UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 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
- ---------------------------------------------- -----
(Address of principal executive offices) Zip Code)
Registrant's telephone number, including area code: (301) 419-8400
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate 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 MAY 1, 1998 -- 32,054,892 SHARES
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TABLE OF CONTENTS
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 3
Consolidated Balance Sheets.................................. 4
Consolidated Statements of Operations........................ 5
Consolidated Statements of Shareholders' Deficit............. 6
Consolidated Statements of Cash Flows........................ 7
Notes to Condensed Consolidated Financial Statements......... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 25
SIGNATURES ............................................................. 26
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited, condensed consolidated financial statements of North
American Vaccine, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and, therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
This report should be read in conjunction with the Company's Annual Report on
Form 10-K filed for the year ended December 31, 1997. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial information for the interim
periods reported have been made. Results of operations for the three months
ended March 31, 1998, will not necessarily be indicative of the results for the
entire fiscal year ending December 31, 1998.
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<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 36,733 $ 45,502
Accounts receivable 516 324
Inventory 2,512 2,730
Prepaid expenses and other current assets 1,260 615
--------- ---------
Total current assets 41,021 49,171
Property, plant and equipment, net 29,991 31,428
Investment in affiliate, at market 1,093 843
Deferred financing costs, net 2,481 2,603
Other assets 601 463
--------- ---------
TOTAL ASSETS $ 75,187 $ 84,508
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 3,621 $ 3,343
Deferred revenue 3,678 3,999
Obligation under capital lease, current portion 1,632 1,593
Other current liabilities 6,771 5,064
--------- ---------
Total current liabilities 15,702 13,999
6.50% Convertible subordinated notes, due May 1, 2003 83,734 83,734
Obligation under capital lease, net of current portion 3,688 4,110
Deferred rent credit, net of current portion -- 12
--------- ---------
Total liabilities 103,124 101,855
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
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
32,050,608 shares at March 31, 1998 and 31,936,539 shares at
December 31, 1997 79,429 78,509
Cumulative comprehensive income excluded from net loss 465 215
Accumulated deficit (114,369) (102,609)
--------- ---------
Total shareholders' deficit (27,937) (17,347)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 75,187 $ 84,508
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------- ---------
REVENUES:
Marketing, research and development agreements $ 571 $ 530
Product sales 263 545
-------- --------
Total revenues 834 1,075
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OPERATING EXPENSES:
Production 4,981 4,307
Research and development 4,043 4,677
General and administrative 2,507 3,392
-------- --------
Total operating expenses 11,531 12,376
-------- --------
OPERATING LOSS (10,697) (11,301)
OTHER INCOME (EXPENSES):
Interest and dividend income 554 893
Interest expense (1,617) (1,699)
-------- --------
NET LOSS $(11,760) $(12,107)
======== ========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.37) $ (0.38)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 32,034 31,577
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS)
(UNAUDITED)
SERIES A CUMULATIVE
CONVERTIBLE COMPREHENSIVE TOTAL
PREFERRED STOCK COMMON STOCK INCOME ACCUM- SHARE-
------------------------ ---------------------- EXCLUDED FROM ULATED HOLDERS'
SHARES AMOUNT SHARES AMOUNT NET LOSS DEFICIT DEFICIT
-------- ---------- -------- ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 2,000 $ 6,538 31,937 $ 78,509 $ 215 $(102,609) $ (17,347)
Net loss -- -- -- -- -- (11,760) (11,760)
Increase in market value
of investment -- -- -- -- 250 -- 250
---------
Comprehensive loss (11,510)
Exercises of stock options -- -- 111 851 -- -- 851
Shares issued under
401(k) plan -- -- 3 69 -- -- 69
--------- --------- --------- --------- --------- --------- ---------
Balance, March 31, 1998 2,000 $ 6,538 32,051 $ 79,429 $ 465 $(114,369) $ (27,937)
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(11,760) $(12,107)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,042 2,683
Amortization and reduction of deferred financing costs 122 126
Contribution of common stock to 401(k) plan 69 55
Stock option compensation -- 1,313
(Increase) decrease in other assets (138) 77
Decrease in deferred rent (24) (21)
Cash flows provided by other working capital items 1,057 5,523
-------- --------
Net cash used in operating activities (8,632) (2,351)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (605) (1,094)
-------- --------
Net cash used in investing activities (605) (1,094)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of stock options, net 851 2,034
Principal payments on capital lease obligation (383) (360)
-------- --------
Net cash provided by financing activities 468 1,674
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,769) (1,771)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 45,502 70,881
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,733 $ 69,110
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------- --------
CASH FLOWS PROVIDED BY OTHER WORKING CAPITAL ITEMS:
(Increase) decrease in :
Accounts receivable $ (192) $ 3,721
Inventory 218 (192)
Prepaid expenses and other current assets (645) (82)
Increase in :
Accounts payable 278 419
Other current liabilities 1,398 1,657
------- -------
Net cash provided by other working capital items $ 1,057 $ 5,523
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 132 $ 172
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
The Company is engaged in the research, development, production, and sale of
vaccines for the prevention of infectious diseases in children and adults. In
1996, regulatory approval of the Company's acellular pertussis vaccine
formulated as a DTaP vaccine for the prevention of diphtheria, tetanus and
pertussis (whooping cough) was granted in Sweden, and regulatory approval of a
combined DTaP-IPV (polio) vaccine was granted in Denmark. In April 1997, the
Medical Products Agency of Sweden granted regulatory approval for the Company's
monovalent acellular pertussis (aP) vaccine to vaccinate children, thereby
expanding the market for the Company's aP vaccine. The Company has not received
approval from the U.S. Food and Drug Administration ("FDA") or any other
regulatory authority to market its DTaP vaccine or any other product in
development.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF ACCOUNTING AND CURRENCY. The Company is a Canadian corporation
incorporated under the Canadian Business Corporations Act ("CBCA") on August 31,
1989. The accompanying consolidated financial statements have been prepared in
accordance 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. The effect of foreign currency
translation has been immaterial.
(b) 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.
(c) 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.
(d) DEPRECIATION AND AMORTIZATION. Prior to 1998, depreciation of property,
plant and equipment, with the exception of leasehold improvements and an owned
facility, was provided using an accelerated method over the estimated useful
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lives of the assets. For property, plant and equipment purchased after 1997,
depreciation will be provided using the straight-line method over the estimated
useful lives.
(e) NET LOSS PER SHARE. Net loss per share is computed in accordance with
Financial Accounting Standards Board released SFAS No. 128, "Earnings Per
Share." SFAS No. 128 requires dual presentation of basic and diluted earnings
per share on the face of the income statement for all periods presented. Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. SFAS No. 128 was
implemented for the year ended December 31, 1997. Options, warrants, and
convertible securities that were outstanding at the end of all periods presented
were not included in the computation of diluted loss per share as their effect
would have been anti-dilutive. As a result, the basic and diluted loss per share
amounts are identical for all periods presented.
Since the effect of outstanding options, convertible notes, and preferred stock
is antidilutive, they have been excluded from the Company's computation of net
loss per share for both 1998 and 1997. Accordingly, management does not believe
that SFAS No. 128 will have an impact upon historical net loss per share as
reported.
(f) In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Company presents its comprehensive income
in the statement of shareholders' equity.
(g) In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
Company is evaluating the impact of SFAS 131, which is required for its year end
1998 reporting.
2. PROPERTY, PLANT AND EQUIPMENT
In March 1998, the Company leased an approximately 75,500 square foot facility
to be used for research, development, general and administrative functions and
for future expansion of the Company's operations. The lease is for an initial
term of ten years, with two five-year renewal options. The initial base annual
rent under the lease is approximately $981,000 with minimum annual escalations.
At the end of the fifth year of the initial term, the Company has the right to
terminate the lease for a specified fee. In addition, the Company has an option
to purchase the facility during specified periods of the lease term. The
landlord has provided the Company a tenant improvement allowance of
approximately $1.4 million, and will provide an additional $1.8 million to the
Company under a line of credit to fund improvement costs in excess of the tenant
improvement allowance. Monthly payments under this line of credit would consist
of interest only accruing at the simple annual rate of 12.75%, and the entire
unpaid principal balance would mature in September 2000, unless extended by the
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Company up to March 2002. The line of credit also would be secured by all
leasehold improvements and related facility enhancements purchased with funds
provided by the landlord. No funds have been drawn down under this line of
credit.
3. 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. Production costs attributable to a product are expensed until
regulatory approval is obtained for such product. Inventories consist of the
following:
March 31, December 31,
1998 1997
--------- ------------
(in thousands)
Raw materials $ 2,512 $ 2,584
Finished goods 0 146
------- -------
Total $ 2,512 $ 2,730
======= =======
4. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following components:
March 31, December 31,
1998 1997
--------- ------------
(in thousands)
Payroll and fringe benefits $ 1,776 $ 1,488
Accrued interest 2,317 959
Reserve for contract loss 720 720
Accrued taxes 642 642
Accrued costs of clinical trials 253 269
Accrued insurance costs 391 46
Accrued consulting and professional fee 337 381
Other accrued liabilities 335 559
-------- -------
Total other current liabilities $ 6,771 $ 5,064
======== =======
5. RESTRICTED CASH AND OBLIGATIONS UNDER CAPITAL LEASE
In connection with an operating lease for a 35,000 square foot development and
production facility, the Company entered into an agreement that included the
purchase and lease of equipment and leasehold improvements. As part of the
operating lease, the Company assumed the underlying real estate leases which are
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scheduled to expire in February 2001, but may be extended through 2011. Under
the terms of the equipment lease, there are certain financial covenants that
obligate the Company to maintain certain cash and investment balances, a minimum
tangible net worth (defined to include amounts under the outstanding convertible
subordinated notes), and certain other financial ratios. The equipment lease
agreement permits the Company, at its option, to suspend the application of
financial covenants by posting a stand-by letter of credit, which may be revoked
by the Company provided certain conditions are satisfied. In April 1998, as
permitted by the equipment lease agreement, the Company voluntarily posted a
letter of credit in the amount of $5.9 million, thereby suspending the
application of all financial covenants. The letter of credit will decrease on a
monthly basis as the payments on the lease obligation are made and is secured by
a restricted cash deposit of an equal amount. The letter of credit will expire
by its terms on November 1, 2000.
6. STOCK OPTION COMPENSATION
In March 1997, the Company extended the expiration date for an option to
purchase 150,000 shares of common stock at an exercise price of $11.13. The
Company recognized as compensation expense $1.3 million in the quarter ended
March 31, 1997, which was the excess of the fair market value of the Company's
common stock as of the date of the option extension over the exercise price of
$11.13 per share.
7. RELATED PARTY TRANSACTION
In April 1998, the Company extended a loan to its president related to the
exercise of an expiring stock option. The principal amount of the loan is
approximately $1.2 million, of which $1.0 million was used to pay the exercise
price of the option and the balance was used to pay the associated withholding
taxes. The loan has been made on a full recourse basis, is for a six month
period, is collateralized by common stock of the Company having a fair market
value of 125% of the loan, and accrues interest at a market rate.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING PARAGRAPHS IN THIS FORM 10-Q 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, THE PROSPECTS FOR MARKETING AND
DISTRIBUTION OF VACCINE PRODUCTS, THE PROSPECTS FOR AND FACTORS AFFECTING FUTURE
REVENUES AND PROFITABILITY, LIKELIHOOD OF ADDITIONAL FUNDING UNDER LICENSE,
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 REGULATORY AGENCIES INCLUDING THE FDA; THE PRODUCTION OF
VACCINES; THE NATURE OF COMPETITION; NEED FOR EFFECTIVE MARKETING; DEPENDENCE ON
SUPPLIERS, INCLUDING STATENS SERUM INSTITUT; AND UNCERTAINTIES RELATING TO
CLINICAL TRIALS, ALL AS DISCUSSED IN THE COMPANY'S FILINGS WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"), INCLUDING THE 1997 ANNUAL REPORT ON
FORM 10-K, TO WHICH THE READER'S ATTENTION IS DIRECTED.
