
By: THE ANASTASI STEPHENS GROUP, INC.
its general partner
/s/ Jolina Early By: /s/ Joseph Anastasi (SEAL)
- ------------------ ----------------------------------
WITNESS: LESSEE:
BIO SCIENCE CONTRACT PRODUCTION CORP.
a Maryland corporation
/s/ Jolina Early By: /s/ Jacques R. Rubin
- ------------------- ----------------------
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EXHIBIT "C" (PART II)
LEASE ADDENDUM
--------------
(PARK PLACE)
THIS LEASE ADDENDUM made as of the 20th of March, 1992, is attached to
and made part of that certain Lease of even date herewith (the "Lease") by and
between MUIRKIRK MANOR ASSOCIATES LIMITED PARTNERSHIP, a Maryland limited
partnership ("Lessor"), and Bio Science Contract Production Corp., a Maryland
corporation ("Lessee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lessor and Lessee have agreed to amend, supplement and/or
modify the Lease as herein provided, Landlord and Tenant hereby agree as
follows:
1. TERM - OPTION
-------------
Lessee, at its option, shall have the right to extend the Term of
this Lease on the same terms and conditions, as the original term thereof,
except as otherwise provided in this Addendum with respect to the amount of Base
Rent due during the respective extension period, for two (2) additional
consecutive terms of Five (5) years each (the "Extension Periods"), subject to
the satisfaction of the following conditions:
(i) Lessee's option to extend the Lease for each of the Extension
Periods shall be exercisable only by written notice to Lessor at least ninety
(90) days prior to the commencement date of each Extension Period. If Lessee
does not give Lessor written notice as aforesaid, Lessee shall be deemed to have
not exercised its respective extension option.
(ii) At the time of exercise of the option and at the
commencement of each Extension Period, Lessee shall not be in default under the
Lease beyond any applicable grace period.
(iii) Upon exercising the option, the Base Rent will be the
product obtained by multiplying the Base Rent for the immediately preceding
Lease Year by one hundred four percent (104%).
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2. RENT
----
For months 1 through 5 of the first base year, the monthly base
rent is hereby abated. Monthly base rent payments, in full, shall begin
September 1, 1992. It is agreed that Common Area Maintenance charges and
Additional Rent, if any, will be collected on the first day of occupancy,
pursuant to Paragraph 8.(c).
LESSEE IMPROVEMENTS
-------------------
(a) Lessor has agreed to construct and complete the installation
of Lessee improvements, as set forth in Exhibit "B" to the Lease, within a
budget of one hundred and twenty thousand and 00/100 ($120,000.00) toward the
improvements requested by the Lessee and it is agreed that the demising wall and
.60 per s.f. for design is part of the above allowance. It is agreed that all
plans, specifications, the General Contractor and its sub contractors, as well
as their work schedule, will be approved by the lessor or its Architect.
Payments to the General Contractor will be made in accordance with the schedule
and method established by the Lessor and its lender.
(b) In the event that the cost of constructing and installing the
Lessee improvements to the Leased Premises exceeds the $120,000.00, lessee shall
pay directly to the General Contractor the difference between the cost and the
allowance.
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IN WITNESS WHEREOF, the parties have executed this Lease Addendum on
the day and year first above written.
ATTEST: LESSOR:
MUIRKIRK MANOR ASSOCIATES LIMITED
PARTNERSHIP,
A Maryland limited partnership
By: THE ANASTASI STEPHENS GROUP,
INC.,
its general partner
/s/ Jolina Early By: /s/ Joseph Anastasi
- ---------------- -------------------
LESSEE:
BIO SCIENCE CONTRACT PRODUCTION
CORP.,
a MARYLAND corporation
/s/ Jolina Early By: /s/ Jacques R. Rubin
- ----------------- ---------------------
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EXHIBIT "D"
AMENDMENT TO LEASES
-------------------
THIS AMENDMENT TO LEASES ("Amendment"), dated as of 12 November, 1992,
is by and between MUIRKIURK MANOR ASSOCIATES LIMITED PARTNERSHIP, a Maryland
limited partnership ("Lessor"), and CEPHALON PROPERTY MANAGEMENT, INC., a
Delaware corporation ("Lessee"), with reference to the following background:
A. Pursuant to a certain Lease dated December 28, 1990 ("First Lease"),
a certain Lease dated November 12, 1991 ("Second Lease") and a certain Lease
dated March 20, 1992 ("Third Lease"; the First Lease, Second Lease and Third
Lease are collectively referred to herein as the "Leases"), Lessor leased to the
Bio Science Contract Production Corp., a Maryland corporation ("Bio Science"),
certain premises known as Suites 260, 270, 280 and 290, 9000 Virginia Manor
Road, Beltsville, Prince George's County, Maryland, as more particularly
described in the Leases ("Premises").
B. Bio Science has assigned all of its right, title and interest in and
to the Leases and the Premises to Lessee pursuant to a certain Assignment and
Assumption of Leases dated November, 1992.
C. Lessor and Lessee desire to modify certain terms and provisions of
the Leases as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
and to bind their respective successors and assigns, Lessor and Lessee agree as
follows:
1. USE. (A) Without limiting anything contained therein, Section 5
of the Leases is hereby amended to expressly permit Lessee to use
the Premises for the research, development, testing and production
of biological compounds and other pharmaceutical substances for
commercial and no-commercial purposes.
(B) Lessee shall defend, indemnify and save harmless
Lessor from and against any and all liabilities, costs and
expenses (including reasonable attorneys' fees) imposed upon or
incurred by Lessor solely by reason of any act or omission of
Lessee in the use and storage of any Hazardous Substance on or in
the Premises or in the disposal of any such Hazardous Substance.
As used herein, "Hazardous Substance" shall mean any hazardous
substance, toxic material or other substance regulated under
federal, state or local law.
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<PAGE>
2. ASSIGNMENT. Notwithstanding anything to the contrary contained in
Section 20 or elsewhere in the Leases, and subject to Lessor's mortgagee's
consent, Lessee shall, provided it is not then in default under the Leases
beyond any applicable grace period, have the right and privilege to assign one
or more of the Leases, without Landlord's consent, to an Affiliate of Lessee. As
used herein, "Affiliate" shall mean any person or entity controlling, controlled
by or under common control with Lessee. Lessee shall give Lessor written notice
of any assignment made under this Section 2.
3. ACCESS. Notwithstanding anything to the contrary contained in
Section 27 or elsewhere in the Leases, Lessee shall have the right to prohibit
Lessor's access to those portions of the Leased Premises that contain
confidential or proprietary information or involve a risk of contamination to
the compounds being produced therein.
4. NOTICES. Section 35 of the Leases is hereby amended to require that
all notices required or permitted to be given by Lessor under the Leases shall
be delivered to Lessee at the following address: 145 Brandywine Parkway, West
Chester, PA 19380, Attention: President.
5. OPTION TO EXTEND FIRST LEASE. Lessee, at its option, shall have the
right to extend the term of the First Lease on the same terms and conditions as
the original term thereof, except as otherwise provided in Section 5(iii) hereof
with respect to the amount of Base Rent due during the respective extension
period, for two (2) additional consecutive terms of five (5) years (each an
"Extension Period), subject to the satisfaction of the following conditions:
(i) Lessee's option to extend the First Lease for the Extension
Periods shall be exercisable only by written notice to Lessor at least ninety
(90) days prior to the commencement date of the Extension Period. If Lessee does
not give Lessor written notice as aforesaid, Lessee shall be deemed to have not
exercised its respective extension option.
(ii) At the time of exercise of the option and at the commencement
of the Extension Period, Lessee shall not be in default under the Leases beyond
any applicable grace period.
(iii) Upon exercising the option, the Base Rent for the First
Lease will be the product obtained by multiplying the Base Rent for the
immediately preceding Lease Year by one hundred four percent (104%).
6. LEASE IMPROVEMENTS. Subsections (a) and (b) of Section 3 (Lessee
Improvements) of the Lease Addendum to the Third Lease are hereby deleted and
the following shall be inserted in place thereof:
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(a) Lessor has agreed to construct and complete the
installation of Lessee improvements, as set forth in Exhibit "B"
to the Lease, within a budget of one hundred twenty thousand and
00/100 dollars ($120,000.00) towards the improvements requested by
the Lessee and it is agreed that the demising wall and .60 per
s.f. for design is part of the above allowance. It is agreed that
all plans, specifications, the General Contractor and its
subcontractors, as well as their work schedule, will be approved
by Lessee or its Architect. Payment of the General Contractor will
be made in accordance with the schedule and method established by
the Lessor and its lender.
(b) In the event that the cost of constructing and installing
the Lessee improvements to the Leased Premises exceed the
$120,000, Lessee shall pay directly to the General Contractor the
difference between the cost and the allowance.
7. DURATION. The amendments to the Leases resulting from Section 1
through 5 of this Amendment shall remain in effect for so long as Lessee remains
the assignee of Bio Science's interest in the Leases.
8. NO FURTHER AMENDMENT. Except as amended by this amendment, all
terms, provisions and agreements contained in the Leases are hereby ratified and
confirmed and remain in full force and effect.
[this space intentionally blank]
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IN WITNESS WHEREOF, Lessor and Lessee have each duly executed this
Amendment as of the date first above written.
MUIRKIRK MANOR ASSOCIATES
LIMITED PARTNERSHIP,
a Maryland limited partnership
By: THE ANASTASI STEPHENS GROUP, INC.
a Maryland close corporation its General
Partner
its General Partner
By: /s/ Joseph Anastasi
--------------------
Name: Joseph Anastasi
Title:
By: /s/ R. Glenn Stephens
---------------------
Name: R. Glenn Stephens
Title:
CEPHALON PROPERTY MANAGMENT, INC.
a Delaware corporation
By: /s/ Bruce A. Peacock
---------------------
Name:
Title:
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EXHIBIT "D" (PART II)
ASSIGNMENT AND ASSUMPTION OF LEASES
THIS ASSIGNMENT AND ASSUMPTION OF LEASES ("Assignment") is entered into
as of the 14th day of December , 1992, by BIO SCIENCE CONTRACT PRODUCTION CORP.,
a Maryland Corporation ("Assignor"), and C EPHALON PROPERTY MANAGEMENT, INC., a
Delaware corporation ("Assignee"). For valuable consideration, the parties
hereto, each intending to be legally bound and to bind their respective
successors and assigns, hereby convenant and agree as follows:
1. ASSIGNMENT. Assignor hereby assigns, transfers and sets over unto
Assignee, and Assignee hereby accepts, all of Assignor's right, title and
interest in and to (i) that certain Lease dated December 28, 1990, (ii) that
certain Lease dated November 12, 1991 and Addendum thereto and (iii) that
certain Lease dated March 20, 1992 and Addendum thereto, copies of which are
attached hereto as, respectively, Exhibits "A" - "C" and made a part hereof
(collectively, "Leases"), each between Muirkirk Manor Associates Limited
Partnership, a Maryland limited partnership, as landlord, and Assignor, as
tenant, which Leases pertain to Suites 260, 270, 280 and 290, 90000 Virginia
Manor Road, Park Place, Beltsville, Prince George's County, Maryland
("Premises"). This Assignment includes all security deposits paid by Assignor
under the Leases and all allowances and amounts available for lessee
improvements to the Premises.
2. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants to
Assignee that: (a) Assignor is the tenant under the Leases and the sole occupant
of the Premises, (b) the Leases are the only leases or agreements whereby any
person has been granted the right to use or occupy the Premises or any part
thereof, (c) Assignor has not previously assigned the Leases or sublet the
Premises and has received no notice of a prior assignment, hypothecation or
pledge of the Leases or the rent payable thereunder, (d) there exists no default
by Assignor or the landlord under the Leases, or, to the best of Assignor's
knowledge, no event, fact or circumstance which, with the giving of notice or
the passage of time, or both, would constitute a default, (e) the security
deposits due under the Leases have been paid in full, the amount of the security
deposits has not been reduced and Assignor's interest in the security deposits
has not been previously pledged, transferred or assigned, (f) the copies of the
Leases which are attached hereto are true, correct and complete and constitute
the entire agreement between Assignor and the landlord under the Leases, (g)
there are no actions or proceedings, whether voluntary or involuntary, pending
with respect to Assignor under any bankruptcy, insolvency, debt adjustment or
similar law of the United States or any state thereof, (h) the landlord under
the Leases has fulfilled all of its representation, warranties and agreements
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under the Leases, and (i) the construction and installation of all "lessee
improvements" to the Premises have been completed in all respects in accordance
with the Leases, except for any items specified on Schedule I hereto, there are
no payments due the landlord under the Leases or any other party from Assignor
or due Assignor from the landlord under the Leases in connection with any such
work, except as specified on Schedule II hereto, and the amount of $211,413.49
remains available for use in completing such work.
3. PERFORMANCE. Assignor shall be responsible for the observance and
performance of all agreements and obligations of the "Lessee" under the Leases
arising prior to the Effective Date (defined below). Assignee, and not Assignor,
shall be responsible for the observance and performance of all agreements and
obligations of the "Lessee" under the Leases arising on or after the Effective
Date.
4. EFFECTIVE DATE. Notwithstanding anything to the contrary contained
herein, this Assignment shall not become effective until such date ("Effective
Date"), if ever, that Assignor and Assignee (i) enter into an Asset Purchase
Agreement providing for Assignee's acquisition of certain assets of Assignor
located on the Premises and (ii) consummate the transactions contemplated
thereunder.
5. CONTINUING OBLIGATIONS. Assignor acknowledges, pursuant to Section
20 of the Leases, that the assignment effected hereby shall not release,
discharge or affect the liabilities of Assignor under the Leases and that
Assignor shall at all times remain primarily liable under the Leases.
6. TERMINATION. Assignee shall have the absolute and unconditional
right and privilege to terminate this Assignment as to any Lease at any time,
upon five (5) days' prior written notice to Assignor. As of the date specified
in any such notice ("Termination Date"), Assignor shall be fully and solely
liable for all agreements and obligations of the "Lessee" under such Lease and
Assignee shall have no further obligations under such Lease, except for any
liability or obligation accrued between the Effective Date and the Termination
Date.
7. INDEMNITY. Assignor shall defend, protect, indemnify and save
harmless Assignee from and against any and all liabilities, suits, actions,
losses, damages, costs and expenses, including, without limitation, counsel fees
and court costs, suffered or incurred by Assignee resulting from or relating to
any failure by Assignor to observe or perform any of its agreements or
obligations under the Leases prior to the Effective Date or after the
Termination Date.
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<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
as of the date first above written.
(Corporate Seal) BIO SCIENCE CONTRACT
Attest: PRODUCTION CORP.
/s/ Cindi R. Caplan By: /s/ Jacques R. Rubin
- ------------------- ---------------------
Name: Name:
Title: Title:
(Corporate Seal) CEPHALON PROPERTY
Attest: MANAGEMENT, INC.
/s/ Bruce A. Peacock By: /s/ Frank Baldino
- -------------------- -----------------
Name: Name:
Title: Title:
-92-
<PAGE>
SCHEDULE I
UNCOMPLETED LESSEE IMPROVEMENTS
-------------------------------
NONE.
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<PAGE>
SCHEDULE II
AMOUNT DUE FOR LESSEE IMPROVEMENTS
----------------------------------
NONE.
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<PAGE>
EXHIBIT "E"
LETTER AGREEMENT
----------------
December 29, 1992
Muirkirk Manor Associates
Limited Partnership
9000 Virginia Manor Road, Suite 210
Beltsville, MD 20705
Bio Science Contract Production Corp.
10000 Virginia Manor Road, Suite 340
Beltsville, MD 20705
Re: 9000 Virginia Manor Road, Beltsville
Maryland (Suites 260, 270, 280 and 290)
(the "Premises")
----------------------------------------
Gentlemen:
As you know, Bio Science desires to assign to Cephalon Property
Management, Inc. ("CPMI") three leases for the Premises between Bio Science, as
Tenant, and Muirkirk Manor Associates Limited Partnership, as Landlord, pursuant
to an Assignment and Assumption of Leases dated December 14, 1992 (the
"Assignment Agreement"). The Landlord is required to obtain the consent of the
party holding the mortgage on the Premises, Potomac Equity Portfolio Limited
Partnership, an Illinois limited partnership ("Lender"), to the Assignment
Agreement, as well as to the Amendment to Leases between the Landlord and CPMI
dated November 12, 1992, which is to become effective as of December 14, 1992
(the "Amendment").
As a condition to giving its consent, the Lender has requested that
certain changes be made to the Assignment Agreement and the Amendment, and Bio
Science, Muirkirk and CPMI wish to amend the documents to make such changes, as
follows:
1. The first sentence of Section 6 of the Assignment Agreement is
hereby amended and restated in its entirety as follows:
"Assignee shall have the right and privilege to terminate this
Assignment at any time, upon 180 days prior written notice to Assignor
and to Assignor's lender, Potomac Equity Portfolio Limited Partnership
(if it continues to hold the mortgage covering the Premises) (the
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<PAGE>
"Lender"), PROVIDED that such termination is in conjunction with
Assignee's transfer to Assignor of substantially all of the equipment
of Assignor acquired by Assignee as of December 14, 1992 (or the
functional equivalent thereof) in substantially the same condition as
existed as of November 11, 1992 or, in CPMI's discretion, cash in lieu
thereof at the value agreed to by CPMI and Assignor."
2. A new Section 8 is hereby added to the Assignment Agreement, which
states in its entirety as follows:
"8. NOTICES. All notices to be delivered hereunder shall be sent by
hand delivery, facsimile (with a confirmation copy sent by first-class
mail) or reputable overnight courier, to the following addresses:
If to Assignor, to:
Bio Science Contract Production Corp.
10000 Virginia Manor Road, Suite 340
Beltsville, MD 20705
If to Lender, to:
Potomac Equity Portfolio Limited Partnership
c/o Amresco Institutional, Inc.
8300 Greensboro Drive, Suite 700
McLean, VA 22102
Attention: David Cundiff
or to such other address or addressee as shall be properly
furnished to the other parties in the manner specified in this
paragraph 8."
3. Section 1(B) of the Amendment is hereby amended to insert
the phrase "and its successors and assigns" after the word "Lessor" in the
second line and in the fourth line.
4. Any assignment of the Leases to an Affiliate pursuant to
Section 2 of the Amendment shall require the consent of Potomac Equity Portfolio
Limited Partnership, as the holder of the mortgage covering the Premises.
5. Section 3 of the Amendment is hereby amended and restated
in its entirety to read as follows:
"Notwithstanding anything to the contrary contained in Section
27 or elsewhere in the Leases, Lessee shall have the right to
prohibit Lessor's access to those portions of the Leased
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<PAGE>
Premises that contain confidential or proprietary information
or involve a risk of contamination to the compounds being
produced therein, unless Lessor has, as appropriate, signed a
mutually satisfactory form of confidentiality agreement or
taken such precautions as may be reasonably prescribed by CPMI
to avoid such contamination."
6. CPMI's obligations in this letter shall become effective
upon receipt of the executed consent of the Lender to the Assignment Agreement
and Amendment, in form and substance satisfactory to CPMI.
If the foregoing is correct, please indicate your agreement in
the space provided below.
Very truly yours,
CEPHALON PROPERTY
MANAGEMENT, INC.
By:/s/ Bruce A. Peacock
---------------------
Acknowledged and agreed to by:
MUIRKIRK MANOR ASSOCIATES
LIMITED PARTNERSHIP
By The Anastasi Stephens Group, Inc.,
its General Partner
By:/s/ Joseph Anastasi
-------------------
BIO SCIENCE CONTRACT PRODUCTION CORP.
By:/s/ Jacques R. Rubin
---------------------
Jacques R. Rubin
President
-97-
Exhibit 10.35
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT, dated as of November 1, 1996
("Agreement"), between General Electric Capital Corporation, with an office at 4
North Park Drive, Suite 500, Hunt Valley, MD 21030 (hereinafter called, together
with its successors and assigns, if any, "Lessor"), and North American Vaccine,
Inc., a Canadian corporation organized and existing under the Canada Business
Corporations Act with its mailing address and chief place of business at 12103
Indian Creek Court, Beltsville, Maryland 20705 (hereinafter called together with
its successors and assigns, if any "Lessee").
WITNESSETH:
I. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees
to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment
("EQUIPMENT") described in Annex A to any schedule hereto ("SCHEDULE"). Terms
defined in a Schedule and not otherwise defined herein shall have the meanings
ascribed to them in such Schedule.
(b) The obligation of Lessor to purchase Equipment from the
manufacturer or supplier thereof ("SUPPLIER") and to lease the same to Lessee
under any Schedule shall be subject to receipt by Lessor, prior to the Lease
Commencement Date (with respect to such Equipment), of each of the following
documents in form and substance satisfactory to Lessor: (i) a Schedule relating
to the Equipment then to be leased hereunder, (ii) a Purchase Order Assignment
and Consent in the form of Annex B to the applicable Schedule, unless Lessor
shall have delivered its purchase order for such Equipment, (iii) evidence of
insurance which complies with the requirements of Section X, and (iv) such other
documents as Lessor may reasonably request. As a further condition to such
obligations of Lessor, Lessee shall, upon delivery of such Equipment (but not
later than the Last Delivery Date specified in the applicable Schedule) execute
and deliver to Lessor a Certificate of Acceptance (in the form of Annex C to the
applicable Schedule) covering such Equipment, and deliver to Lessor a bill of
sale therefor (in form and substance satisfactory to Lessor). Lessor hereby
appoints Lessee its agent for inspection and acceptance of the Equipment from
the Supplier. Upon execution by Lessee of any Certificate of Acceptance, the
Equipment described thereon shall be deemed to have been delivered to, and
irrevocably accepted by, Lessee for lease hereunder.