BACKGROUND
The Company is engaged in the research, development, production, 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 April 1997, the Swedish Ministry of Health
granted regulatory approval for the Company's monovalent acellular pertussis
(aP) vaccine to vaccinate children, thereby expanding the market for the
Company's aP vaccine. In addition, the Danish National Board of Health granted
regulatory approval in September 1996 of a combined DTaP-IPV (polio) 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"), was developed jointly by Statens Serum
Institut ("SSI") and the Company.
Under supply agreements, the Company manufactures the acellular
pertussis component, and SSI manufactures the diphtheria, tetanus and IPV
components for the DTaP and DTaP-IPV vaccines. SSI is responsible for the
marketing and distribution of the DTaP and DTaP-IPV 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 Sweden and
Denmark, respectively.
In 1995, 1996 and 1997, the Company has recognized development revenues
pursuant to agreements with Pasteur-Merieux Serums et Vaccins, a wholly-owned
subsidiary of Rhone-Poulenc, which operates in North America through its
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subsidiary Connaught Laboratories ("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 "Outlook," below. In addition, during the fourth
quarter of 1996, the Company executed a supply and distribution agreement with
Chiron Behring covering the Company's DTaP and DTaP-IPV vaccines for Germany and
Austria. The Company and Chiron Behring are presently discussing possible
modifications to this agreement.
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
(incorporating one of its Haemophilus influenza type b vaccines), 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 Centers
for Disease Control and Prevention ("CDC").
The Company and Abbott will collaborate in the clinical development of
the combination vaccines and Abbott is providing the Company with clinical
development funding. In addition, the Company will receive payments upon
achievement of prescribed milestones. 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. Under the
agreement with Abbott, following FDA approval, the Company will receive revenues
from Abbott as it purchases Certiva[TRADEMARK] and the combination vaccine
products for resale to the private pediatric market. See "Outlook," below.
In May 1996, the Company completed an offering of 6.50% convertible
subordinated notes in the principal amount of $86.25 million due in full on 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 an
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 with the
SEC, which has been declared effective, registering resales of the notes and the
underlying shares of Common Stock. In December of 1997, approximately $2.5
million of the principal amount of the notes were converted into 101,207 shares
of the Company's common stock. As of March 31, 1998, the principal amount of the
outstanding notes was $83.7 million.
In November 1996, the Company acquired 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
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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 accounted for as a capital lease, which expires in 2000. 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 (defined to include amounts under the outstanding convertible
subordinated notes) and certain other financial ratios. The equipment lease
agreement permits the Company, at its option, to suspend the application of
financial covenants by posting a stand-by letter of credit, which may be revoked
by the Company provided certain conditions are satisfied. In April 1998, as
permitted by the equipment lease agreement, the Company voluntarily posted a
letter of credit in the amount of $5.9 million, thereby suspending the
application of all financial covenants. The letter of credit will decrease on a
monthly basis as the payments on the lease obligation are made and is secured by
a restricted cash deposit of an equal amount. The letter of credit will expire
by its terms on November 1, 2000. 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.
The Company had 274 and 224 employees as of March 31, 1998 and 1997,
respectively, of which 268 and 220 were full time, respectively.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
In 1998, the Company recognized $263,000 in revenue from product sales
to SSI and $571,000 under collaborative agreements. Revenue from collaboration
agreements consists primarily of revenue attributable to development funding
under the Company's agreement with Abbott.
Production expenses were $5.0 million in 1998 compared to $4.3 million
in 1997. The increase in these expenses in 1998 is attributable to increases in
labor and materials as the Company prepares for regulatory approval of
Certiva[TRADEMARK] in the United States. The increase in labor cost is
attributable primarily to an increase in the number of employees. The increases
were offset slightly by lower depreciation expense related to the use of an
accelerated depreciation method in prior years. Production costs attributable to
a product are expensed until regulatory approval is obtained for such product.
Research and development expenses were $4.0 million in 1998 compared to
$4.7 million in 1997. The decrease is attributable primarily to lower
depreciation expense related to the use of an accelerated depreciation method in
prior years, reduced expenses for clinical trials, and reimbursements for
expenses under a collaborative agreement. These decreases were offset in part by
higher labor as a result of an increase in the number of employees in addition
to increased consulting fees.
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General and administrative expenses were $2.5 million in 1998 as
compared to $3.4 million in 1997. The decrease is primarily due to the
recognition of a non-cash compensation expense of approximately $1.3 million in
1997, offset in part by higher promotional expense and higher labor as a result
of an increase in the number of employees.
Interest and dividend income decreased to $554,000 in 1998 from
$893,000 in 1997. This reduction is due primarily to a change in the average
cash balance.
Interest expense decreased to $1.6 million in 1998 from $1.7 million in
1997. The decrease is due primarily to principal payments made on the equipment
lease, as well as to the conversion of $2.5 million principal amount of
convertible notes into common stock of the Company in December 1997.
The factors cited above resulted in a net loss of $11.8 million or
$0.37 per share in 1998 as compared to a net loss of $12.1 million or $0.38 per
share in 1997. The weighted-average number of common shares outstanding was 32.0
million for 1998 compared to 31.6 million for 1997. The increase in the number
of weighted-average shares outstanding for 1998 as compared to 1997 is
attributable primarily to the exercise of stock options and the conversion of
$2.5 million principal amount of convertible notes into 101,207 shares of common
stock in December 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirement for operations was $8.6 million in the
first quarter of 1998 as compared to $10.5 million in the fourth quarter of
1997. The Company's cash requirement for operations is the net cash used in
operating activities for the period being reported less amounts received under
marketing, research and development agreements and further adjusted by the
timing of proceeds from the sale of an investment in an affiliate. The decrease
in cash requirements from the fourth quarter is attributable primarily to a
semi-annual interest payment of $2.8 million on the convertible subordinated
notes made during the fourth quarter of 1997. At March 31, 1998, the Company had
cash and cash equivalents of approximately $36.7 million of which 5.9 million
was pledged as collateral in April 1998 under the letter of credit agreement
described above and investment securities in an affiliate with a market value of
$1.1 million. The investment consisted of 125,000 shares of IVAX common stock.
The fair market value as of May 5, 1998 was approximately $1.2 million. This
investment is volatile and therefore subject to significant fluctuations in
value.
The Company anticipates that cash requirements for operations in the
second quarter of 1998 could be between approximately $12 and $13 million as the
Company: produces its acellular pertussis vaccine for commercial sale in Europe;
produces Certiva[TRADEMARK] in anticipation of or following regulatory approval
in the United States and other territories; produces investigational combination
vaccines and conjugate vaccines; conducts clinical trials; and makes a
semi-annual interest payment on the convertible subordinated notes. Quarterly
cash requirements for operations beyond this period will depend principally upon
the level and efficiency of vaccine production, the timing of FDA approval for
16
<PAGE>
Certiva[TRADEMARK], level of sales of Certiva[TRADEMARK] in the U.S., level of
product sales in Europe as additional approvals are obtained, costs to market
Certiva[TRADEMARK] following approval, 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. If the
Company does not obtain FDA licensure and generate commercial sales of
Certiva[TRADEMARK] in a timely basis, the Company will need to address its cash
requirements for operations through significant reductions in operating levels
and through the sale of debt or equity securities, among other means as more
fully described below. There are no assurances that the Company will be
successful, under these circumstances, in significantly reducing operating
levels or in placing debt or equity securities on favorable terms or in an
amount required to meet its future cash requirements for operations. The
foregoing are forward looking statements. There are no assurances that the
Company will meet the projections for cash requirements for operations, that any
further regulatory approvals will be received, that the milestones under
existing marketing and research and development agreements 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 milestones would have a significant
adverse effect on the Company's future financial position.
Total capital expenditures for the first three months of 1998 were
$605,000. Total projected capital expenditures for the second quarter of 1998
are expected to be less than $1.0 million. The Company is in the planning stages
of expanding its manufacturing capacity for its vaccine products for both
clinical trials and for commercial sale. Total projected capital expenditures
for 1998 for facilities' modifications, equipment, systems and other capital
additions could range between $4 million to $8 million, depending upon the
ultimate extent of the expansions, which has not yet been determined. The
foregoing is a forward looking statement, and the amount of and timing for
capital expenditures could fluctuate based upon a number of factors including,
without limitation: the magnitude of the changes in the facilities required to
meet demand for the Company's acellular pertussis products; the equipment and
leasehold improvements required in order to expand the Company's production
capacity for investigational products; the anticipated timing for further
regulatory approvals of existing products; the anticipated timing for regulatory
approval of future products; 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.
In March 1998, the Company leased an approximately 75,500 square foot
facility to be used for research, development, general and administrative
functions and for future expansion of the Company's operations. This facility is
replacing the Company's existing research and development facility, which the
Company vacated in April 1998, and a portion of its general and administrative
offices which the Company intends to vacate during 1998. The lease is for an
initial term of ten years, with two five-year renewal options. The initial base
annual rent under the lease is approximately $981,000 with minimum annual
escalations. At the end of the fifth year of the initial term, the Company would
have the right to terminate the lease for a specified fee. In addition, the
Company has an option to purchase the facility during specified periods of the
lease term. The landlord has provided the Company with a tenant improvement
allowance of approximately $1.4 million for tenant improvements, and will
provide an additional $1.8 million to the Company under a line of credit to fund
17
<PAGE>
improvement costs in excess of the tenant improvement allowance. Monthly
payments under this line of credit would consist of interest only accruing at
the simple annual rate of 12.75%, and the entire unpaid principal balance would
mature in September 2000, unless extended by the Company up to March 2002. The
amounts drawn from this line of credit also would be secured by all leasehold
improvements and related facility enhancements purchased with funds provided by
the landlord. The lease payments and operating costs for this facility are
included in, and not in addition to, the anticipated cash requirements for
operations described above. The Company currently anticipates that capital
expenditures of approximately $1.0-$2.0 million would be required to modify the
facility to accommodate the Company's operations, which would be funded
primarily by the $1.4 million allowance described above. This is a forward
looking statement and the additional capital expenditures for this or other
facilities may vary substantially depending upon a number of factors including,
among other things, the size of such facilities, the equipment and systems
requirements for the facilities, location, zoning and other government
restrictions and the magnitude of available financing.
Cash requirements for operations and capital expenditures for 1998 are
expected to be financed through a combination of: cash and cash equivalents;
fees and payments from existing and/or new license, marketing, distribution
and/or development agreements; the exercise of stock options; the sale of debt
and/or equity securities; mortgage financing; lines of credit; and equipment
leases. The Company currently has no agreements or understandings regarding any
of the debt or equity financing options. The Company believes that it has
adequate cash resources to meet its 1998 funding requirements although there are
no assurances in this regard. Failure or significant delays in receiving
additional regulatory approvals and satisfying 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 would reduce cash
requirements for operations through significant reductions in operating levels,
although there are no assurances that the Company would be successful in this
regard. This paragraph contains forward looking statements and the factors
affecting the ability of the Company to meet its funding requirements and manage
its cash resources include, among other things: the timing of FDA approval for
Certiva[TRADEMARK]; the efficiency of the Company's production operations; the
sales price for products established by the Company and its distributors; the
magnitude and timing of product sales; the magnitude and timing of any fees and
payments from license, marketing, distribution and/or development agreements;
the magnitude of fixed costs; and the capital expenditures required to operate
and expand existing and future facilities.
OUTLOOK
The Company recognized a net loss of $11.8 million in the first three
months of 1998 and expects to incur a net loss of approximately $13 million in
the second quarter of 1998. The Company anticipates that the next several
quarters 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 marketing clearance; the timing for
the commercial introduction of Certiva[TRADEMARK]; the ability of the Company
and its distributors to compete against competitive products, several of which
have been approved, and to effectively market and sell products in their
18
<PAGE>
respective territories; the sales prices established for products by the Company
and its distributors; the efficiency of the Company's production operations; the
timing of the payments under license, 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, marketing, distribution and/or development agreements with
third parties; and the timing of and amount of proceeds from the sale of
additional investment securities. The foregoing are forward looking statements
and the factors affecting its outcome are described herein as well as elsewhere
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations including the first paragraph hereof, and in the Company's other
filings with the SEC, including the 1997 annual report on Form 10-K, to which
the reader's attention is directed.
The quarterly operating results may also be affected by the quantity of
product produced for sale since the production expenses have been mainly fixed
and consist primarily of costs to operate the production facilities, to scale up
production and to maintain a ready work force. To date, the Company has limited
experience and success in manufacturing commercial quantities of its vaccine
products and in operating its manufacturing facilities. 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. Such
disruptions or failures would have a material adverse effect on the Company's
future operating results and could affect the Company's ability to obtain
regulatory approval for its products or the timing of such approval. No
assurances can be given that the Company will be successful in establishing and
maintaining consistent 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 Company's manufacturing
operations for Certiva[TRADEMARK] are located principally in one facility. Any
condition or event that adversely affects the condition or operation of such
facility would have a material adverse affect on the Company's financial
condition and future results of operations. In addition, given its size and
configuration, such facility has limited production capacity. Accordingly, there
are no assurances that the Company will be able to produce sufficient quantities
of vaccine to meet market demand or achieve profitability.
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. The Company anticipates additional revenues from product
sales during 1998 to one or more European distributors for sale and distribution
in select European countries. Any additional product approvals in Europe could
lead to increased revenues from the sale of the Company's acellular pertussis
vaccine. There are no assurances that further product approvals will be obtained
in Europe during 1998 or at all, or that once obtained the products will be
launched in a timely manner or at all, or that if launched, that the marketing
19
<PAGE>
and distribution efforts will be effective. The Company does not control the
marketing and distribution efforts for its products in Europe and, therefore,
the Company's revenues for product sales in those territories are dependent upon
the timing, implementation, and effectiveness of the sales, marketing and
distribution efforts of others. Additionally, although the FDA Export Reform and
Enhancement Act permits a company to export vaccines manufactured in the United
States with little or no prior FDA review and approval, the FDA retains the
authority and ability to delay, suspend or terminate a manufacturer's ability to
commence or continue such efforts. This authority may be exercised if the FDA
finds the product fails to meet prescribed standards relating to manufacturing,
labeling, and promotional activities, among others. There are no assurances that
the FDA will not, at any time or from time to time, seek to delay, defer or
suspend the Company's export activities for failure to meet any of the
prescribed standards of the statute. Any such action could have a material
adverse affect on the future results of operations.
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
CDC. FDA approval of the Company's product license application for
Certiva[TRADEMARK] is pending. In January 1998, the Company was advised by the
FDA that Certiva[TRADEMARK] is on track for completing the final steps for
licensure. In response to FDA's request, the Company prepared and submitted
additional information in response to all of the outstanding issues previously
raised by the agency. In recent discussions with the FDA, the Company was
advised that Certiva[TRADEMARK] is nearing completion of the review process for
licensure. In addition, the Company and the FDA have agreed to the product
labeling and the Company has submitted promotional materials to the agency for
review. The FDA informed the Company that the only remaining steps prior to
granting market clearance are completion of the FDA's review of the information
submitted and inspection of the Company's facilities and operations. The
inspection has been scheduled to begin in the first half of May. Following FDA
approval, the Company, therefore, anticipates revenues 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 increase. The
foregoing are forward looking statements, and there are no assurances that the
Company will achieve profitability based solely on revenues from its acellular
pertussis vaccine or any future vaccines under development. There can be no
assurance that the inspection of the Company's facilities and operations will be
initiated or completed in a timely manner, the results from the inspection will
be satisfactory, that information submitted will be acceptable to the FDA, that
the FDA will not raise additional issues or concerns, or that Certiva[TRADEMARK]
will receive regulatory approval in a timely manner or at all, or that, if
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 adequacy of the most
recent information submitted, the timeliness of the FDA completing its
inspection and review of the Company's facilities and operations, and the
adequacy of the systems, procedures, operations and facilities relating to the
product, among other things. The factors affecting successful commercial launch
of Certiva[TRADEMARK] in the United States include, among others: successfully
20
<PAGE>
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 those of its
competitors; establishing the Company as an effective and reliable supplier of
vaccines; establishing efficient and consistent production of sufficient
quantities of vaccine and establishing effective distribution channels.
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 risk factors and other information
contained in this report, as well as the Company's other filings with the SEC,
for a more complete description of the risks and uncertainties affecting the
Company and its business.
MARKETING, RESEARCH & DEVELOPMENT 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 Group B meningococcal infection for both adults
and pediatric indications. Through March 31, 1998, the Company recognized $13
million of revenue from Pasteur Merieux-Connaught under these agreements. 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 $39 million. The
time it may take to achieve future milestones cannot be predicted accurately,
and there are no assurances that any additional milestones will be met. 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 clinical development payments and milestone payments upon
achievement of prescribed clinical and regulatory events. Total remaining
payments by Abbott to the Company under the agreement amount to $26 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 in the United States. 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.
In 1998, the Company anticipates that total receipts of license fees,
clinical development funding and milestone payments under its existing
marketing, research and development agreements could be approximately $5
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 are and 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 the planning, commencement and completion of 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
21
<PAGE>
expenditures in the clinical development program for Certiva[TRADEMARK] and the
combination vaccines.
The Company is considering 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. In 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, 1997, the Company and its subsidiaries had income tax
loss carry forwards of approximately $22.3 million to offset future Canadian
source income and approximately $77.1 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
becomes 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 it intends to, and believes that it can,
generate sufficient other income to avoid being classified as a PFIC. This is a
forward looking statement and the factors affecting this classification include,
among other things, the timing and amount of revenue from product sales; the
timing and amount of license fees, milestone payments and development funding
under license, marketing, distribution and development agreements; the
classification of payments received by the Company as active or passive; and the
classification of the Company's assets as active or passive.
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997. The Company has implemented SFAS No. 128 for
1997 and 1998. SFAS No. 128 requires dual presentation of basic and diluted
earnings per share. Basic loss per share includes no dilution and is computed by
dividing net loss available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted loss per share
includes the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Options, warrants and convertible securities that were outstanding at March 31,
1997 and 1998, were not included in the computation of diluted loss per share as
their effect would be anti-dilutive. As a result, the basic and diluted loss per
share amounts are identical.
22
<PAGE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company has implemented SFAS 130 beginning with the first
quarter 1998 financial statements. The implementation of this standard did not
result in a material impact to the financial statements of the Company. The
Company is currently evaluating the impact of SFAS 131, which is required to be
implemented in the Company's year end 1998 financial statements.
IMPACT OF THE YEAR 2000 ISSUE ON THE COMPANY
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Management has
initiated a company-wide program to prepare the Company's computer systems and
programs for the year 2000. Based on a recent preliminary internal interim
assessment, the Company believes that the principal management information
system software that was recently purchased and is currently being implemented
is designed to be Year 2000 compliant. The Company intends to test the system
for Year 2000 compliance, and therefore until tested thoroughly, there can be no
assurances in this regard. The Company also uses various "off the shelf"
software applications throughout the Company for the storage and analysis of
various types of data that management is dependent upon for day to day
operations. Management's preliminary assessment is that the modifications to or
replacement of the Company's existing software to achieve Year 2000
qualification should not have a material adverse effect on future results of
operations. This is a forward looking statement and until further testing and
analysis is completed, there can be no assurance given that the existing
software is Year 2000 compliant or the costs necessary to achieve such
compliance will not be material to the future results of operations of the
Company.
The Company has not communicated with all of its significant suppliers
to determine the extent to which the Company is vulnerable to failures by such
third parties to remediate their own Year 2000 issues. The Company is unable to
ensure that the suppliers cost to obtain Year 2000 compliance will not be passed
on to the Company. Further, there are no assurances that the systems of other
companies on which the Company's systems rely will be timely converted. In
addition, there are no assurances that the failure by such other companies'
systems to comply, or compliance in a manner that is not compatible to Company
systems, would not have a material, adverse effect on the Company.
The Company has determined that it has no exposure to contingencies
related to the Year 2000 Issue for product it has sold.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
10.37 Lease Agreement dated as of March 25, 1998 between
ARE-10150 Old Columbia, LLC and the Company [with
certain confidential information deleted therefrom].
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed the following two reports on Form 8-K during the
quarter ended March 31, 1998:
(1) On January 9, 1998, the Company filed with the Securities and
Exchange Commission a Current Report on Form 8-K under Item 5
updating the license application review process for the
Company's DTaP vaccine Certiva[TRADEMARK] with the FDA.
(2) On January 29, 1998, the Company filed with the Securities and
Exchange Commission a Current Report on Form 8-K under Item 5
reporting that the demand registration right held by BioChem
for its shares of Company Common Stock had been extended until
January 17, 2001.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH AMERICAN VACCINE, INC.
----------------------------
(Registrant)
By: /s/ Sharon Mates
--------------------------
Sharon Mates, Ph.D.
President
By: /s/ Lawrence J. Hineline
--------------------------
Lawrence J. Hineline
Vice President - Finance
Date: May 8, 1998
25
LEASE
BY AND BETWEEN
ARE-10150 OLD COLUMBIA, LLC
as Landlord
and
NORTH AMERICAN VACCINE, INC.
as Tenant
<PAGE>
TABLE OF CONTENTS
PAGE
1. LEASE OF PREMISES.............................................1
2. BASIC LEASE PROVISIONS........................................1
3. TERM..........................................................3
4. POSSESSION AND COMMENCEMENT DATE..............................4
5. RENT..........................................................5
6. RENT ADJUSTMENTS..............................................5
7. OPERATING EXPENSES............................................6
8. RENTABLE AREA................................................12
9. SECURITY DEPOSIT.............................................12
10. USE..........................................................13
11. BROKERS......................................................15
12. HOLDING OVER.................................................15
13. TAXES ON TENANT'S PROPERTY...................................16
14. CONDITION OF DEMISED PREMISES................................16
15. COMMON AREAS AND PARKING FACILITIES..........................16
16. UTILITIES AND SERVICES.......................................17
17. ALTERATIONS..................................................20
18. REPAIRS AND MAINTENANCE......................................23
19. LIENS........................................................23
20. INDEMNIFICATION AND EXCULPATION..............................24
i
<PAGE>
21. INSURANCE - WAIVER OF SUBROGATION............................25
22. DAMAGE OR DESTRUCTION........................................27
23. EMINENT DOMAIN...............................................29
24. DEFAULTS AND REMEDIES........................................30
25. ASSIGNMENT OR SUBLETTING.....................................34
26. ATTORNEYS' FEES AND COSTS....................................37
27. BANKRUPTCY...................................................37
28. ESTOPPEL CERTIFICATE.........................................38
29. JOINT AND SEVERAL OBLIGATIONS................................38
30. DEFINITION OF LANDLORD; LIMITATION OF LANDLORD'S LIABILITY...38
31. PROJECT CONTROL BY LANDLORD..................................40
32. QUIET ENJOYMENT..............................................41
33. QUITCLAIM DEED...............................................41
34. RULES AND REGULATIONS........................................41
35. SUBORDINATION AND ATTORNMENT.................................41
36. SURRENDER....................................................42
37. WAIVER AND MODIFICATION......................................43
38. WAIVER OF JURY TRIAL AND COUNTERCLAIMS.......................43
39. TENANT'S PURCHASE OPTION.....................................43
40. RIGHT TO EXPAND..............................................44
41. HAZARDOUS MATERIALS..........................................47
ii
<PAGE>
42. RIGHT TO EXTEND TERM.........................................49
43. RIGHT OF FIRST OFFER TO PURCHASE.............................50
44. TENANT SIGNAGE...............................................51
45. MISCELLANEOUS................................................51
EXHIBITS
EXHIBIT "A" DEMISED PREMISES
EXHIBIT "B" LEGAL DESCRIPTION
EXHIBIT "C" ACKNOWLEDGMENT OF TERM COMMENCEMENT DATE
EXHIBIT "D" WORK LETTER
EXHIBIT "E" RULES AND REGULATIONS
EXHIBIT "F" ESTOPPEL CERTIFICATE
EXHIBIT "G" FORM OF AGREEMENT OF PURCHASE AND SALE
EXHIBIT "H" EXTERIOR SIGNAGE PLAN
iii
<PAGE>
LEASE
THIS LEASE is made as of March 25, 1998 ("EFFECTIVE DATE"), by and between
ARE-10150 Old Columbia, LLC, a Delaware limited liability company ("LANDLORD")
and North American Vaccine, Inc., a Canadian corporation ("TENANT").