II. TERM, RENT AND PAYMENT:
(a) The rent payable hereunder and Lessee's right to use the Equipment
shall commence on the date of execution by Lessee of the Certificate of
Acceptance for such Equipment ("LEASE COMMENCEMENT DATE"). The term of this
Agreement for any Equipment shall be the period specified in the applicable
<PAGE>
Schedule for such Equipment. If any term is extended, the word "term" shall be
deemed to refer to all extended terms, and all provisions of this Agreement
shall apply during any extended terms, except as may be otherwise specifically
provided in writing.
(b) Rent shall be paid to Lessor at its address stated above, except as
otherwise directed by Lessor in writing. Payments of rent shall be in the amount
set forth in, and due in accordance with, the provisions of the applicable
Schedule. If one or more Advance Rent(s) (as specified in Schedule) are payable,
such Advance Rent(s) shall be (i) set forth on the applicable Schedule, (ii) due
upon acceptance by Lessor of such Schedule, and (iii) when received by Lessor,
applied to the first rent payment and the balance, if any, to the final rental
payment(s) under such Schedule. In no event shall any Advance Rent or any other
rent payments be refunded to Lessee. If rent is not paid within ten days of its
due date, Lessee agrees to pay a late charge of* on, and in addition to, the
amount of such rent but not exceeding the lawful maximum, if any.
(c) Rent payments under any Schedule shall be allocated proportionately
to the Equipment on such Schedule on the basis of the values assigned to each
unit of such Equipment on Annex A to such Schedule, provided that such
allocation shall not be interpreted to allow Lessee to make partial payment or
to partially terminate this Agreement, except as otherwise permitted hereunder
(d) All Rent and other payments to be paid under this Lease to Lessor
shall be paid in U.S. currency and without any deduction or withholding for, or
on account of, any domestic or foreign taxes. If under applicable law, any Rent
or other sum cannot be paid without a deduction or withholding, then Lessee
shall increase such Rent or other payment to Lessor so that the net amount
received by Lessor after such deduction or withholding (and the payment of any
other amount that must be deducted or withheld as a result of such increase)
shall be equal to the full amount that Lessor would have received had such Rent
or other payment not been subject to any deduction or withholding.
III. RENT ADJUSTMENT:
(a) The periodic rent payments in each Schedule have been calculated on
the assumption (which, as between Lessor and Lessee, is mutual) that the maximum
effective corporate income tax rate (exclusive of any minimum tax rate) for
calendar-year taxpayers ("EFFECTIVE RATE") will be * each year during the lease
term.
(b) If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition
to, the Internal Revenue Code of 1986 (the "CODE")), the Effective Rate is
higher than * for any year during the lease term, then Lessor shall have the
right to increase such rent payments by requiring
[*] Confidential information has been omitted and filed separately with the
Commission.
- 2 -
<PAGE>
payment of a single additional sum equal to the product of (i) the Effective
Rate (expressed as a decimal) for such year less * (or, in the event that any
adjustment has been made hereunder for any previous year, the Effective Rate
(expressed as a decimal) used in calculating the next previous adjustment) times
(ii) the adjusted Stipulated Loss Value. The adjusted Stipulated Loss Value
shall be the Stipulated Loss Value (calculated as of the first rental due in the
year for which such adjustment is being made) less the product of the Tax
Benefits that would be allowable under Section 168 of the Code (as of the first
day of the year for which such adjustment is being made and all subsequent years
of the lease term) times the Effective Rate (expressed as a decimal) (in the
year for which such adjustment is being made). Lessee shall pay to Lessor the
full amount of the additional rent payment on the later of (i) ten (10) days
after receipt of notice or (ii) the first day of the year for which such
adjustment is being made.
(c) If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition to
the Code), the Effective Rate is lower than* for or any year during the lease
term, then Lessor shall pay to Lessee a single additional sum equal to the
product of (i) the Effective Rate (expressed as a decimal) for such year less *
(or, in the event that any adjustment has been made hereunder for any previous
year, the Effective Rate (expressed as a decimal) used in calculating the next
previous adjustment) times (ii) the adjusted Stipulated Loss Value. The adjusted
Stipulated Loss Value shall be the Stipulated Loss Value (calculated as of the
first rental due in the year for which such adjustment is being made) less the
product of the Tax Benefits that would be allowable under Section 168 of the
Code (as of the first day of the year for which such adjustment is being made
and all subsequent years of the lease term) times the Effective Rate (expressed
as a decimal) (in the year for which such adjustment is being made). Lessor
shall pay to Lessee the full amount of the additional rent payment on the later
of (i) receipt of notice or (ii) the first day of the year for which such
adjustment is being made.
(d) Lessee's and Lessor's obligations under this Section III shall
survive any expiration or termination of this Agreement.
IV. TAXES: Except as provided in Sections III and XV(c), Lessee shall
have no liability for taxes (i) imposed by the United States of America or
any State or political subdivision thereof which are based on or measured
by the net income of Lessor or the net worth of Lessor, (ii) imposed on or
with respect to, or that would not have been imposed but for, any transfer
by Lessor of any interest in any Equipment or any part thereof, (iii)
attributable to any period after the later of the return of the Equipment
to Lessor or the termination of the Lease, except to the extent relating
to Lessee's use or possession of the Equipment or payment due hereunder or
events occurring or matters arising prior to or simultaneously with such
return or termination, or (iv) which would not have been imposed but for
[*] Confidential information has been omitted and filed separately with the
Commission
- 3 -
<PAGE>
and only to the extent of the negligence or willful misconduct of Lessor or the
failure of Lessor to comply with any certification, documentation, reporting or
similar requirement or that would not have been imposed but for the conduct by
Lessor in any taxing jurisdiction of activities unrelated to the transactions
contemplated by this Lease. Lessee shall report (to the extent that it is
legally permissible) and pay promptly all other taxes, fees and assessments due,
imposed, assessed or levied against any Equipment (or the purchase, ownership,
delivery, leasing, possession, use or operation thereof), this Agreement (or any
rentals or receipts hereunder), any Schedule, Lessor or Lessee by any foreign,
federal, state or local government or taxing authority during or related to the
term of this Agreement, including, without limitation, all license and
registration fees, and all sales, use, personal property, excise, gross
receipts, franchise, stamp or other taxes, imposts, duties and charges, together
with any penalties, fines or interest thereon (all hereinafter called "TAXES").
Lessee shall (i) reimburse Lessor upon receipt of written request for
reimbursement for any Taxes charged to or assessed against Lessor, (ii) on
request of Lessor, submit to Lessor written evidence of Lessee's payment of
Taxes, (iii) on all reports or returns show the ownership of the Equipment by
Lessor, and (iv) send a copy thereof to Lessor. Lessee, at its expense, may
contest any Tax by appropriate legal proceedings provided the non-payment of
such Tax, or such proceedings, will not, in the opinion of counsel for Lessor,
adversely affect the title, property interest or rights of Lessor in the
Equipment and provided, further, that if requested by Lessor, Lessee shall have
given to Lessor security sufficient in form and amount, in Lessor's reasonable
judgment, to fully satisfy the amount of the contested Tax and any potential
fines, penalties or costs.
V. REPORTS:
(a) Lessee will notify Lessor in writing, within ten (10) days after
Lessee becomes aware that any tax or other lien shall attach to any Equipment,
of the full particulars thereof and of the location of such Equipment on the
date of such notification.
(b) Lessee will within one hundred twenty (120) days of the close of
each fiscal year of Lessee, deliver to Lessor, Lessee's balance sheet and profit
and loss statement, certified by a recognized firm of certified public
accountants. Upon request Lessee will deliver to Lessor quarterly, within ninety
(90) days of the close of each fiscal quarter of Lessee, in reasonable detail,
copies of Lessee's quarterly financial report certified by the chief financial
officer of Lessee.
(c) Lessee will permit Lessor to inspect any Equipment during normal
business hours and with reasonable advance notice to Lessee of such inspection;
provided, however, that such persons shall comply with any reasonable conditions
imposed by Lessee regarding such inspection of Equipment in Lessee's
manufacturing areas
[*] Confidential information has been omitted and filed separately with the
Commission
- 4 -
<PAGE>
(d) The Equipment will initially be delivered to and located at the
Equipment Location (specified in the applicable Schedule) and Lessee will
promptly notify Lessor of any relocation of Equipment. Upon the written request
of Lessor, Lessee will notify Lessor forthwith in writing of the location of any
Equipment as of the date of such notification.
(e) Lessee will promptly and fully report to Lessor in writing if any
Equipment is lost or damaged (where the estimated repair costs would exceed *,
or is otherwise involved in an accident causing personal injury or property
damage.
(f) Within sixty (60) days after any written request by Lessor, Lessee
will furnish a certificate of an authorized officer of Lessee stating that he
has reviewed the activities of Lessee and that, to the best of his knowledge,
there exists no default (as described in Section XII(a) and (d)) or event which
with notice or lapse of time (or both) would become such a default.
VI. DELIVERY, USE AND OPERATION:
(a) All Equipment shall be shipped directly from the Supplier to
Lessee.
(b) Lessee agrees that the Equipment will be used by Lessee solely in
the conduct of its business and in a manner complying with all applicable
federal, state, and local laws and regulations.
(c) LESSEE SHALL NOT MORTGAGE OR HYPOTHECATE ANY EQUIPMENT, OR THE
INTEREST OF LESSEE HEREUNDER, NOR SHALL LESSEE REMOVE ANY EQUIPMENT FROM THE
CONTINENTAL UNITED STATES, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR.
(d) Lessee may, at its sole cost and expense, sublease any of the
Equipment or assign all of its rights and obligations under the lease for such
Equipment provided Lessee shall have first notified Lessor of the proposed
sublease or assignment of such Equipment and, except as otherwise provided in
this subsection (d), Lessee shall have received Lessor's prior written consent
(such consent not to be unreasonably withheld or delayed) to such sublease or
assignment. Notwithstanding anything to the contrary contained in the preceding
sentence, at any time during the term of the lease for any units of Equipment
under this Agreement, Lessee may sublet all, but not less than all, of the
Equipment described on any one or more Schedules or assign all of its rights
under this Agreement with respect to the lease of such Equipment, (i) to any
transferee which shall, as the result of a reorganization, merger or
consolidation directly involving Lessee, succeed to the business now carried on
by Lessee or (ii) to any entity which is an Affiliate (as defined herein)
subsidiary of Lessee; in each instance, without the prior written consent of
[*] Confidential information has been omitted and filed separately with the
Commission
- 5 -
<PAGE>
Lessor, provided Lessor is given thirty (30) days' prior written notice of such
proposed sublease or assignment together with a copy of the proposed sublease or
assignment, and such transferee shall (A) have assumed in writing, in form and
substance reasonably satisfactory to Lessor, all of the obligations of Lessee
under this Agreement respecting the applicable Equipment as if such transferee
were an original signatory to this Agreement and (B) be solvent and either (1)
have a net worth which is equal to or in excess of the net worth of Lessee
immediately prior to the execution of this Agreement or (2) have caused
additional security reasonably satisfactory to Lessor to be delivered to Lessor
prior to such sublease or assignment. No such sublease or assignment permitted
by this subsection (d) shall in any way discharge or diminish any of Lessee's
obligations hereunder for the lease of such Equipment. Each sublease and
assignment hereunder shall expressly provide that it is subject and subordinate
to this Agreement, and Lessee shall further assign its rights in and to such
sublease or assignment to Lessor as security for Lessee's obligations hereunder.