1. LEASE OF PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
upon the terms and conditions hereof, those certain premises (the "DEMISED
PREMISES") within the building located at the address set forth below (the
"BUILDING"). The Demised Premises are crosshatched on the floor plan attached
hereto as EXHIBIT "A". The real property upon which the Building is located and
all landscaping, parking facilities and other improvements and appurtenances
related thereto, are hereinafter collectively referred to as the "PROJECT", the
legal description for which is attached hereto as EXHIBIT "B". All portions of
the Project which are for the non-exclusive use of tenants of the Building,
including, without limitation, driveways, sidewalks, parking areas, landscaped
areas, service corridors, stairways, elevators, public restrooms and Building
lobbies, are hereinafter referred to as the "COMMON AREAS".
2. BASIC LEASE PROVISIONS.
2.1. For convenience of the parties, certain basic provisions of this Lease
are set forth herein. The provisions set forth herein are subject to the
remaining terms and conditions of this Lease and are to be interpreted in light
of such remaining terms and conditions.
2.1.1 Address of the Building:
10150 Old Columbia Road
Columbia, Maryland
2.1.2 Intentionally Deleted.
2.1.3 (a) Rentable Area of Demised Premises: 75,500 sq. ft. (Subject
to confirmation pursuant to Section 8.1)
(b) Rentable Area of Building: 75,500 sq. ft., subject to
expansion in accordance with Section 40.
2.1.4 Initial Basic Annual Rent:
(75,500 sq.ft). x ($13.00 per sq.ft.) = $981,500
(Subject to modification pursuant to Section 40)
<PAGE>
2.1.5 Initial Monthly Rental Installments of Basic Annual Rent:
(75,500 sq.ft). x ($13.00 per sq.ft.), divided by 12 months =
$81,791.67 (Subject to modification pursuant to Section 40).
2.1.6 Tenant's Pro Rata Share: 100% of the Building (Subject to
modification pursuant to Section 40)
2.1.7 (a) Term Commencement Date: As defined in Section 4.2 hereof.
(b) Term Expiration Date: Ten years from the Term Commencement
Date, subject to extension or earlier termination as
otherwise provided herein.
2.1.8 Security Deposit: $163,583.34.
2.1.9 Permitted Use: Research, development, testing, production and
sale of biologic, pharmaceutical or any other products
regulated by the United States Food and Drug Administration
(the "FDA") or similar foreign regulatory authorities,
including, without limitation, animal testing facilities, and
related office uses consistent with Section 10 hereof.
2.1.10 Addresses for notices and payment of Rent:
Payments of Rent shall be made to:
135 N. Robles Avenue, Suite 250
Pasadena, CA 91101
Attention: Corporate Secretary
Address for Notices to Landlord:
135 N. Robles Avenue, Suite 250
Pasadena, CA 91101
Attention: Corporate Secretary
With a copy to:
11440 West Bernardo Court, Suite 170
San Diego, CA 92127
Attention: Gary A. Kreitzer, Esq.
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2.1.11 Address for Notices to Tenant:
Prior to July 1, 1998:
North American Vaccine, Inc.
12103 Indian Creek Court
Beltsville MD 20705
Attention: Daniel J. Abdun-Nabi, Senior Vice President-Legal
Affairs & General Counsel
After June 30, 1998:
North American Vaccine, Inc.
10150 Old Columbia Road
Columbia MD _____
Attention: Daniel J. Abdun-Nabi, Senior Vice President-Legal
Affairs & General Counsel
With a copy to:
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Attention: Stephen W. Porter, Esq.
2.1.12 The following Exhibits are attached hereto and incorporated
herein:
Exhibit "A"-Exhibit "H"
3. TERM.
3.1. This Lease shall take effect upon the Effective Date, and, except as
specifically otherwise provided within this Lease, each of the provisions hereof
shall be binding upon and inure to the benefit of Landlord and Tenant, and each
of their respective successors and permitted assigns, from and after the
Effective Date.
3.2. The term of this Lease (the "TERM") shall be that period from the Term
Commencement Date as defined in Section 4.2 below and through the Term
Expiration Date, as such may be terminated or extended as provided herein.
3.3. Notwithstanding anything to the contrary contained herein, Tenant
shall have the right, in its sole and absolute discretion, to terminate this
Lease, which termination shall be effective on the fifth anniversary of the Term
Commencement Date, upon not less than nine (9) months' prior written notice to
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Landlord, which notice, as a condition to its effectiveness and the
effectiveness of any such termination, shall be accompanied by the payment of
the "Termination Amount". Upon the effective date of such termination made
pursuant to this paragraph, this Lease shall terminate and all of the rights and
obligations of the parties hereunder shall thereafter cease and terminate,
except pursuant to any provision which expressly survives the termination
hereof, including without limitation, the respective indemnification obligations
of Landlord and Tenant set forth in Article 41 of this Lease, and the
obligations and liabilities of Landlord and Tenant which accrue or arise prior
to the termination date of this Lease, including, without limitation, Tenant's
obligation to pay any and all unpaid accrued Rent as of such termination date.
The Termination Amount shall be [*]
4. POSSESSION AND COMMENCEMENT DATE.
4.1. Landlord shall use commercially reasonable efforts to tender
possession of the Demised Premises to Tenant on the date hereof. In the event
Landlord fails for any reason to tender possession of the Demised Premises on or
before the close of business on May 15, 1998, Landlord shall be liable to Tenant
for the sum of any damages, rent and holdover fees or penalties under Tenant's
existing leases for premises at 12103 and 12031 Indian Creek Court, Beltsville,
Maryland 20705 (as amended, the "Existing Leases") in excess of the rent that
would have been payable under the Existing Leases but for such holdover. In the
event Landlord has not tendered possession of the Demised Premises on or before
June 1, 1998, then Tenant may, at any time thereafter so long as Landlord has
not tendered possession of the Demised Premises to Tenant, by written notice to
Landlord, elect to terminate this Lease effective on the date of such notice. In
the event this Lease is terminated pursuant to this Section 4.1, the Security
Deposit shall be returned to Tenant and neither Landlord nor Tenant shall have
any further rights, duties or obligations under this Lease, except with respect
to provisions which, by their terms, survive termination of this Lease.
Landlord's obligations under this Section 4.1 shall survive termination of this
Lease by Tenant pursuant to the terms of this Section 4.1.
4.2. The "Term Commencement Date" shall be the date of delivery of the
Demised Premises to Tenant. Landlord and Tenant shall each execute and deliver
to the other written acknowledgment in the form attached hereto as Exhibit "C"
of the Term Commencement Date and the Term Expiration Date when the same are
established; PROVIDED, HOWEVER, the failure to execute and deliver such
acknowledgment shall not affect Landlord's or Tenant's rights or liabilities
hereunder.
4.3. Intentionally Deleted.
4.4. Intentionally Deleted.
4.5. Tenant shall cause the initial improvements to the Building to be
constructed pursuant to the Work Letter attached hereto as EXHIBIT "D"
("Tenant's Work"). Landlord shall be responsible for paying the costs of
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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Tenant's Work to the extent such costs do not exceed the amount of the Tenant
Improvement Allowance (as defined in Section 4.5.1). The costs included in
Tenant's Work shall include the costs of construction, space planning,
architectural, design, engineering and other related services, building permits,
and other planning and inspection fees.
4.5.1 Tenant shall be entitled to an allowance to be used by Tenant
towards construction of Tenant's Work (the "Tenant Improvement Allowance"). The
amount of the Tenant Improvement Allowance shall be $1,432,500.00.
4.5.2 Intentionally Deleted.
5. RENT.
5.1. Tenant agrees, commencing on the forty fifth (45th) day following the
Term Commencement Date (the "Rent Commencement Date"), to pay Landlord as Basic
Annual Rent for the Demised Premises the sum set forth in Section 2.1.4, subject
to the rental increases provided in Section 6 hereof. Basic Annual Rent shall be
paid in the equal monthly installments set forth in Section 2.1.5, subject to
the rental increases provided in Section 6 hereof, each in advance on the first
day of each and every calendar month during the Term. Notwithstanding anything
to the contrary set forth herein, Tenant shall have no obligation to pay Basic
Annual Rent for any period prior to the Rent Commencement Date.
5.2. In addition to Basic Annual Rent, Tenant agrees to pay to Landlord as
additional rent ("ADDITIONAL RENT") at times hereinafter specified in this Lease
(i) Tenant's pro rata share, as set forth in Section 2.1.6 ("TENANT'S PRO RATA
SHARE"), of Operating Expenses as provided in Section 7 and (ii) any other
amounts that Tenant assumes or agrees to pay under the provisions of this Lease
that are owed to Landlord, including, without limitation, any and all other sums
that may become due under the terms of this Lease by reason of any Default of
Tenant or failure on Tenant's part to comply with the agreements, terms,
covenants and conditions of this Lease to be performed by Tenant, after notice
and lapse of applicable cure period. Except for the payment of charges for
utilities supplied to the Demised Premises, Tenant shall have no obligation to
pay Additional Rent for any periods prior to the Rent Commencement Date.
5.3. Intentionally Deleted.
5.4. Basic Annual Rent and Additional Rent shall together be denominated
"RENT". Rent shall be paid to Landlord, without abatement, deduction, or offset,
in lawful money of the United States of America, at the office of Landlord as
set forth in Section 2.1.10 or to such other person or at such other place as
Landlord may from time to time designate in writing. In the event the Term
commences or ends on a day other than the first day of a calendar month, then
the Rent for such fraction of a month shall be prorated for such period on the
basis of a thirty (30) day month and shall be paid at the then current rate for
such fractional month.
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6. RENT ADJUSTMENTS.
6.1. Basic Annual Rent shall be adjusted on the first (1) anniversary of
the Term Commencement Date, and on the anniversary of such date every year
thereafter during the Term (each, a "RENT ADJUSTMENT DATE"). On every Rent
Adjustment Date, Basic Annual Rent shall be increased by an amount equal to [*]
of the Basic Annual Rent payable immediately preceding the applicable Rent
Adjustment Date.
7. OPERATING EXPENSES.
7.1. As used herein, the term "OPERATING EXPENSES" shall include:
7.1.1 Government impositions including, without limitation, property
tax costs consisting of real and personal property taxes and assessments
(including amounts due under any improvement bond upon the Building, or the
parcel or parcels of real property upon which the Building is located or
assessments levied in lieu thereof) imposed by any governmental authority or
agency; any tax on or measured by gross rentals received from the rental of
space in the Building, any tax based on the square footage of the Demised
Premises, the Building or the Project as well as any parking charges, utilities
surcharges, or any other costs levied, assessed or imposed by, or at the
direction of, or resulting from statutes or regulations, or interpretations
thereof, promulgated by any federal, state, regional, municipal or local
government authority in connection with the use or occupancy of the Building or
the parking facilities serving the Building; any tax on this Lease; any fee for
a business license to operate an office building and the reasonable cost of
attorneys or experts, reasonably incurred by Landlord in seeking reduction by
the taxing authority of the applicable taxes, less tax refunds obtained as a
result of an application for review thereof. Operating Expenses shall not
include such taxes as capital gains, corporation, unincorporated business,
income, profit, excess profit, capital stock, estate, gift, inheritance,
transfer, recordation, taxes which are the personal obligation of Landlord or
another tenant of the Building or Project, license fees (except as set forth
above) or any fines, penalties and/or interest on late payments. Tenant shall
not be responsible for more than twelve (12) calendar months of real estate
taxes in any one (1) year.
7.1.2 All other reasonable costs of any kind paid or incurred by
Landlord in connection with the operation and maintenance of the Building and
the Project including, by way of examples and not as a limitation upon the
generality of the foregoing, costs of repairs and replacements to the Building
or the other improvements within the Project as appropriate to maintain the
Building or the Project as required hereunder; costs of utilities furnished to
the Common Areas; sewer fees; trash collection; cleaning, including windows;
heating; ventilation; air-conditioning; maintenance of landscape and grounds;
maintenance of drives and parking areas; security services and devices; building
supplies; maintenance for and replacement of equipment utilized for operation
and maintenance of the Project: license, permit and inspection fees; sales, use
and excise taxes on goods and services purchased by Landlord in connection with
the operation, maintenance or repair of the Project and Building systems and
equipment; telephone, postage, stationery supplies and other expenses incurred
in connection with the operation, maintenance, or repair of the Project;
accounting, legal and other professional fees and expenses incurred in
connection with the operation, maintenance and repair of the Project; cost of
landscaping and other customary and ordinary items of personal property provided
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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by Landlord for use in Common Areas; capital expenditures; costs of complying
with any applicable laws or hazardous waste remediation rules or regulations;
costs of insurance, service contracts; costs of services of independent
contractors retained to do work of the nature or type herein referenced; and
costs of compensation (including employment taxes and fringe benefits) to the
extent equitably allocable to the Project of all persons who perform regular and
recurring duties connected with the day-to-day operation and maintenance of the
Project, its equipment, the adjacent walks, landscaped areas, drives, and
parking areas, including without limitation, janitors, floor waxers,
window-washers, watchmen, gardeners, sweepers, and handymen and costs of
management services, which fee for property management services shall not exceed
[*] of the Basic Annual Rent. With respect to capital expenditures there shall
be included each calendar year as an Operating Expense in respect of such
expenditure only the amortized cost of such item for that year [*]
7.1.3 Operating Expenses shall be determined in accordance with
generally accepted accounting principles. Operating Expenses shall be
appropriate for the prudent management, operation, maintenance, servicing and
repair of the Building and shall be reduced by all cash discounts, trade
discounts or quantity discounts received by Landlord or Landlord's managing
agent in the purchase of any goods, utilities or services in connection with the
prudent operation of the Building. If Landlord charges a user fee for use of a
building amenity or facility (including the parking facilities), then Operating
Expenses shall be deemed reduced by the amount of such fees. Landlord shall
equitably prorate bills for services rendered to the Building and to any other
property owned by Landlord. Landlord shall diligently and in good faith pursue
all insurance, breach of warranty or other claims which might result in a
reduction of Operating Expenses payable by Tenant. In no event shall the
Building tenants be required to pay, in the aggregate, more than 100% of the
actual Operating Expenses of the Building for any calendar year, and Tenant
shall not be required to pay more than 100% of Tenant's Pro Rata Share of the
total Operating Expenses actually incurred for any calendar year.
7.1.4 The following costs and expenses shall be excluded from
Operating Expenses:
(a) Insured losses paid by Landlord as the deductible portion of
such losses by reason of insurance policy terms (except if and to the extent the
sums paid are capital expenditures in which event such amounts shall be
amortized in accordance with Section 7.1.2);
(b) Costs, including permit, license and inspection costs,
associated with alterations or improvements of the Demised Premises, the
premises of other tenants or occupants of the Building or the Project or vacant
retail space in the Building or the Project or incurred in renovating or
otherwise improving, decorating, painting or redecorating vacant space for
tenants or other occupants of the Building or the Project;
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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(c) Depreciation of the Building or the Project, or the fixtures
or equipment therein;
(d) Interest, points, fees and principal payments on loans to
Landlord or secured by mortgages or deeds of trust covering the Building or the
Project or a portion thereof and other debt costs, if any, or amortization on
any mortgage or mortgages or any other debt instrument encumbering the Building
or the Project;
(e) Payments pursuant to any ground lease or master space lease;
(f) Expenses directly resulting from the breach of this Lease by
Landlord, or the negligence of Landlord, its agents, contractors or employees,
or other tenants;
(g) Reimbursable costs for which Landlord is reimbursed by its
insurance carrier, any tenant's carrier, any tenant, any warrantor or any other
third party;
(h) Any bad debt loss, rent loss, reserves for bad debts or rent
loss or legal fees incurred in collecting rent or other obligations from other
tenants of the Building or the Project;
(i) The expense of extraordinary services provided to other
tenants of the Building or the Project, or costs incurred by Landlord in respect
of breaches of other leases in the Building or the Project;
(j) Costs associated with the operation of the business of the
person or entity which constitutes Landlord, as distinguished from the costs of
operation of the Building or the Project, including accounting and legal
matters, costs of defending any lawsuits with any mortgagee, costs of selling,
syndicating, financing, mortgaging or hypothecating any of Landlord's interest
in the Building or the Project, costs of any disputes between Landlord and its
employees, disputes of Landlord with Building management, and outside fees paid
in connection with disputes with other tenants;
(k) The costs of compensation (including employment taxes and
fringe benefits) of any employee of Landlord or the property manager for the
Project who does not devote substantially all of his or her time to the Building
or the Project or the Common Areas, except to the extent such costs are
reasonable, and properly and equitably allocable to time spent by such employee
in directly servicing the Building, the Project or the Common Areas;
(l) Fees for services rendered to the Building, the Project or
the Common Areas by entities controlled by or under common control with Landlord
to the extent such fees exceed the market rate payable for comparable services
if rendered by unrelated third parties, except that market rate fees shall in no
event exceed [*] of the Basic Annual Rent;
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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(m) Fines, penalties, late payment charges and interest arising
from the acts or inaction of Landlord or failure timely to make tax and/or other
payments;
(n) Legal fees, professional fees, court costs, and consultants'
fees not directly related to the general welfare of Building or Project tenants;
(o) Taxes other than those set forth in Section 7.1.1;
(p) Salaries and the cost of other compensation paid to executive
employees of Landlord or the property manager above the grade of manager
(including profit sharing, bonuses and other employee benefit plans);
(q) The rent or expenses in lieu of rent for Landlord's on-site
management or leasing office, or any other offices or other spaces in the
Building or the Project used by Landlord or any related entity;
(r) Costs and expenses of utilities directly metered to tenants
of the Building or the Project or janitorial services directly billed to tenants
of the Building or the Project and payable separately by such tenants;
(s) Interest incurred on amounts by which any tenant's estimated
payments exceed such tenant's proper share of Operating Expenses;
(t) General overhead and administrative and accounting expenses,
except to the extent reasonably and properly directly allocable to the Building;
(u) Charitable or political contributions, advertising and
promotional expenditures, including costs of staging special events.
(v) The costs associated with any concessions or incentives
granted to tenants in the Building or the Project (such as moving expense
allowances or reimbursements);
(w) Marketing costs including rent or expenses in lieu of rent
for a marketing office, leasing commissions, space planners' fees, attorneys'
fees, advertising expenses, expenses incurred in connection with the negotiation
and preparation of letters, deal memos, letters of intent, leases, subleases
and/or assignments, space planning costs and other costs and expenses incurred
in connection with lease, sublease and/or assignment negotiations and
transactions with present or prospective tenants or other occupants of the
Building or the Project; and
(x) Costs of acquiring any antiquities or works of art;
(y) Increased insurance premiums caused by Landlord's or any
other tenant's hazardous, reckless, wilful or negligent acts;
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(z) Assessments to the extent paid in less than the maximum
permitted number of installments; and
(aa) Costs and expenses (including, without limitation,
attorneys' and consultants' fees and expenses) incurred by Landlord to clean-up,
contain, abate, remove or otherwise remediate Hazardous Materials (as such term
is hereinafter defined) present on, about, under or at the Project on the date
hereof; Tenant hereby acknowledging the delivery to it of that certain phase I
environmental audit, dated [*] prepared by [*].
7.2. Intentionally Deleted.
7.3. Within sixty (60) days prior to the commencement of each calendar year
during the Term, Landlord shall provide to Tenant Landlord's reasonable estimate
of the monthly amount of Tenant's Pro Rata Share of Operating Expenses for the
following calendar year. Tenant shall pay to Landlord on the first day of each
calendar month of the Term, as Additional Rent, Landlord's estimate of Tenant's
Pro Rata Share of Operating Expenses for such month.
7.3.1 Within ninety (90) days after the conclusion of each calendar
year (or such longer period as may be reasonably required), Landlord shall
furnish to Tenant a statement showing in reasonable detail the actual Operating
Expenses and Tenant's Pro Rata Share of Operating Expenses for the previous
calendar year ("Annual Statement"), prepared in accordance with generally
accepted accounting principles, consistently applied and otherwise prepared in
accordance with the terms of this Lease which are applicable to the preparation
of such Annual Statement and certified to be correct by a responsible
representative of Landlord. Any additional sum due from Tenant to Landlord shall
be due and payable within thirty (30) days after Landlord provides Tenant with
notice thereof. If the amounts paid by Tenant pursuant to Section 7.3 exceed
Tenant's Pro Rata Share of Operating Expenses for the previous calendar year,
Landlord shall, at Tenant's option, either (i) credit the excess amount to the
next succeeding installments of estimated Additional Rent, or (ii) pay the
excess to Tenant within thirty (30) days after delivery of such statements.
7.3.2 Any amount due under Section 7.3 for any period which is less
than a full month shall be prorated (based on a thirty (30) day month) for such
fractional month.
7.4. Landlord's Annual Statement shall be final and binding upon Tenant
unless Tenant, within [*] after Tenant's receipt thereof, shall
contest any item therein by giving written notice to Landlord, specifying each
item contested and the reason therefor. At Tenant's request, Landlord will
provide Tenant with access to Landlord's books and records relating to the
calculation of Operating Expenses or any other Additional Rent or other charges
paid by Tenant hereunder. Landlord shall retain its books and records relating
to the calculation of Operating Expenses for any calendar year for a period of
at least six (6) years after such calendar year. In the event that after
Tenant's review of such information, Landlord and Tenant cannot agree upon the
amount of Tenant's Pro Rata Share of Operating Expenses, then Tenant shall have
the right to have an independent public accounting firm hired by Tenant (at
Tenant's sole cost and expense) and approved by Landlord (which approval shall
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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not be unreasonably withheld or delayed) audit and/or review such Landlord's
books and records for the year in question (the "INDEPENDENT REVIEW"). The
results of any such Independent Review shall be binding on Landlord and Tenant.
If the Independent Review shows that Tenant's Pro Rata Share of Operating
Expenses actually paid for the calendar year in question exceeded Tenant's
obligations for such calendar year, Landlord shall at Tenant's option either (1)
credit the excess amount to the next succeeding installments of estimated
Additional Rent or (2) pay the excess to Tenant within thirty (30) days after
delivery of such statement. In addition, notwithstanding anything to the
contrary set forth in this Section 7.4, any inspection or audit that discloses
that annual Operating Expenses have been overstated by more than [*] shall be at
Landlord's expense, and Landlord shall pay interest on the amount required to be
refunded, at the rate of [*] per annum from the date Tenant made such
overpayments until the date such overpayments are repaid by Landlord. If any
Independent Review shows that Tenant's payments of Tenant's Pro Rata Share of
Operating Expenses for such calendar year were less than Tenant's obligation for
the calendar year, Tenant shall pay the deficiency to Landlord within thirty
(30) days after delivery of such statement.
7.5. Tenant shall not be responsible for Operating Expenses attributable to
the time period prior to the Rent Commencement Date. The responsibility of
Tenant for Tenant's Pro Rata Share of Operating Expenses shall continue to the
latest of (i) the date of termination of this Lease, (ii) the date Tenant has
fully vacated the Demised Premises (including, without limitation, the removal
of all items required hereby to be removed by Tenant and the completion of all
procedures required of Tenant necessary to fully release and terminate any
permits or licenses restricting the use of the Demised Premises in any manner),
or (iii) if termination of this Lease is due to the default of Tenant, the
earlier of (y) the date of rental commencement of a replacement tenant or (z)
the Term Expiration Date.