No sublease or assignment shall be for a term longer than the subject Schedule.
Lessee and any assignee or sublessee shall execute all reasonable documentation
required by Lessor to evidence the provisions of this subsection(d).
(e) Lessee will keep the Equipment free and clear of all liens and
encumbrances other than those which result from acts of Lessor or any party
claiming by, through or under Lessor, or liens arising in the ordinary course of
the business of Lessee for sums not yet delinquent or which are being contested
in good faith and for payment of which adequate assurance has been provided to
Lessor.
VII. SERVICE:
(a) Lessee will, at its sole expense, maintain each unit of Equipment
in good operating order, repair, condition and appearance in accordance with
manufacturer's recommendations, normal wear and tear excepted. Lessee shall, if
at any time requested by Lessor in writing, affix in a prominent position on
each unit of Equipment plates, tags or other identifying labels showing
ownership thereof by Lessor.
(b) From and after the date of this Agreement, Lessee will not, without
the prior consent of Lessor, affix or install any accessory, equipment or device
on any Equipment if such addition will impair the originally intended function
or use of such Equipment. All additions, repairs, parts, supplies, accessories,
equipment, and devices furnished, attached or affixed to any Equipment which are
not readily removable shall be made only in compliance with applicable law,
including Internal Revenue Service guidelines, and shall become the property of
Lessor. Lessee will not, without the prior written consent of Lessor and subject
to such conditions as Lessor may impose for its protection, affix or install any
Equipment to or in any other personal or real property.
(c) Any alterations or modifications to the Equipment that may, at any
time during the term of this Agreement, be required to comply
[*] Confidential information has been omitted and filed separately with the
Commission
- 6 -
<PAGE>
with any applicable law, rule or regulation shall be made at the expense of
Lessee.
VIII. STIPULATED LOSS VALUE: Lessee shall promptly and fully notify Lessor in
writing if any unit of Equipment shall be or become lost, stolen, destroyed,
irreparably damaged in the reasonable determination of Lessee, or permanently
rendered unfit for use from any cause whatsoever (such occurrences being
hereinafter called "CASUALTY OCCURRENCES"). On the rental payment date next
succeeding a Casualty Occurrence (the "PAYMENT DATE"), Lessee shall pay Lessor
the sum of (x) the Stipulated Loss Value (as specified on each Schedule) of such
unit calculated as of the rental next preceding such Casualty Occurrence
("CALCULATION DATE"); and (y) all rental and other amounts which are due
hereunder immediately prior to the Payment Date and remaining unpaid. Upon
payment of all sums due hereunder, (i) the term of this lease as to such unit
shall terminate (ii) the Rent and Capitalized Lessor's cost shall be reduced
proportionately based on the value assigned to such unit in Annex A to the
applicable Schedule, and ((iii) except in the case of the loss, theft or
complete destruction of such unit) Lessor shall be entitled to recover
possession of such unit.
IX. LOSS OR DAMAGE: Lessee hereby assumes and shall bear the entire risk of any
loss, theft, damage to, or destruction of, any unit of Equipment from any cause
whatsoever from the time the Equipment is shipped to Lessee until it is returned
to Lessor.
X. INSURANCE: Lessee agrees, at its own expense, to keep all Equipment insured
for such amounts and against such hazards as Lessor may reasonably require,
including, but not limited to, insurance for damage to or loss of such Equipment
and liability coverage for personal injuries, death or property damage, with
Lessor named as additional insured and with a loss payable clause in favor of
Lessor, as its interest may appear, irrespective of any breach of warranty or
other act or omission of Lessee. All such policies shall be with companies, and
on terms reasonably satisfactory to Lessor. Lessee agrees to deliver to Lessor
evidence of insurance satisfactory to Lessor. No insurance shall be subject to
any co-insurance clause. Lessee hereby appoints Lessor as Lessee's
attorney-in-fact to make proof of loss and claim for insurance, and to make
adjustments with insurers and to receive payment of and execute or endorse all
documents, checks or drafts in connection with payments made as a result of such
insurance policies. Any expense of Lessor in adjusting or collecting insurance
shall be borne by Lessee. Lessee will not make adjustments with insurers except
(i) with respect to claims for damage to any unit of Equipment where the repair
costs do not exceed *, or (ii) with Lessor's written consent, such consent shall
not be unreasonably withheld or delayed. Said policies shall provide that the
insurance may not be altered or canceled by the insurer until after twenty (20)
days written notice to Lessor. If Lessee has made the payment described in
Section VIII above, Lessee shall be entitled to the insurance proceeds.
[*] Confidential information has been omitted and filed separately with the
Commission
- 7 -
<PAGE>
In all other events, Lessor may, at its option, apply proceeds of insurance, in
whole or in part, to (i) repair or replace Equipment or any portion thereof, or
(ii) satisfy any obligation of Lessee to Lessor hereunder. Notwithstanding the
previous sentence or Section VIII, the Lessee may cause any insurance proceeds
to be applied directly for the repair or replacement of Equipment if such
repairs or replacements are less than * for any one casualty and such repairs or
replacements are actually performed.
XI. RETURN OF EQUIPMENT:
(a) Upon any expiration or termination of this Agreement or any
Schedule, Lessee shall promptly, at its own cost and expense: (i) perform any
testing and repairs required to place the affected units of Equipment in the
same condition and appearance as when received by Lessee (reasonable wear and
tear excepted) and in good working order for their originally intended purpose;
(ii) if deinstallation, disassembly or crating is required, cause such units to
be deinstalled, disassembled and crated by an authorized manufacturer's
representative or such other person as is satisfactory to Lessor; and (iii)
return such units to a location within a five hundred (500) mile radius of the
original Equipment location in the continental United States as Lessor shall
direct.
(b) Until Lessee has fully complied with the requirements of Section
XI(a) above, Lessee's rent payment obligation and all other obligations under
this Agreement shall continue from month to month notwithstanding any expiration
or termination of the lease term. Lessor may terminate such continued leasehold
interest upon ten (10) days notice to Lessee.
XII. DEFAULT:
(a) Lessor may in writing declare this Agreement in default if: Lessee
breaches its obligation to pay rent or any other sum when due and fails to cure
the breach within *; Lessee breaches any of its insurance obligations under
Section X; Lessee breaches any of its other obligations under this Agreement and
fails to cure that breach within * after written notice thereof (provided,
however, that no default shall be deemed to have occurred under this clause in
the event that Lessee commences a good faith effort to cure such breach within
the aforesaid * period and diligently prosecutes such cure to completion, and
such cure is completed within * after the date of Lessor's original notice to
Lessee of such breach); any representation or warranty made by Lessee in
connection with this Agreement shall be false or misleading in any material
respect when made; Lessee becomes insolvent or ceases to do business as a going
concern; any Equipment is illegally used; or a petition is filed by or against
Lessee under any bankruptcy or insolvency laws (and if such petition is filed
against Lessee, it is not stayed or dismissed within 60 days). Such declaration
shall apply to all Schedules except as specifically excepted by Lessor.
[*] Confidential information has been omitted and filed separately with the
Commission
- 8 -
<PAGE>
(b) After default, at the request of Lessor, Lessee shall comply with
the provisions of Section XI(a). Lessee hereby authorizes Lessor to enter any
premises where any Equipment is believed to be and take possession thereof
without liability for damages or otherwise (except for physical damage not
required by the repossession of the Equipment). Lessee shall, without further
demand, forthwith pay to Lessor (i) as liquidated damages for loss of a bargain
and not as a penalty, the Stipulated Loss Value of the Equipment (calculated as
of the rental next preceding the declaration of default), and (ii) all rentals
and other sums then due hereunder. Lessor may, but shall not be required to,
sell Equipment at private or public sale, in bulk or in parcels, with such
notice as may be required by law, and without having the Equipment present at
the place of sale; or Lessor may, but shall not be required to, lease, otherwise
dispose of or keep idle all or part of the Equipment. The proceeds of sale,
lease or other disposition, if any, shall be timely applied in the following
order of priorities: (1) to pay all of Lessor's costs, charges and expenses
incurred in taking, removing, holding, repairing and selling, leasing or
otherwise disposing of Equipment; then, (2) to the extent not previously paid by
Lessee, to pay Lessor all sums due from Lessee hereunder; then (3) to reimburse
to Lessee any sums previously paid by Lessee as liquidated damages; and (4) any
surplus shall be retained by Lessor. Lessee shall pay any deficiency in (1) and
(2) forthwith.
(c) The foregoing remedies are cumulative, and any or all thereof may
be exercised in lieu of or in addition to each other or any remedies at law, in
equity, or under statute. Lessee shall pay Lessor's reasonable attorney's fees
and costs upon a default. Waiver of any default shall not be a waiver of any
other or subsequent default.
(d) Any default under the terms of this or any other agreement between
Lessor and Lessee may be declared by Lessor a default under this and any such
other agreement.
XIII. ASSIGNMENT: Lessor may, without the consent of Lessee, assign this
Agreement or any Schedule, provided that any such assignee shall agree in
writing to take no action to interfere with Lessee's quiet enjoyment and use of
the Equipment in accordance with the terms of this Agreement so long as Lessee
is not in default hereunder and to assume the obligations of Lessor in
accordance with the terms of this Agreement. Lessee agrees that if Lessee
receives written notice of an assignment from Lessor, Lessee will pay all rent
and all other amounts payable under any assigned Equipment Schedule to such
assignee or as instructed by Lessor. Lessee further agrees to confirm in writing
receipt of the notice of assignment as may be reasonably requested by assignee.
Lessee hereby waives and agrees not to assert against any such assignee any
defense, set-off, recoupment claim or counterclaim which Lessee has or may at
[*] Confidential information has been omitted and filed separately with the
Commission
- 9 -
<PAGE>
any time have against Lessor for any reason whatsoever except for any payments
rightfully made by Lessee to an assignee of Lessor pursuant to this Section
shall discharge the obligations of Lessee to Lessor with respect to, and to the
extent of, such payments.
XIV. NET LEASE; NO SET-OFF, ETC: This Agreement is a net lease. Lessee's
obligation to pay rent and other amounts due hereunder shall be absolute and
unconditional. Lessee shall not be entitled to any abatement or reductions of,
or set-offs against, said rent or other amounts, including, without limitation,
those arising or allegedly arising out of claims (present or future, alleged or
actual, and including claims arising out of strict tort or negligence of Lessor)
of Lessee against Lessor under this Agreement or otherwise. Nor shall this
Agreement terminate or the obligations of Lessee be affected by reason of any
defect in or damage to, or loss of possession, use or destruction of, any
Equipment from whatsoever cause, except as otherwise provided herein. It is the
intention of the parties that rents and other amounts due hereunder shall
continue to be payable in all events in the manner and at the times set forth
herein unless the obligation to do so shall have been terminated pursuant to the
express terms hereof. Nothing herein shall be construed to relieve Lessor of any
of its obligations under this Agreement or prevent Lessee from pursuing any
lawful remedy against Lessor for Lessor's breach of its obligations under this
Agreement in a separate action.