7.6. Operating Expenses for the calendar year in which Tenant's obligation
to share therein commences and in the calendar year in which such obligation
ceases, shall be prorated based upon the actual number of days of such partial
year during which Tenant had the obligation to pay Basic Annual Rent.
7.7. Notwithstanding anything set forth herein to the contrary, in the
event the Building is not at least ninety-five percent (95%) occupied on average
during any year of the Term, an adjustment shall be made by Landlord in
computing Tenant's Pro Rata Share of Operating Expenses for such year so that
Tenant's Pro Rata Share of Operating Expenses shall be computed for such year as
though the Building had been ninety-five percent (95%) occupied on average
during such year.
7.8. The parties agree that statements in this Lease to the effect that
Landlord is to perform certain of its obligations hereunder at its own or sole
cost and expense shall not be interpreted as excluding any cost from Operating
Expenses if such cost is otherwise defined as an Operating Expense pursuant to
the terms of this Lease. Notwithstanding the foregoing, in no event shall
Landlord include as an Operating Expense costs and expenses incurred by Landlord
as a result of Landlord's indemnification obligations pursuant to Section 20.2
hereof.
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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7.9. Upon request by Tenant, Landlord shall furnish to Tenant with copies
of all proposed assessments, assessments, real estate tax bills and the like.
Landlord shall also notify Tenant promptly following the filing or commencement
of, and again following any decision in or conclusion or settlement of, any tax
or assessment appeal, contest, reduction or challenge. On or before the 40th day
before the last day to file an application to contest any such tax or
assessment, Tenant may request Landlord to notify Tenant whether Landlord
intends to file such application and within ten (10) days after such request
Landlord shall notify Tenant whether or not Landlord will do so. If within such
ten (10) day period Landlord either does not so notify Tenant or notifies Tenant
that Landlord does not intend to file such an application, Tenant, at its sole
cost and expense, shall have the right (and Landlord hereby constitutes Tenant
as Landlord's attorney-in-fact to the extent required by law to enable Tenant)
to challenge and/or appeal any tax, assessment or other item includable in
Operating Expenses. The parties hereto agree to cooperate in good faith together
in connection with any such contest, objection or litigation. Landlord shall pay
to Tenant, after deduction of Landlord's bona fide out-of-pocket costs to obtain
the same (including, but not limited to, attorneys' fees) the portion of any
refund of real estate taxes allocable to the Demised Premises.
8. RENTABLE AREA.
8.1. As used herein, the term "RENTABLE AREA" shall be calculated in
accordance with the Washington D.C. Association of Realtors Method of
Measurement dated as of June 13, 1995. On or before the Rent Commencement Date,
Tenant shall have the right, at its sole cost and expense, to retain a licensed
architect to remeasure the Demised Premises. If the conclusions of the architect
retained by Tenant differ from the Rentable Area set forth in Section 2.1.3
hereof by Landlord by more than [*] of the total square footage of the Demised
Premises, Landlord, at its sole expense, shall (i) cause its architect to
remeasure the Premises within ten (10) days of receiving notice from Tenant of a
discrepancy or (ii) accept the determination of Tenant's architect. If
thereafter any discrepancy remains, the architects shall consult and agree on
the measurement of the Demised Premises and Landlord and Tenant shall be bound
by such agreed to measurement. If applicable, Rentable Area, Basic Annual Rent
and Tenant's Pro Rata Share shall be adjusted accordingly. If it is finally
determined that Tenant's architect was correct and the discrepancy was more than
[*] Landlord shall reimburse Tenant for the reasonable fee of Tenant's
architect.
9. SECURITY DEPOSIT.
9.1. Tenant has deposited with Landlord the sum set forth in Section 2.1.8
(the "SECURITY DEPOSIT"), which Security Deposit shall be held by Landlord as
security for the performance by Tenant of all of the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the Term. If
Tenant is in Default under this Lease, after the expiration of all applicable
notice and cure periods, Landlord may (but shall not be required to) use, apply
or retain all or any part of the Security Deposit for the payment of any Rent or
any other sum in default, or to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is so used or applied, Tenant shall, upon demand therefor,
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount, and Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep the
Security Deposit separate from its general fund, and Tenant shall not be
entitled to any interest on the Security Deposit. In lieu of cash, Tenant shall
have the right to deposit with Landlord, at any time and from time to time, a
letter of credit in the amount set forth in Section 2.1.8. Any such letter of
credit shall constitute the Security Deposit. Any letter of credit so deposited
shall be an irrevocable, unconditional "clean" letter of credit having a term of
not less than two (2) years and issued by a financial institution acceptable to
Landlord in its sole and absolute discretion. In the event that Landlord has not
received a replacement letter of credit on or before the date that is 45 days
prior to the expiration date of the letter of credit then held by Landlord,
Landlord shall have the right to draw upon the letter of credit. If Landlord
draws upon the letter of credit for any purpose permitted pursuant to this
Section 9.1, Tenant shall, upon demand by Landlord, deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to its original amount,
and Tenant's failure to do so shall be a material breach of this Lease.
9.2. In the event of bankruptcy or other debtor-creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for all periods prior to the
filing of such proceedings.
9.3. Landlord may deliver the Security Deposit to any purchaser of
Landlord's interest in the Demised Premises provided that Landlord obtains such
purchaser's written agreement to be bound by Landlord's obligations under this
Lease from and after the date of the transfer of Landlord's interest in the
Demised Premises and provides a copy of such written agreement to Tenant. Upon
fulfilling such conditions, Landlord shall be discharged from any further
liability with respect to the Security Deposit. This provision shall also apply
to any subsequent transfers.
9.4. If Tenant shall fully perform every provision of this Lease to be
performed by Tenant, the Security Deposit, or any balance thereof, shall be
returned to Tenant within thirty (30) days after the expiration or earlier
termination of this Lease.
10. USE.
10.1. Tenant shall use the Demised Premises for the purpose set forth in
Section 2.1.9 and shall not use the Demised Premises, or permit or suffer the
Demised Premises to be used, for any other purpose without the prior written
consent of Landlord which may be withheld in Landlord's reasonable discretion.
10.2. Tenant shall not use or occupy the Demised Premises in violation of
any federal, state and local laws and regulations, zoning ordinances, or of the
certificate of occupancy issued for the Building, and shall, upon five (5) days'
written notice from Landlord, discontinue any use of the Demised Premises which
is finally decided by any governmental authority having jurisdiction to be a
violation of law, regulation or zoning ordinance or the certificate of
occupancy. Tenant shall comply with any direction of any governmental authority
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having jurisdiction which shall, by reason of the nature of Tenant's use or
occupancy of the Demised Premises, impose any duty upon Tenant or Landlord with
respect to the Demised Premises or with respect to the use or occupation
thereof. Notwithstanding the foregoing, any inspectional reports or
observations, establishment inspection reports, complaints, warning letters or
any other similar document (including without limitation any Form 483) issued by
the FDA or comparable foreign regulatory authority which in any way relates to
the conduct of Tenant's business in the Demised Premises shall not be deemed to
be a violation of the terms of this Lease by Tenant.
10.3. Tenant shall not do or permit to be done anything which will
invalidate any fire, environmental, extended coverage or any other insurance
policy covering the Building and Project and shall comply with all rules,
orders, regulations, and requirements of the insurers of the Building and
Project and Tenant shall promptly upon demand reimburse Landlord for any
additional premium charged for such insurance policy by reason of Tenant's
taking any action that proximately causes an increase in the premiums payable
for any environmental, extended coverage or other insurance policy covering the
Building.
10.4. Tenant shall, upon termination of this Lease return to Landlord all
keys to offices and restrooms, either furnished to, or otherwise procured by
Tenant. In the event any key so furnished is lost, Tenant shall pay to Landlord
the cost of replacing the same or of changing the lock or locks opened by such
lost key if Landlord shall deem it necessary to make such change.
10.5. No awnings or other projection shall be attached to any outside wall
of the building.
10.6. Subject to Article 44 and Section 16.1, hereof, no sign,
advertisement, or notice shall be exhibited, painted or affixed by Tenant on any
external part of the Demised Premises or the Building without the prior written
consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed. Tenant may install on floors of the Building on which it
is the sole Tenant, without obtaining Landlord's consent, signs in the interior
of the Demised Premises, including elevator lobbies, provided that such signs
are not visible from the exterior of the Building.
10.7. Tenant shall cause any office equipment or machinery to be installed
in the Demised Premises so as to not unreasonably cause hazardous conditions in
the Common Areas.
10.8. Tenant shall not do or permit anything to be done in or about the
Demised Premises which shall in any way unreasonably obstruct or interfere with
the rights of other tenants or occupants of the Building, or injure them, or use
or allow the Demised Premises to be used for immoral, unlawful purpose, nor
shall Tenant knowingly cause, maintain or permit any nuisance or waste in, on,
or about the Demised Premises, Building or Project.
10.9. Tenant shall be responsible for all liabilities, costs and expenses
arising out of or in connection with the compliance of the Demised Premises with
the Americans with Disabilities Act, 42 U.S.C. ss. 12101, et seq. (together with
regulations promulgated pursuant thereto, the "ADA"), and Tenant shall
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indemnify, defend and hold harmless Landlord from and against any loss, cost,
liability or expense (including reasonable attorneys fees and disbursements)
arising out of any failure of the Demised Premises to comply with the ADA.
11. BROKERS.
11.1. Tenant represents and warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease
other than Julien J. Studley, Inc. and Smithy Braedon-Oncor International
(together, "BROKER"), as has been disclosed in writing to Landlord and that
Tenant knows of no other real estate broker or agent who is or might be entitled
to a commission in connection with this Lease.
11.2. Tenant hereby indemnifies and shall defend, hold and save Landlord
harmless from and against any and all claims for any commissions or fees in
connection with this Lease made by any broker or finder having worked, or
claiming to have worked, on behalf of Tenant, other than Broker.
11.3. Tenant represents and warrants that no broker or agent has made any
representation or warranty relied upon by Tenant in Tenant's decision to enter
into this Lease other than as contained in this Lease.
11.4. Tenant acknowledges and agrees that the employment of brokers by
Landlord is for the purpose of solicitation of offers of lease from prospective
tenants and no authority is granted to any broker to furnish any representation
(written or oral) or warranty from Landlord unless expressly contained within
this Lease. Landlord in executing this Lease does so in reliance upon Tenant's
representations and warranties contained within Sections 11.1 and 11.3 hereof.
11.5. All commissions and fees owing to Broker in connection with this
Lease including, without limitation, Tenant's exercise of expansion rights,
rights to purchase the Project and rights to develop the Project, shall be paid
by Landlord in accordance with a separate agreement. Landlord hereby indemnifies
and agrees to defend, hold and save Tenant harmless from and against any and all
claims for any commission or fees in connection with this Lease made by any
broker or finder having worked, or claiming to have worked, on behalf of
Landlord, including Broker.
12. HOLDING OVER.
12.1. If, with Landlord's express written consent, Tenant holds possession
of all or any part of the Demised Premises after the expiration or earlier
termination of the Term, Tenant shall become a tenant from month-to-month upon
the date of such expiration or earlier termination, and in such case Tenant
shall continue to pay Basic Annual Rent in the amount payable upon the date of
the expiration or earlier termination of this Lease, and all other provisions,
representations, covenants and agreements contained herein, other than with
respect to the Term and any extensions thereof, but specifically including,
without limitation, the adjustment of Basic Annual Rent pursuant to Article 6
hereof, shall remain in full force and effect.