XV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor,
its agents, employees, successors and assigns from and against any and all
losses, damages, penalties, injuries, claims, actions and suits, including
reasonable legal expenses, of whatsoever kind and nature, in contract or tort,
or otherwise (except (i) if and only to the extent caused by the indemnified
party's gross negligence or willful misconduct, (ii) by Lessor's breach of its
representations and warranties contained in Section XIX(f) hereof or (iii) the
claim is based on a loss of Tax Benefits (as defined under subsection XV(b)
below)), and including, but not limited to, Lessor's strict liability in tort,
arising out of (i) the selection, manufacture, purchase, acceptance or rejection
of Equipment, the ownership of Equipment during the term of this Agreement, and
the delivery, lease, possession, maintenance, uses, condition, return or
operation of Equipment (including, without limitation, latent and other defects,
whether or not discoverable by Lessor or Lessee and any claim for patent,
trademark or copyright infringement or environmental damage) or (ii) the
condition of Equipment sold or disposed of after use by Lessee, any sublessee or
employees of Lessee. Lessee shall fully and promptly pay, perform, discharge,
defend, indemnify and hold harmless Lessor and its Affiliates, successors and
assigns, directors, officers, employees and agents from and against any
Environmental Claim or Environmental Loss. Lessee shall, upon request, defend
[*] Confidential information has been omitted and filed separately with the
Commission
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<PAGE>
any actions based on, or arising out of, any of the foregoing. In case any
action, suit or proceeding is brought against any indemnified party in
connection with any claim indemnified against hereunder, such indemnified party
will promptly after receipt of notice of the commencement of such action, suit
or proceeding notify Lessee hereof, enclosing a copy of all papers served upon
such indemnified party, but failure to give such notice or to enclose such
papers shall not relieve Lessee from any liability hereunder unless and only to
the extent such failure prevents or materially prejudices Lessee's ability to
defend such claim, seek coverage under relevant insurance policies or mitigate
damages arising therefrom.
(b) Lessee hereby represents, warrants and covenants that (i) on the
Lease Commencement Date for any unit of Equipment, such unit will qualify for
all of the items of deduction and credit specified in Section C of the
applicable Schedule ("TAX BENEFITS") in the hands of Lessor (all references to
Lessor in this Section XV include Lessor and the consolidated taxpayer group of
which Lessor is a member), and (ii) at no time during the term of this Agreement
will Lessee take or omit to take, nor will it permit any sublessee or assignee
to take or omit to take, any action (whether or not such act or omission is
otherwise permitted by Lessor or the terms of this Agreement), which will result
in the disqualification of any Equipment for, or recapture of, all or any
portion of such Tax Benefits.
(c) If as a result of a breach of any representation, warranty or
covenant of the Lessee contained in this Agreement or any Schedule (x) tax
counsel of Lessor (if Lessor's rights hereunder are assigned the tax counsel
shall be reasonably satisfactory to Lessee) shall determine that Lessor is not
entitled to claim on its Federal income tax return all or any portion of the Tax
Benefits with respect to any Equipment, or (y) any such Tax Benefit claimed on
the Federal income tax return of Lessor is disallowed or adjusted by the
Internal Revenue Service, or (z) any such Tax Benefit is recomputed or
recaptured (any such determination, disallowance, adjustment, recomputation or
recapture being hereinafter called a "LOSS"), then Lessee shall pay to Lessor,
as an indemnity and as additional rent, such amount as shall, in the reasonable
opinion of Lessor, cause Lessor's after-tax economic yields and cash flows,
computed on the same assumptions, including tax rates (unless any adjustment has
been made under Section III hereof, in which case the Effective Rate used in the
next preceding adjustment shall be substituted), as were utilized by Lessor in
originally evaluating the transaction (such yields and flows being hereinafter
called the "NET ECONOMIC RETURN") to equal the Net Economic Return that would
have been realized by Lessor if such Loss had not occurred. Notwithstanding the
foregoing a Loss shall not include any determination, disallowance, adjustment,
recomputation or recapture which is a result of Lessor reporting this Lease as a
capital lease for Federal Income Tax purposes, for reasons other than as a
result of a breach of any representation, warranty or covenant of the Lessee.
[*] Confidential information has been omitted and filed separately with the
Commission
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<PAGE>
Such amount shall be payable upon demand accompanied by a statement describing
in reasonable detail such Loss and the computation of such amount.
(d) Lessee hereby further represents, warrants and covenants that all
amounts includible in the gross income of Lessor with respect to the Equipment,
and all deductions or credits allowable to Lessor with respect to the Equipment,
will be treated as derived from or allocable to sources within the United States
in each and every taxable year of Lessor throughout the entire term of this
Lease. If as a result of any breach of the representation, warranty and covenant
contained the immediately preceding sentence, any item of income, credit or
deduction with respect to the Equipment shall not be treated as derived from or
allocable to, sources with the United States for any taxable year or Lessor (any
such event hereinafter referred to as a "FOREIGN LOSS"), then Lessee shall pay
to Lessor as an indemnity, on the next succeeding rental payment date, or in any
event within 30 days after written demand to Lessee by Lessor, such amount as,
after deduction of all taxes required to be paid by Lessor in respect of the
receipt of such amounts under the laws of any federal, state or local government
or taxing authority of the United States, shall equal the sum of: (i) the excess
of (x) the foreign tax credits which Lessor would have been entitled to for such
year had no such Foreign Loss occurred over (y) the foreign tax credits to which
Lessor was limited as a result of such Foreign Loss and (ii) the amount of any
interest, penalties or additions to tax payable as a result of such Foreign
Loss.
(e) Lessee further covenants that it shall be responsible for paying,
and shall indemnify and hold harmless Lessor from any liability with respect to,
any Tax in respect of the transactions contemplated by this Lease which results
from a change in Canadian law which, without more, causes Lessor to incur any
Tax attributable either directly or indirectly to its having or being deemed to
have a permanent establishment, residence or place of business or to otherwise
be doing business in Canada.
(f) If, as a result of the operation of Section XV(d) or (e), Lessee
would be required to pay any additional sums Lessee shall have the option to
purchase all (but not less than all) of the Equipment leased hereunder for an
amount equal to * ("Purchase Price") as of the Purchase Date (as defined below).
The "Purchase Date" shall be the Rental Payment next succeeding the
determination of the Fair Market Value of the Equipment as described in Section
XVIII. Lessee may exercise this option provided it is not in default hereunder
and has elected in writing to exercise the option within twenty business days
after Lessor has made demand under Section XV (d) or (e). If Lessee is
purchasing the Equipment under this subsection, Lessee shall pay Lessor the
Purchase Price plus any Rent then due prior to the Purchase Date and any
applicable taxes on the Purchase Date.
[*] Confidential information has been omitted and filed separately with the
Commission
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<PAGE>
(g) All of Lessor's rights, privileges and indemnities contained in
this Section XV shall survive the expiration or other termination of this
Agreement and the rights, privileges and indemnities contained herein are
expressly made for the benefit of, and shall be enforceable by Lessor, its
successors and assigns.
XVI. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT
ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS
NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY
OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR
OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE (except
as provided in Section XIX(f)). All such risks, as between Lessor and Lessee,
are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no
responsibility or liability to Lessee or any other person with respect to any of
the following, regardless of any negligence of Lessor (i) any liability, loss or
damage caused or alleged to be caused directly or indirectly by any Equipment,
any inadequacy thereof, any deficiency or defect (latent or otherwise) therein,
or any other circumstance in connection therewith; (ii) the use, operation or
performance of any Equipment or any risks relating thereto; (iii) any
interruption of service, loss of business or anticipated profits or
consequential damages; or (iv) the delivery, operation, servicing, maintenance,
repair, improvement or replacement of any Equipment. If, and so long as, no
default exists under this Lease, Lessee shall be, and hereby is, authorized
during the term of this Lease to assert and enforce, at Lessee's sole cost and
expense, from time to time, in the name of and for the account of Lessor and/or
Lessee, as their interests may appear, whatever claims and rights Lessor may
have against any Supplier of the Equipment. At Lessee's request and expense,
Lessor agrees to pursue enforcement of any manufacturer's warranty that is not
assignable to Lessee.
XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and
warrants to Lessor that on the date hereof and on the date of execution of each
Schedule:
(a) Lessee has adequate power and capacity to enter into, and perform
under, this Agreement and all related documents (together, the "Documents") and
is duly qualified to do business wherever necessary to carry on its present
business and operations, including the jurisdiction(s) where the Equipment is or
is to be located.
(b) The Documents have been duly authorized, executed and delivered by
Lessee and constitute valid, legal and binding agreements of Lessee, enforceable
against Lessee in accordance with their terms, except
[*] Confidential information has been omitted and filed separately with the
Commission
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<PAGE>
to the extent that the enforcement of remedies therein provided may be limited
under applicable bankruptcy and insolvency laws or similar laws affecting
creditor's rights or principles of equity.
(c) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into or
performance by Lessee of the Documents except such as have already been
obtained.
(d) The entry into and performance by Lessee of the Documents will not:
(i) violate any judgment, order, law or regulation applicable to Lessee or any
provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in
any breach of, constitute a default under or result in the creation of any lien,
charge, security interest or other encumbrance upon any Equipment pursuant to
any indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument (other than this Agreement) to which Lessee is a party.
(e) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Lessee, which will have a material adverse effect on the ability of Lessee to
fulfill its obligations under this Agreement.
(f) The Equipment accepted under any Certificate of Acceptance is and
will remain tangible personal property.
(g) Each balance sheet and statement of income delivered to Lessor has
been prepared in accordance with generally accepted accounting principles, and
since the date of the most recent such Balance Sheet and Statement of Income,
there has been no material adverse change.
(h) Lessee is and will be at all times validly existing and in good
standing under the laws of the jurisdiction of its incorporation (specified in
the first sentence of this Agreement).
(i) The Equipment will at all times be used for commercial or business
purposes.
(j) The Lessee is and shall remain a United States Federal Income
Taxpayer.
Notwithstanding anything in this Agreement, Schedules or Addendum's hereto to
the contrary, Lessee makes no representation or warranty regarding the truth or
accuracy of any financial projections or proformas furnished to Lessor by Lessee
except that the financial projections and proformas were reasonable projections
of future events based on information available at the time they were furnished
to Lessor.
[*] Confidential information has been omitted and filed separately with the
Commission.
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<PAGE>
XVIII. PURCHASE OPTION:
(a) So long as no default exists hereunder and the lease has not been
earlier terminated, Lessee may at lease expiration, upon at least * prior
written notice to Lessor, purchase all (but not less than all) of the Equipment
in any Schedule on an AS IS BASIS for cash equal to its then Fair Market Value
(plus all applicable sales taxes). Upon receipt of the Fair Market Value, plus
all applicable sales taxes, Lessor shall execute and deliver to Lessee a bill of
sale, without representation or warranty, except that the Equipment is free and
clear of any liens, claims or encumbrances created by Lessor or any party
claiming by, through or under Lessor and other than those created by Lessee or
any one claiming by, through or under Lessee.
(b) "FAIR MARKET VALUE" shall mean the price which a willing buyer (who
is neither a lessee in possession nor a used equipment dealer) would pay for the
Equipment in an arm's-length transaction to a willing seller under no compulsion
to sell; provided, however, that in such determination: (i) the Equipment shall
be assumed to be in the condition in which it is required to be maintained and
returned under this Agreement; (ii) in the case of any installed Equipment, that
Equipment shall be valued on an installed basis; and (iii) costs of removal from
current location shall not be a deduction from such valuation. If Lessor and
Lessee are unable to agree on the Fair Market Value at least * before lease
expiration, Lessor shall appoint an independent appraiser (reasonably acceptable
to Lessee) to determine Fair Market Value, and that determination shall be
final, binding and conclusive. Lessee shall bear all costs associated with any
such appraisal.
(c) Lessee shall be deemed to have waived this option unless it
provides Lessor with written notice of its irrevocable election to exercise the
same within * after Fair Market Value is determined (by agreement or appraisal).
XIX. MISCELLANEOUS:
(a) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN
LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY
RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN
LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY
[*] Confidential information has been omitted and filed separately with the
Commission.
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<PAGE>
RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS LEASE
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(b) Unless and until Lessee exercises its rights under Section XVIII
above or any addendum or Schedule hereto, nothing herein contained shall give or
convey to Lessee any right, title or interest in and to any Equipment except as
a lessee. Any cancellation or termination by Lessor, pursuant to the provision
of this Agreement, any Schedule, supplement or amendment hereto, or the lease of
any Equipment hereunder, shall not release Lessee from any then outstanding
obligations to Lessor hereunder. All Equipment shall at all times remain
personal property of Lessor regardless of the degree of its annexation to any
real property and shall not by reason of any installation in, or affixation to,
real or personal property become a part thereof.
(c) each reference contained in this Agreement to:
(1) "Adverse Environmental Condition" shall refer
to (i) the existence or the continuation of the existence,
of an Environmental Emission (including, without
limitation, a sudden or non-sudden accidental or
non-accidental Environmental Emission), of, or exposure
to, any substance, chemical, material, pollutant,
Contaminant, odor or audible noise or other release or
emission in, into or onto the environment (including
without limitation, the air, ground, water or any surface)
at, in, by, from or related to any Equipment, (ii) the
environmental aspect of the transportation, storage,
treatment or disposal of materials in connection with the
operation of any Equipment or (iii) the violation, or
alleged violation of any statutes, ordinances, orders,
rules, regulations, permits or licenses of, by or from any
governmental authority, agency or court relating to
environmental matters connected with any Equipment.
(2) "Affiliate" shall refer, with respect to any
given Person, to any Person that directly or indirectly
through one or more intermediaries, controls, or is
controlled by, or is under common control with, such
Person.
(3) "Contaminant" shall refer to those substances
which are regulated by or form the basis of liability
under any Environmental Law, including without limitation,
asbestos, polychlorinated biphenyls ("PBCs"), and
radioactive substances, or other material or
[*] Confidential information has been omitted and filed separately with the
Commission.
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<PAGE>
substance which has in the past or could in the future
constitute a health, safety or environmental hazard to any
Person, property or natural resources.
(4) "Environmental Claim" shall refer to any
accusation, allegation, notice of violation, claim,
demand, abatement or other order on direction (conditional
or otherwise) by any governmental authority or any Person
for personal injury (including sickness, disease or
death), tangible or intangible property damage, damage to
the environment or other adverse effects on the
environment, or for fines, penalties or restrictions,
resulting from or based upon any Adverse Environmental
Condition.
(5) "Environmental Emission" shall refer to any
actual or threatened release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or
outdoor environment, or into or out of any of the
Equipment, including, without limitation, the movement of
any Contaminant or other substance through or in the air,
soil, surface water, groundwater or property.
(6) "Environmental Law" shall mean any federal,
foreign, state or local law, rule or regulation pertaining
to the protection of the environment, including, but not
limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. Section 1801 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section
1251 et seq.), the Resource Conservation and Recovery Act
(42 U.S.C. Section 6901 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), the Toxic Substances control
Act (15 U.S.C. Section 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
Section 1361 et seq.), and the Occupational Safety and
Health Act (19 U.S.C. section 651 et seq.), as these laws
have been amended or supplemented, and any analogous
foreign, federal, state or local statutes, and the
regulations promulgated pursuant thereto.
(7) "Environmental Loss" shall mean any loss,
cost, damage, liability, deficiency, fine, penalty or
expense (including, without limitation, reasonable
attorneys' fees, engineering and other professional or
expert fees), investigation, removal, cleanup and remedial
costs (voluntarily or involuntarily incurred) and damages
[*] Confidential information has been omitted and filed separately with the
Commission.
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<PAGE>
to, loss of the use of or decrease in value of the
Equipment arising out of or related to any Adverse
Environmental Condition.
(8) "Person" shall include any individual,
partnership, corporation, trust, unincorporated
organization, government or department or agency thereof
and any other entity.
(c) Time is of the essence of this Agreement. Lessor's failure at any
time to require strict performance by Lessee of any of the provisions hereof
shall not waive or diminish Lessor's right thereafter to demand strict
compliance therewith. Lessee agrees, upon Lessor's request, to execute any
instrument necessary or expedient for filing, recording or perfecting the
interest of Lessor. All notices required to be given hereunder shall be deemed
adequately given if sent by registered or certified mail to the addressee at its
address stated herein, or at such other place as such addressee may have
designated in writing. This Agreement, commitment letter (if any), and any
Schedule and Annexes thereto constitute the entire agreement of the parties with
respect to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS
AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID
UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES
HERETO.
/s/RLD /s/LJH
---------------------------
initials
(d) In case of a failure of Lessee to comply with any provision of this
Agreement, Lessor shall have the right, but shall not be obligated to, effect
such compliance, in whole or in part upon at least 10 days prior written notice
to Lessee; and all moneys spent and expenses and obligations incurred or assumed
by Lessor in effecting such compliance shall constitute additional rent due to
Lessor within five days after the date Lessor sends notice to Lessee requesting
payment. Lessor's effecting such compliance shall not be a waiver of Lessee's
default.
(e) Any rent or other amount not paid to Lessor when due hereunder
shall bear interest, both before and after any judgment or termination hereof,
at the lesser of * per annum or the maximum rate allowed by law. Any provisions
in this Agreement and any Schedule which are in conflict with any statute, law
or applicable rule shall be deemed omitted, modified or altered to conform
thereto.
[*] Confidential information has been omitted and filed separately with the
Commission.
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<PAGE>
(f) So long as Lessee shall not be in default hereunder, Lessor
warrants to Lessee that Lessee shall be entitled to possess quietly each
unit of Equipment, and that neither Lessor nor any party claiming by,
through or under Lessor shall interfere with Lessee's right of quiet
possession during the term hereof.
(g) If there is any conflict between the terms of this Agreement,
any Schedule and any Addendum(s) to this Agreement or such Schedule, the
terms of the Schedule shall prevail over this Agreement, and any such
Addendum(s) shall prevail over this Agreement and the Schedule.
(h) *
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION NORTH AMERICAN VACCINE, INC.
By: /s/ R. L. Dauphinais By: /s/ Lawrence J. Hineline
-------------------------------- --------------------------
Title: Sr. Trans. Manager Title: Vice President - Finance
----------------------------- ------------------------
[*] Confidential information has been omitted and filed separately with the
Commission.
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<PAGE>
SCHEDULE NO. 001
DATED THIS November 1, 1996
TO MASTER LEASE AGREEMENT
DATED AS OF 11/1, 1996
Lessor & Mailing Address: Lessee & Mailing Address:
GENERAL ELECTRIC CAPITAL CORPORATION NORTH AMERICAN VACCINE, INC.
4 North Park Drive 12103 Indian Creek Court
Suite 500 Beltsville, Maryland 20705
Hunt Valley, Maryland 21030
Capitalized terms not defined herein shall have the meanings assigned to them in
the Master Lease Agreement identified above ("Agreement"; said Agreement and
this Schedule being collectively referred to as "Lease").
A. Equipment
---------
Pursuant to the terms of the Lease, Lessor agrees to lease to
Lessee the Equipment listed on Annex A attached hereto and made a
part hereof. Such Equipment was previously leased by Lessor to
Cephalon, Inc. ("Cephalon") as part of a sale-leaseback
transaction. Lessor represents and warrants to Lessee that
Cephalon's leasehold interest in and to the Equipment has
terminated. Lessor purchased the Equipment from Cephalon and has
not transferred its interest in the Equipment.
B. Financial Terms
---------------
1. Advance Rent (if any): $ N/A
2. Capitalized Lessor's Cost: $ 7,664,605
3. Basic Term Lease Rate Factor: *
4. Daily Lease Rate Factor: *
5. Basic Term (No. of Months): 48
6. Basic Term Commencement Date: November 1, 1996
7. Equipment Location: *
8. Lessee Federal Tax ID No.: 98-0121241
9. Supplier: N/A
10. Last Delivery Date: N/A
C. Tax Benefits
------------
Depreciation Deductions:
a. Depreciation Method: *
b. Recovery Period: *
c. Basis: *
d. This Equipment has been Leased to a non related third party
from December 29, 1994 until October 31, 1996. The Lessee's
representations regarding items a, b and c in this Section C shall
be limited to such Tax Benefits that remain from the date hereof
through the end of the Term.
[*] Confidential information has been omitted and filed separately with the
Commission.
<PAGE>
D. Term and Rent
-------------
1. Basic Term Rent. Commencing on November 1, 1996 and on the same
day of each month thereafter (each, a "Rent Payment Date") during
the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the
product of the Basic Term Lease Rate Factor times the then
Capitalized Lessor's Cost of all Equipment on this Schedule.
E. Insurance
---------
1. Public Liability: $1MM total liability per occurrence.
2. Casualty and Property Damage: An amount equal to the
higher of the Stipulated Loss Value or the full
replacement cost of the Equipment.
Except as expressly modified hereby, all terms and provisions of the Agreement
shall remain in full force and effect. This Schedule is not binding or effective
with respect to the Agreement or Equipment until executed on behalf of Lessor
and Lessee by authorized representatives of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL NORTH AMERICAN VACCINE, INC.