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12.2. Notwithstanding the foregoing, if Tenant remains in possession of the
Demised Premises after the expiration or earlier termination of the Term without
the express written consent of Landlord, Tenant shall become a tenant at
sufferance upon the terms of this Lease except that the monthly rental shall be,
for the initial [*] period following such expiration or earlier termination, an
amount equal to [*] of the Basic Annual Rent in effect during the last thirty
(30) days of the Term, and thereafter an amount equal to [*] of the Basic Annual
Rent in effect during the last thirty (30) days of the Term, together with
Additional Rent, and Tenant shall be responsible for all damages suffered by
Landlord resulting from or occasioned by Tenant's holding over.
12.3. Acceptance by Landlord of Rent after such expiration or earlier
termination of the Term shall not result in a renewal or reinstatement of this
Lease.
12.4. The foregoing provisions of this Article 12 are in addition to and do
not affect Landlord's right to re-entry or any other rights of Landlord
hereunder or as otherwise provided by law.
13. TAXES ON TENANT'S PROPERTY.
13.1. Tenant shall pay, prior to delinquency, any and all taxes levied
against any personal property or trade fixtures placed by Tenant in or about the
Demised Premises.
13.2. If any such taxes on Tenant's personal property or trade fixtures are
levied against Landlord or Landlord's property or, if the assessed valuation of
the Building is increased by the inclusion therein of a value attributable to
Tenant's personal property or trade fixtures, and if Landlord, after written
notice to Tenant, pays the taxes based upon such increase in the assessed
valued, then Tenant shall upon demand repay to Landlord the taxes so levied
against Landlord.
14. CONDITION OF DEMISED PREMISES.
Tenant acknowledges that, other than as expressly set forth in this Lease,
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the condition of the Demised Premises or the Building
or Project, or with respect to the suitability for the conduct of Tenant's
business. Tenant shall accept the Demised Premises AS-IS WHERE IS with all
faults.
15. COMMON AREAS AND PARKING FACILITIES.
15.1. So long as Tenant is the sole tenant of the Building, Tenant shall
have exclusive use of the Common Areas of the Building and nonexclusive use of
the Common Areas of the Project that are not also Common Areas of the Building.
At such time as Tenant is not the sole tenant of the Building, Tenant shall have
the non-exclusive right, in common with other tenants of the Building and the
Project, to use the Common Areas. In any event, Tenant's use of the Common Areas
shall be subject to the rules and regulations adopted by Landlord and attached
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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hereto as EXHIBIT "E" together with such other reasonable and nondiscriminatory
rules and regulations as are hereafter promulgated by Landlord in its discretion
(the "RULES AND REGULATIONS").
15.2. As an appurtenance to the Demised Premises, Tenant shall have a
non-exclusive revocable license to use parking facilities within the Project on
a non-reserved basis up to a maximum of three (3) parking spaces per one
thousand (1,000) square feet of Rentable Area. Landlord shall not assign more
parking rights to tenants of the Project than the number of parking spaces that
actually exist in the Common Areas.
15.3. So long as Tenant is the sole tenant of the Building, Landlord shall
not have the right to modify Common Areas of the Building without Tenant's prior
consent. At such time as Tenant is not the sole Tenant of the Building, Landlord
reserves the right to modify Common Areas.
15.4. Notwithstanding any other provision herein to the contrary, Landlord
shall be responsible for all liabilities, costs and expenses arising out of or
in connection with the compliance of the Common Areas of the Project with the
ADA.
16. UTILITIES AND SERVICES.
16.1. ACCESS; SECURITY. Tenant shall have access to the Demised Premises,
the roof of the Demised Premises and the parking facilities serving the Demised
Premises 24 hours per day, 7 days per week throughout the Term. Tenant shall
have the right to install a modern, electronic security system for the Building
and the Project which will control external and internal ingress to the Building
and the Project at all points, including programmable selective access to
elevators and other secured areas of the Building. Tenant shall have the right
to install or provide for (a) Tenant-only elevator access, (b) Tenant-only
access from the fire stairwells to floors of the Building occupied solely by
Tenant, (c) continuous video surveillance of areas of ingress and egress, all
portions of the parking facilities, the Building perimeter and the Project
perimeter and (d) (24) hour per day security guards to monitor video cameras and
ingress and egress to and from the Building and the Project. Tenant, subject to
the terms of Article 17 and Exhibit "D", shall be permitted to construct a
perimeter fence to restrict access to the Building and the Project and to take
such other security measures as are determined in Tenant's reasonable
discretion.
16.2. OTHER SERVICES.
16.2.1 Landlord, as Operating Expenses, shall provide snow removal and
landscaping services.
16.2.2 Tenant shall employ its own contractor or personnel to provide
maintenance and repair services to Tenant's bio-waste and security systems and
to furnish window-cleaning, trash removal, recycling and janitorial service to
the Demised Premises, and Landlord shall have no obligation to furnish such
services to the Demised Premises, unless subsequently requested by Tenant.
Tenant shall pay for such services directly to the contractor employed by Tenant
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for such purpose, and Operating Expenses shall not include any expense of
furnishing such services to the Demised Premises.
16.3. EMERGENCY MAINTENANCE. Landlord shall use commercially reasonable
efforts to have its Building maintenance personnel, if any, or outside service
contractors, as appropriate, respond within a reasonable period of time to
Tenant's request to repair Building equipment or systems malfunctions which
Landlord is obligated to repair and such personnel shall promptly repair or
replace any such damaged equipment subject to availability of parts. Landlord
shall take the foregoing requirement into account in procuring warranties and
service contracts for the Building.
16.4. Tenant shall pay for all water, (including the cost to service,
repair and replace reverse osmosis, deionized and other treated water) gas,
heat, light, power, telephone and other utilities supplied to the Demised
Premises, together with any fees, surcharges and taxes thereon. If any such
utility is not separately metered to Tenant, Tenant shall pay a reasonable
proportion to be determined by Landlord of all charges jointly metered with
other premises as part of Tenant's Pro Rata Share of Operating Expenses, or in
the alternative, Landlord may, at its option, monitor the usage of such
utilities by Tenant and charge Tenant with the cost of purchasing, installing
and monitoring such metering equipment, which shall be paid by Tenant as
Additional Rent.
16.5. Landlord shall not be liable for, nor shall any eviction of Tenant
result from, the failure to furnish any such utility or service whether or not
such failure is caused by accident, breakage, repairs, strikes, lockouts or
other labor disturbances or labor disputes of any character, governmental
regulation, moratorium or other governmental action, inability despite the
exercise of reasonable diligence or by any other cause, other than the gross
negligence or wilful misconduct of Landlord. In the event of such failure (other
than a failure caused by the gross negligence or wilful misconduct of Landlord),
Tenant shall not be entitled to any abatement or reduction of Rent, nor be
relieved from the operation of any covenant or agreement of this Lease.
16.6. Intentionally Deleted.
16.7. Tenant shall pay directly to the applicable utility or service
provider, prior to delinquency, for any separately metered utilities and
services which may be furnished to Tenant or the Demised Premises during the
Term.
16.8. Intentionally Deleted.
16.9. INTERRUPTION OF SERVICES.
16.9.1 INTERRUPTION OF SERVICES -- TENANT'S RIGHT TO CURE. In the
event of a material interruption of services or utilities to be provided by
Landlord or to perform any repairs or maintenance required under this Lease and
such failure materially impairs Tenant's use and enjoyment of the Demised
Premises, then if such failure is not cured by Landlord within a reasonable
period after Landlord is first given notice of such failure by Tenant, Tenant
may deliver to Landlord and to Landlord's lender(s) written notice stating that
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Tenant intends to obtain such service or utility or to perform such repair or
maintenance. Prior to Tenant undertaking any action to cure or remedy such event
or condition, Tenant shall first allow Landlord and Landlord's lender(s) ten
(10) business days following receipt by Landlord and Landlord's lender(s) of
such written notice to cure or remedy the event or condition specified in
Tenant's notice; PROVIDED, HOWEVER, that if such event or condition cannot be
cured within the ten (10)-day business period, such period shall be extended for
a reasonable additional time, so long as Landlord or Landlord's lender(s)
commence to cure such event or condition within the ten (10)-business day period
and proceed diligently thereafter to effect such cure. If Landlord or Landlord's
lender(s) fail to cure or remedy such event or condition within such time
period, then Tenant may cure or remedy such event or condition. Tenant may
deliver an invoice to Landlord for such costs and expenses, and Landlord shall
pay to Tenant the amount of such invoice within thirty (30) days after delivery
by Tenant, and the amount of such expenses, when paid by Landlord, shall be
included within Operating Expenses, to the extent such costs and expenses are
not excluded from the definition of Operating Expenses herein. The phrase
"material interruption of services or utilities" shall mean the total or
substantial failure of the supply of electricity, gas, water or sewer service to
the Building or other Building systems (excluding telephone service).
16.9.2 MANNER IN WHICH TENANT MAY CURE. In the event Tenant seeks to
cure or remedy any event or condition which gives rise to Tenant's remedies set
forth in Section 16.9.1, Tenant shall (i) proceed in accordance with the
applicable provisions of this Lease and all applicable rules, laws and
governmental regulations; (ii) use only such contractors, suppliers, etc. as are
duly licensed in the State of Maryland and insured to effect such repairs and
who perform such repairs on first class buildings in the normal course of their
business; (iii) promptly effect such repairs in a good workmanlike quality and
in a first class manner: (iv) use new materials; and (v) indemnify and hold
Landlord and its lender(s) harmless from any and all liability, damage and
expense arising from injury to persons or personal property arising out of or
resulting from Tenant's exercise of such rights.
16.9.3 FIRE, CASUALTY. Notwithstanding the foregoing, the provisions
of this Section 16.9 shall not apply in the event the Demised Premises are
damaged by fire, casualty or other event described in Section 22.
16.9.4 AVAILABILITY OF OTHER RELIEF. Notwithstanding anything else
contained in this Section 16.9, Tenant shall in all events have the right to
seek declaratory and injunctive relief in the event Landlord breaches its
obligation to furnish services and utilities as, when, and in the manner
required hereunder.
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17. ALTERATIONS.
17.1. Other than Tenant's Work and subject to Section 17.11 hereof, Tenant
shall make no alterations, additions or improvements in or to the Demised
Premises without Landlord's prior written consent, which approval shall not be
unreasonably withheld, conditioned or delayed, and then only by architects,
contractors, suppliers or mechanics approved by Landlord in Landlord's
reasonable discretion. The foregoing notwithstanding, Tenant shall have the
right without Landlord's prior written consent or approval to make interior,
non-structural alterations, additions and/or improvements not materially and
adversely affecting the Building systems or the Common Areas and not, as to any
particular project, exceeding [*] in hard costs in the event that the subject
project is undertaken prior to the [*] of the Term Commencement Date and
exceeding [*] in hard costs in the event that the subject project is undertaken
thereafter; provided, however, that Tenant shall nevertheless furnish Landlord
with prior written notice thereof in accordance with Section 17.5 below and with
a copy of any preliminary plans and specifications, working drawings and final
"as-built" drawings obtained therefor. In all events Tenant shall deliver to
Landlord a copy of all documents, plans and drawings submitted to governmental
authorities in connection with any alteration, addition or improvement.
17.2. Unless permitted without the need to obtain Landlord's consent
pursuant to Section 17.11, Tenant agrees that there shall be no construction of
partitions or other obstructions which might interfere with free access to
mechanical installation or service facilities of the Building or interfere with
the moving of Landlord's equipment to or from the enclosures containing said
installations or facilities.
17.3. Tenant agrees that any work by Tenant shall be accomplished in such a
manner as to permit any fire sprinkler system and fire water supply lines to
remain fully operable at all times.
17.4. Tenant covenants and agrees that all work done by Tenant shall be
performed in full compliance with all laws, rules, orders, ordinances,
directives, regulations, and requirements of all governmental agencies, offices,
departments, bureaus and boards having jurisdiction, and in full compliance with
the rules, orders, directions, regulations, and requirements of any applicable
fire rating bureau. Tenant shall provide Landlord with "as-built" plans showing
any material change in the Demised Premises. Deliveries to Landlord pursuant to
this Section shall be subject to the terms of Section 45.13 hereof.