CORPORATION
By: /s/ R. L. Dauphinais By: /s/ Lawrence J. Hineline
---------------------- ---------------------------
Name: R. L. Dauphinais Name: Lawrence J. Hineline
---------------------- --------------------------
Title: Sr. Trans. Manager Title: Vice President - Finance
-------------------- ------------------------
<PAGE>
ANNEX A
TO
SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF NOVEMBER 1, 1996
SERIAL NUMBER NUMBER COST
MANUFACTURER TYPE/MODEL OF UNITS PER UNIT
*
Initials:
/s/ RLD /s/ LJH
- -------------------------- ------------------------------
Lessor Lessee
[*] Confidential information has been omitted and filed separately with the
Commission.
<PAGE>
ANNEX C
TO
SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF NOVEMBER 1, 1996
CERTIFICATE OF ACCEPTANCE
-------------------------
To: General Electric Capital Corporation ("Lessor")
Pursuant to the provisions of the above schedule and lease
(collectively, the "Lease",), Lessee hereby certifies and warrants that Lessee
accepts the Equipment for all purposes of the Lease and all attendant documents.
Lessee does further certify that as of the date hereof (i) Lessee is
not in default under the Lease; and (ii) the representations and warranties made
by Lessee pursuant to or under the Lease are true and correct on the date
hereof.
/s/ Lawrence J. Hineline, Vice President-Finance
-------------------------------------------------
Lessee's Authorized Representative
Dated: November 12, 1996
<PAGE>
ANNEX D TO SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF November 1, 1996
STIPULATED LOSS VALUE TABLE*
----------------------------
Nov-01-96 1 *
Dec-01-96 2 *
Jan-01-96 3 *
Feb-01-97 4 *
Mar-01-97 5 *
Apr-01-97 6 *
May-01-97 7 *
Jun-01-97 8 *
Jul-01-97 9 *
Aug-01-97 10 *
Sep-01-97 11 *
Oct-01-97 12 *
Nov-01-97 13 *
Dec-01-97 14 *
Jan-01-98 15 *
Feb-01-98 16 *
Mar-01-98 17 *
Apr-01-98 18 *
May-01-98 19 *
Jun-01-98 20 *
Jul-01-98 21 *
Aug-01-98 22 *
Sep-01-98 23 *
Oct-01-98 24 *
Nov-01-98 25 *
Dec-01-98 26 *
Jan-01-99 27 *
Feb-01-99 28 *
Mar-01-99 29 *
Apr-01-99 30 *
May-01-99 31 *
Jun-01-99 32 *
Jul-01-99 33 *
Aug-01-99 34 *
Sep-01-99 35 *
Oct-01-99 36 *
Nov-01-99 37 *
Dec-01-99 38 *
Jan-01-00 39 *
Feb-01-00 40 *
Mar-01-00 41 *
[*] Confidential information has been omitted and filed separately with the
Commission.
<PAGE>
DATE PAYMENT # STIPULATED LOSS VALUE
---- --------- ---------------------
Apr-01-00 42 *
May-01-00 43 *
Jun-01-00 44 *
Jul-01-00 45 *
Aug-01-00 46 *
Sep-01-00 47 *
Oct-01-00 48 *
* The Stipulated Loss Value for any unit of Equipment shall be equal to
the Capitalized Lessor's Cost of such unit multiplied by the appropriate
percentage derived from the above table. In the event that the Lease is for any
reason extended, then the last percentage figure shown above shall control
throughout any such extended term.
Note: The Capitalized Lessors Cost of any line item of equipment in
Annex A shall be equal to the dollar volume in the column labeled "Total
Funding" on page 1 of Annex A or "Net Book Value" on pages 2 - 21 (as the case
may be) multiplied by *
Initials: /s/ RLD /s/ LJH
------------------ ------------------
Lessor Lessee
[*] Confidential information has been omitted and filed separately
with the Commission.
<PAGE>
ADDENDUM NO. 1
TO MASTER LEASE AGREEMENT
DATED AS OF NOVEMBER 1, 1996
THIS ADDENDUM (this "ADDENDUM") amends and supplements the above referenced
lease (the "Lease"), between GENERAL ELECTRIC CAPITAL CORPORATION ("LESSOR") and
NORTH AMERICAN VACCINE, INC. ("LESSEE") and is hereby incorporated into the
Lease as though fully set forth therein. Capitalized terms not otherwise defined
herein shall have the meanings set forth in the Lease.
The Lease is hereby amended as follows:
1. XXI. FINANCIAL COVENANTS.
(a) At all times during the term of the Lease, Lessee shall
maintain: (i) Tangible Net Worth of * (ii) A Current Ratio of *; (iii) Total
Liabilities to Tangible Net Worth of *; (iv) unrestricted cash, cash equivalents
and/or marketable securities (collectively "UNRESTRICTED CASH") of * or, Lessee
shall within fifteen (15) days after Lessee ceases to satisfy any of such
requirements cause to be delivered to Lessor an irrevocable standby letter of
credit as described in Section XXI(c) below. "TOTAL LIABILITIES" shall mean
Lessee's total liabilities less convertible subordinated debt and "TANGIBLE NET
WORTH" shall mean Lessee's tangible net worth plus convertible subordinated
debt. Unrestricted Cash shall be shown net of any contingent liability
associated with other lease cash triggers or pledge agreements unless Lessee's
obligations under these agreements are deemed by Lessor to be less restrictive.
"CURRENT RATIO" shall mean current assets divided by current liabilities. Except
as defined herein, accounting terms used herein shall be as defined, and all
calculations hereunder shall be made, in accordance with GAAP.
(b) Lessee's chief financial officer shall notify Lessor of the
amount of Lessee's Unrestricted Cash and shall certify that such amounts are in
compliance with the requirements of Section XXI(a) above, such notification and
certification shall be provided within fifteen (15) days after the end of each
month, reflecting such information as of the end of the month immediately
preceding such month. Lessee's chief financial officer shall also notify Lessor
the amount of Lessee's Tangible Net Worth, Total liabilities to Tangible Net
Worth ratio and Current Ratio, and shall certify that such amounts are in
compliance with the requirements of Section XXI(a) above, such notification and
certification shall be provided within fifteen (15) days after the end of each
month, reflecting such information as of the end of the month immediately
preceding such month. If Lessee is unable or fails timely to provide such
notification and compliance certificates, within fifteen (15) days after such
failure, Lessee shall cause to be delivered to Lessor an irrevocable standby
letter of credit as described in Section XXI(c) below ("Letter of Credit"). A
failure by Lessee to provide such Letter of Credit or otherwise comply with this
Section XXI shall be a default hereunder.
(c) The irrevocable standby letter of credit provided pursuant to
this Addendum shall be *
[*] Confidential information has been omitted and filed separately with the
Commission.
<PAGE>
2. XXII. FINANCIAL COVENANTS RELEASE.
At any time if Lessee is not in default, Lessee may provide Lessor
with a letter of credit substantially in the form of Exhibit A attached hereto
(or such other form as may be acceptable to Lessor in its sole discretion) equal
to * . Upon providing this Letter of Credit, the Financial Covenants stated in
Section XXI and Lessee's obligations under those Financial Covenants will be
considered in abeyance, except as described further in this paragraph. Lessee
may later request in writing that Lessor return the Letter of Credit and
re-instate the financial covenants. Lessor agrees to do so as long as: (1)
Lessee is not in default; (2) a default by Lessee is not reasonably imminent in
the judgment of Lessor; and (3) Lessee would not have been in default had the
Financial Covenants not been put into abeyance. Lessee may exercise its right to
provide a letter of credit as described in this Section XXII * times during the
term of the Lease.
Except as expressly modified hereby, all terms and provisions of the
Lease shall remain in full force and effect. This Addendum is not binding nor
effective with respect to the Lease or the Equipment until executed on behalf of
Lessor and Lessee by authorized representatives of Lessor and Lessee.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Addendum to be executed
by their duly authorized representatives as of the date first above written.
LESSEE: LESSOR:
NORTH AMERICAN VACCINE, INC. GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Lawrence J. Hineline By: /s/ R. L. Dauphinais
-------------------------- ---------------------
Its: Vice President - Finance Its: Sr. Trans Manager
------------------------- ---------------------
Dated: November 12, 1996 Dated: November 12,1996
----------------------- ------------------
[*] Confidential information has been omitted and filed separately with the
Commission.
<PAGE>
ADDENDUM NO. 1
TO SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF NOVEMBER 1, 1996
This ADDENDUM (this "Addendum") amends and supplements the above
referenced schedule (the "Schedule") to the above referenced lease (the
"Lease"), between GENERAL ELECTRIC CAPITAL CORPORATION ("Lessor") and NORTH
AMERICAN VACCINE, INC. ("Lessee") and is hereby incorporated into the Schedule
as though fully set forth therein. Capitalized terms not otherwise defined
herein shall have the meanings set forth in the Lease.
1. For purposes of this Schedule only, Section XVIII of the Lease is
amended by deleting and replaced with the following:
EARLY PURCHASE OPTION.
(a) Provided that the Lease has not been earlier
terminated and provided further that Lessee is not in default under the
Lease or any other agreement between Lessor and Lessee, Lessee may,
UPON AT LEAST * PRIOR WRITTEN NOTICE TO LESSOR OF LESSEE'S IRREVOCABLE
ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all)
of the Equipment listed and described in this Schedule on the rent
payment date (the "Early Purchase Date") * for a price equal to * (the
"FMV Early Option Price"), plus all applicable sales taxes on an AS IS
BASIS. Lessor and Lessee agree that the FMV Early Option Price is a
reasonable prediction of the Fair Market Value (as such term is defined
in Section XVIII(b) hereof) of the Equipment at the time the option is
exercisable. Lessor and Lessee agree that if Lessee makes any
non-severable improvement to the Equipment which increases the value of
the Equipment and is not required or permitted by Sections VII or XI of
the Lease prior to lease expiration, then at the time of such option
being exercised, Lessor and Lessee shall adjust the purchase price to
reflect any addition to the price anticipated to result from such
improvement. (The purchase option granted by this subsection shall be
referred to herein as the "Early Purchase Option".)
(b) If Lessee exercises its Early Purchase Option with
respect to the Equipment leased hereunder, then on the Early Purchase
Option Date, Lessee shall pay to Lessor any Rent and other sums due and
unpaid on the Early Purchase Option Date and Lessee shall pay the FMV
Early Option Price, plus all applicable sales taxes, to Lessor in cash.
Upon receipt of the Fair Market Value, plus all applicable sales taxes,
Lessor shall execute and deliver to Lessee a bill of sale, without
representations or warranty, except that the Equipment is free and
clear of any liens, claims or encumbrances created by Lessor or any
party claiming by, through or under Lessor and other than those created
by Lessee or anyone claiming by, through or under Lessee.
2. For purposes of this Schedule only, the following additional Financial
Terms are added to Paragraph B of the Schedule:
*
[*] Confidential information has been omitted and filed separately with the
Commission.
<PAGE>
3. For purposes of this Schedule only, the following is added to Paragraph
D of the Schedule:
4. Secondary Term Rent. Unless the Schedule has been earlier
terminated as provided therein, commencing on the Secondary Term
Commencement Date and on the same day of each month thereafter (each, a
"Rent Payment Date",) during the Secondary Term, Lessee shall pay as
rent ("Secondary Term Rent",) the product of the Secondary Term Lease
Rate Factor times the Capitalized Lessor's Cost of all Equipment on
this Schedule.
4. For purposes of this Schedule only, Section XVIII(a) of the Agreement is
hereby deleted in its entirety and the following is substituted therefor:
(a) So long as no default exists hereunder and the Lease has not
been earlier terminated, Lessee may at the expiration of the
Secondary Term upon at least * prior written notice to Lessor,
purchase all (but not less than all) of the Equipment in this
Schedule on an AS IS BASIS, for cash equal to its then Fair Market
Value (plus all applicable sales taxes).
5. For purposes of this Schedule only, the following is added to the end
thereof:
END OF BASIC TERM OPTIONS:
At the expiration of the Basic Term (the "Basic Term Expiration Date"),
so long as no default has occurred and is continuing hereunder and this
Agreement has not been earlier terminated, Lessee shall exercise one of the
following options:
(i) EXTENSION OPTION. Lessee may extend the Lease beyond
the Basic Term Expiration Date with respect to all (but not less than
all) of the Equipment covered by this Schedule through the Secondary
Term set forth in this Schedule and Lessee shall pay Secondary Term
Rent as set forth in this Schedule.
(ii) PURCHASE OPTION. Upon at least * written notice to
Lessor prior to the expiration of the Basic Term, purchase all (but
not less than all) of the Equipment covered by this Schedule on an AS
IS WHERE IS basis without representation or warranty, express or
implied ("AS IS BASIS",) for cash equal to * which amount Lessor and
Lessee agree is a reasonable prediction of the Fair Market Value (as
such term is defined in Section XVIII(b) hereof except that it shall
be the Lessee's right to choose an independent qualified appraiser if
the parties can't agree as to the Fair Market Value and such
appraiser's determination of FMV shall be final and binding upon the
parties) of the Equipment at the time the option is exercisable.
[*] Confidential information has been omitted and filed separately with the
Commission.
<PAGE>
Lessor and Lessee agree that if Lessee makes any non-severable
improvement to the Equipment which increases the value of the
Equipment and is not required or permitted by Sections VII or XI of
the Lease prior to lease expiration, then at the time of the exercise
of this option, Lessor and Lessee shall adjust the purchase price to
reflect any addition to the price anticipated to result from such
improvement. On the Basic Term Expiration Date, Lessor shall receive
in cash the full purchase price (plus all applicable sales taxes)
together with any Rent or other sums then due under the Lease on such
date. Lessee shall be deemed to have waived this option if it fails
to timely provide Lessor with the required written notice of its
election to exercise the same or unless it provides Lessor with
written notice of its irrevocable election to exercise the same
within * after Fair Market Value is determined (by agreement or
appraisal).
Except as expressly modified hereby, all terms and provisions of the
Lease shall remain in full force and effect. This Addendum is not binding nor
effective with respect to the Lease or the Equipment until executed on behalf of
Lessor and Lessee by authorized representatives of Lessor and Lessee.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Addendum to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION NORTH AMERICAN VACCINE, INC.
By: /s/ R. L. Dauphinais By: /s/ Lawrence J. Hineline
- ----------------------------------- --------------------------
Its: Sr. Trans. Manager Its: Vice President - Finance
- ----------------------------------- ------------------------
[*] Confidential information has been omitted and filed separately with the
Commission.
<PAGE>
ADDENDUM NO. 2 TO SCHEDULE NO. 1
TO MASTER LEASE AGREEMENT
DATED AS OF NOVEMBER 1, 1996
THIS ADDENDUM amends and supplements the above referenced schedule (the
"Schedule") to the above referenced) lease (the "Lease"), between GENERAL
ELECTRIC CAPITAL CORPORATION ("Lessor") and NORTH AMERICAN VACCINE, INC..
("Lessee") and is hereby incorporated into the Schedule as though fully set
forth therein. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Lease.
For the purposes of this Schedule only Section XI is hereby amended as
follows:
RETURN PROVISIONS: In addition to the provisions of Section XI of this Lease,
and provided that Lessee has not elected to exercise its option to purchase the
Equipment, Lessee shall, at its expense:
(a) At least ninety (90) days and not more than two hundred ten (210)
days prior to expiration or earlier termination of the Lease, provide to Lessor
a detailed inventory of all components of the Equipment. The inventory should
include, but not be limited to, a listing of model and serial numbers for all
components comprising the Equipment.
(b) At least ninety (90) days prior to expiration or earlier
termination of the Lease, with reference to computer and computer based
equipment comprising the Equipment, provide to Lessor a detailed listing of all
internal circuit boards by both the model and serial number for all hardware
comprising the Equipment and a listing of all software features listed
individually.
(c) At least ninety (90) days prior to expiration or earlier
termination of the Lease, upon receiving reasonable notice from Lessor, provide
or cause the vendor(s) or manufacturer(s) to provide to Lessor the following
documents: (1) one set of service manuals, blue prints, process flow diagrams
and operating manuals including replacements and/or additions thereto, such that
all documentation is completely up-to-date; and (2) one set of documents,
detailing equipment configuration, operating requirements, maintenance records,
and other technical data concerning the set-up and operation of the Equipment,
including replacements and/or additions thereto, such that all documentation is
completely up-to-date.
(d) At least ninety (90) days prior to expiration or earlier
termination of the Lease, upon receiving reasonable notice from Lessor, make the
Equipment available for on-site operational inspections by potential purchasers,
above ground and under power, and provide personnel, power and other
requirements necessary to demonstrate electrical, mechanical and bio reactor
systems for each item of the Equipment; provided however, that such persons
shall comply with any reasonable conditions imposed by Lessee regarding such
inspection of Equipment in Lessee's manufacturing areas.
<PAGE>
(e) At least ninety (90) days prior to expiration or earlier
termination of the Lease, cause the manufacturer's representative or a qualified
equipment maintenance provider, acceptable to Lessor, to perform a comprehensive
physical inspection, including testing all material and workmanship of the
Equipment; and if during such inspection, examination and test, the authorized
inspector finds any of the material or workmanship to be defective or the
Equipment not operating within the manufacturer's specifications, then Lessee
shall repair or replace such defective material and, after corrective measures
are completed, Lessee will provide for a follow-up inspection of the Equipment
by the authorized inspector as outlined in the preceding clause.
(f) Have each item of Equipment returned with an in-depth field service
report detailing said inspection as outlined in Section e of this Addendum. The
report shall certify that the Equipment has been properly inspected, examined
and tested and is operating within the manufacturer's specifications.
(g) Provide that all Equipment will be cleaned and cosmetically
acceptable, and in such condition so that it may be immediately installed and
placed into use in a similar environment.
(h) Properly remove or treat all rust or corrosion.
(i) Ensure all items of Equipment, where appropriate, will be
completely sterilized, steam-cleaned and de-greased upon redelivery.
(j) Properly remove all Lessee installed markings which are not
necessary for the installation, operation, maintenance or repair of the
Equipment.
(k) Ensure all Equipment and equipment operations conform to all
applicable local, state, and federal laws, health and safety guidelines
(including the then U.S. Food and Drug Administration regulations).
(l) Ensure the Equipment shall be mechanically and structurally sound,
capable of performing the functions for which the Equipment was originally
designed, in accordance with the manufacturer's published and recommended
specifications.
(m) Provide for the deinstallation, packing, transporting, and
certifying of the Equipment to include, but not be limited to, the following:
(1) the manufacturer's representative shall de-install all Equipment (including
all wire, cable and mounting hardware) in accordance with the specifications of
the manufacturer; (2) each item of Equipment will be returned with a certificate
supplied by the manufacturer's representative qualifying the Equipment to be in
good condition and (where applicable) to be eligible for the manufacturer's
maintenance plan; the certificate of eligibility shall be transferable to
another operator of the Equipment; (3) the Equipment shall be packed properly
and in accordance to the manufacturer's recommendations; and (4) Lessee shall
transport the Equipment in a manner consistent with the manufacturer's
recommendations and practices.
<PAGE>
(n) Provide for the deinstallation and packing of the Equipment to
include, but not be limited to, the following: (1) all process fluids shall be
removed from the Equipment and disposed of in accordance with the then current
waste disposal laws and regulations. At no time are materials which could be
considered hazardous waste by any regulatory authority to be shipped with
machinery; (2) all internal fluids such as lube oil and hydraulic fluid are to
be filled to operating levels; filler caps are to be secured and disconnected
hoses are to be sealed to avoid spillage; (3) the manufacturer's representative
shall deinstall all Equipment in accordance with the specifications of the
manufacturer; and (4) the Equipment shall be packed properly and in accordance
with the manufacturer's recommendations.
(o) Upon sale of the Equipment to a third party, provide transportation
to not more than three (3) individual locations anywhere within a 500 mile
radius of the original Equipment location elected by Lessor.
(p) Obtain and pay for a policy of transit insurance for the redelivery
period in an amount equal to the replacement value of the Equipment and Lessor
shall be named as the loss payee on all such policies of insurance.
(q) With regard to any Equipment that has been modified or reconfigured
by Lessee, return or restore the Equipment to its original configuration, as
specified by the manufacturer including all upgrades installed by the
manufacturer.
Except as expressly modified hereby, all terms and provisions of the
Lease shall remain in full force and effect. This Addendum is not binding or
effective with respect to the Lease or the Equipment until executed on behalf of
Lessor and Lessee by authorized representatives of Lessor and Lessee.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Addendum to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION NORTH AMERICAN VACCINE, INC.
By: /s/ R. L. Dauphinais By: /s/ Lawrence J. Hineline
------------------------- --------------------------
Name: R. L. Dauphinais Name: Lawrence J. Hineline
----------------------- ------------------------
Title: Sr. Trans Manager Title: Vice President - Finance
---------------------- -------------------------
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Annual Report on Form 10-K, into
(i) the Company's previously filed Registration Statements on Form S-8, File
Nos. 33-37325, 33-39416, 33-48752, 33-48753 and 33-80479, and (ii) the Company's
previously filed Registration Statement on Form S-3, File No. 333-8851.
/s/ ARTHUR ANDERSEN LLP
--------------------------
ARTHUR ANDERSEN LLP
Washington, D.C.
March 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 70,881
<SECURITIES> 1,281
<RECEIVABLES> 4,166
<ALLOWANCES> 0
<INVENTORY> 1,782
<CURRENT-ASSETS> 77,362
<PP&E> 56,365
<DEPRECIATION> 15,736
<TOTAL-ASSETS> 122,962
<CURRENT-LIABILITIES> 10,948
<BONDS> 86,250
0
6,538
<COMMON> 71,357
<OTHER-SE> (58,116)
<TOTAL-LIABILITY-AND-EQUITY> 122,962
<SALES> 892
<TOTAL-REVENUES> 10,548
<CGS> 0
<TOTAL-COSTS> 33,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,088
<INCOME-PRETAX> (19,489)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,489)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,489)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