17.5. In seeking Landlord's approval, Tenant shall provide Landlord, at
least [*] in advance of any proposed construction, with plans, specifications,
bid proposals, work contracts and such other information concerning the nature
and cost of the alterations as may be reasonably requested by Landlord, and
shall, if reasonably required by Landlord, secure at Tenant's own cost and
expenses a completion and lien indemnity bond reasonably satisfactory to
Landlord for said work. Deliveries to Landlord pursuant to this Section shall be
subject to the terms of Section 45.13 hereof. Landlord shall be deemed to have
approved Tenant's submissions if Landlord fails to respond within [*] after
receipt thereof.
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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17.6. Intentionally Deleted.
17.7. Tenant shall repair any damage to the Demised Premises caused by
Tenant's removal of any property from the Demised Premises. During any such
restoration period, Tenant shall pay Rent to Landlord as provided herein as if
said space were otherwise occupied by Tenant.
17.8. Notwithstanding anything to the contrary set forth elsewhere in this
Lease, (a) Tenant shall have the right to remove items moved to the Demised
Premises from Tenant's premises at 12103 and 12031 Indian Creek Court,
Beltsville, Maryland, [*] provided, however, that Tenant shall repair any damage
caused by the removal thereof; (b) Tenant shall have the right to remove [*]
purchased and installed by Tenant with funds other than those provided by
Landlord as tenant improvement allowance or as a loan; provided, however, that
Tenant shall repair any damage caused by the removal thereof; (c) Tenant shall
not have the right to remove [*] and (d) Tenant shall not have the right to
remove [*] purchased or installed by Tenant with funds provided by Landlord as
tenant improvement allowance or as a loan. In any event, Tenant shall not be
permitted to remove (i) any part of the Building's systems, (ii) anything
purchased or paid for by Landlord directly or through the payment by Landlord to
Tenant of any construction or improvement allowance or loan, or (iii) anything
that could result in significant damage to the Building. If Tenant shall fail to
remove all of its effects from the Demised Premises prior to the expiration or
earlier termination of this Lease, then Landlord may, at its option, remove the
same in any manner that Landlord shall choose, or store said effects without
liability to Tenant for loss thereof or damage thereto, and Tenant agrees to pay
Landlord upon demand any expenses incurred by such removal and storage or
Landlord may, at its option, without notice, sell said property or any of the
same, at private sale and without legal process, for such price as Landlord may
obtain and apply the proceeds of such sale against any amounts due under this
Lease from Tenant to Landlord and against any expenses incident to the removal,
storage and sale of said personal property.
17.9. Intentionally Deleted.
17.10. Tenant shall pay to Landlord within 30 days after substantial
completion of any alterations, additions or improvements to the Demised Premises
(other than Tenant's Work pursuant to Exhibit "D" hereto) an amount equal to [*]
of all "hard" costs (but in no event more than [*] in respect of any individual
alteration, addition or improvement project) incurred by Tenant in connection
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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with such alterations, additions or improvements to cover Landlord's overhead
and expenses for plan review, coordination, scheduling and supervision thereof.
Tenant shall provide to Landlord promptly upon Landlord's request copies of all
bills, invoices, and statements covering the costs of such charges. Tenant shall
reimburse Landlord for any extra expense incurred by Landlord by reason of
faulty work done by Tenant or its contractors, or by reason of delays caused by
such work, or by reason of inadequate cleanup.
17.11. Landlord acknowledges that the conduct of Tenant's business and the
use of the Demised Premises in connection with Tenant's business are subject to
the rules and regulations of the FDA and other governmental agencies, offices,
departments, bureaus and boards. Notwithstanding anything to the contrary set
forth in this Lease, Tenant shall have the right to make alterations, additions
or improvements to the Demised Premises to the extent the same are required to
cause Tenant or the Demised Premises to be in compliance with all laws, rules,
orders, ordinances, directives, regulations, and requirements of all
governmental agencies, offices, departments, bureaus and boards having
jurisdiction over the same ("Legal Requirement"). Nothing in this Lease shall be
construed to require Tenant to violate any Legal Requirement and all obligations
of Tenant and all rights of Landlord hereunder shall be subject to any Legal
Requirement applicable to Tenant or the Demised Premises. Tenant shall deliver
to Landlord copies of any rule, regulation, correspondence or other document
evidencing Tenant's obligation to comply with a Legal Requirement materially
affecting Tenant's use of the Demised Premises. Notwithstanding the provisions
of the immediately preceding sentence, Tenant shall not be obligated to deliver
to Landlord copies of any written material that Tenant determines is
confidential, sensitive or secret. Tenant shall make such material available for
Landlord's review but Landlord shall not be permitted to copy the same.
17.11.1 Prior to initiating any alterations or improvements to the
Demised Premises pursuant to Section 17.11, Tenant shall deliver to Landlord
detailed plans showing such proposed alterations or improvements ("Improvement
Plans"). Landlord shall respond to Tenant's request to complete the alterations
within [*] of Landlord's receipt of the Improvement Plans. Landlord shall be
deemed to have approved the Improvement Plans if Landlord fails to respond
within such [*] period. Deliveries to Landlord pursuant to this Section shall be
subject to the terms of Section 45.13 hereof.
17.11.2 All alterations, if approved by Landlord, or other
alterations, additions or improvements not requiring Landlord's consent pursuant
to Section 17.11, shall be completed only by architects, contractors, suppliers
or mechanics approved by Landlord in Landlord's reasonable discretion.
17.12. Notwithstanding anything to the contrary contained in this Lease,
Landlord shall not require, as a condition to granting its consent to any
alteration, that Tenant make any monetary payment to Landlord (other than the
payment required pursuant to Section 17.10), or that Tenant deposit any sum of
money or provide other additional security to Landlord.
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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18. REPAIRS AND MAINTENANCE.
18.1. Landlord shall keep and maintain in good order and repair the
Building and Project structure and systems, including the foundation, roof and
roof covering materials, exterior walls, elevators, electrical, plumbing, fire
and safety systems, security systems, HVAC. systems, entrance, sidewalks,
lobbies, stairways, landscaped areas, parking facilities, lobbies and other
common areas and facilities of the Building (and the full cost thereof shall be
included as a part of Operating Expenses, unless expressly excluded pursuant to
Article 7). In addition, Landlord covenants with Tenant to proceed with due
diligence to remedy, as promptly as is feasible under the circumstances, any
material interruption of services. Landlord shall in no event be required to
make repairs to leasehold improvements made by Tenant, or another tenant. Tenant
agrees to deliver notice to Landlord, as promptly as is reasonable under the
circumstances, of any defective condition in or about the Demised Premises known
to Tenant which Landlord is required to repair hereunder; provided, however,
that Tenant's failure to report to Landlord any such defective condition shall
not relieve Landlord of Landlord's obligation to repair any such defective
condition promptly upon learning of the need for such repair. Notwithstanding
the foregoing, in the event of any of the foregoing maintenance or repairs are
required by reason of any act or omission of Tenant, Tenant shall pay to
Landlord the cost of such maintenance and repairs.
18.2. Except for services of Landlord, if any, required by Section 18.1,
Tenant shall at Tenant's sole cost and expense keep the Demised Premises and
every part thereof in good condition and repair, damage thereto from ordinary
wear and tear and damage by casualty excepted. Tenant shall, upon the expiration
or earlier termination of this Lease, surrender the Demised Premises to Landlord
in good condition, ordinary wear and tear and damage by casualty excepted.
18.3. Repairs under this Article 18 which are obligations of Landlord are
subject to allocation among Tenant and other tenants as Operating Expenses.
18.4. This Article 18 relates to repairs and maintenance arising in the
ordinary course of operation of the Building, the Project and any related
facilities. In the event of fire, earthquake, flood, hurricane or other act of
God, vandalism, war, or similar cause of damage or destruction, this Article 18
shall not be applicable and the provisions of Article 22 shall apply and
control.
19. LIENS.
19.1. Tenant shall keep the Demised Premises, the Building and the real
property upon which the Building is situated free from any liens arising out of
work performed, materials furnished or obligations incurred by Tenant. Tenant
further covenants and agrees that any mechanic's lien filed against the Demised
Premises or against the Building or the Project for work claimed to have been
done for, or materials claimed to have been furnished to Tenant, will be
discharged by Tenant, by bond or otherwise, within ten (10) days after the
filing thereof, at the sole cost and expense of Tenant.
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19.2. Should Tenant fail to discharge any lien of the nature described in
Section 19.1, Landlord may at Landlord's election pay such claim or post a bond
or otherwise provide security to eliminate the lien as a claim against title and
the cost thereof shall be immediately due from Tenant as Additional Rent.
19.3. In the event Tenant shall lease or finance the acquisition of office
equipment, furnishings, or other personal property which are Tenant's Property,
Tenant warrants that any Uniform Commercial Code Financing Statement executed by
Tenant will upon its face or by exhibit thereto indicate that such Financing
Statement is applicable only to such Tenant's Property located within the
Demised Premises. In no event shall the address of the Building be furnished on
the statement without qualifying language as to applicability of the lien only
to such Tenant's Property. Should any holder of a Financing Statement executed
by Tenant record or place of record a Financing Statement which appears to
constitute a lien against any interest of Landlord or against equipment owned by
Landlord which may be located other than within the Demised Premises, Tenant
shall within ten (10) days after filing such Financing Statement cause (i) a
copy of the Security Agreement or other documents to which Financing Statement
pertains to be furnished to Landlord to facilitate Landlord's being in a
position to show such lien is not applicable to Landlord's interest, and (ii)
cause Tenant's lender to amend any documents of record so as to clarify that
such lien is not applicable to any interest of Landlord in the Building or the
Project.
20. INDEMNIFICATION AND EXCULPATION.
20.1. Tenant hereby indemnifies and agrees to defend, hold and save
Landlord harmless from and against any and all demands, claims, liabilities,
losses, costs, expenses, actions, causes of action, damages or judgments, and
all reasonable expenses incurred in investigating or resisting the same
(including, without limitation, reasonable attorneys' fees, charges and
disbursements), for injury or death to person or injury to property occurring
within or about the Demised Premises, arising directly or indirectly out of
Tenant's, its employees', agents' or guests' use or occupancy of the Demised
Premises or a breach or default by Tenant in the performance of any of its
obligations hereunder, unless caused solely by the willful act or negligence of
the Landlord.
20.2. Landlord hereby indemnifies and agrees to defend, hold and save
Tenant harmless from and against any and all demands, claims, liabilities,
losses, costs, expenses, actions, causes of action, damages or judgments, and
all reasonable expenses incurred in investigating or resisting the same
(including, without limitation, reasonable attorneys' fees, charges and
disbursements), suffered by or claimed against Tenant, directly or indirectly,
based on or arising out of any act or omission of Landlord, its employees or
agents or any breach by Landlord of its obligations under this Lease.
20.3. Intentionally Deleted.
20.4. Landlord shall not be liable for any damages arising from any act,
omission or neglect of any other tenant in the Building or the Project or of any
other third party other than Landlord's agents, employees or contractors.
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20.5. Security devices and services, if any, while intended to deter crime
may not in given instances prevent theft or other criminal acts. Tenant
acknowledges and agrees that Landlord shall not be liable for injuries or losses
caused by criminal acts of third parties, and Tenant assumes the risk that a
criminal may circumvent any security device or service or that a security device
or service may malfunction. Tenant shall, at Tenant's cost, obtain insurance
coverage to the extent Tenant desires protection against such criminal acts.
21. INSURANCE - WAIVER OF SUBROGATION.
21.1. Landlord, as part of Operating Expenses, shall carry insurance upon
the Building, in an amount equal to full replacement cost (exclusive of the
costs of excavation, foundations, and footings, and without reference to
depreciation taken by Landlord upon its books or tax returns) or such lesser
coverage as Landlord may elect provided such coverage is not less than one
hundred percent (100%) of such full replacement cost or the amount of such
insurance Landlord's mortgage lender requires Landlord to maintain, providing
protection against any peril generally included within the classification "Fire
and Extended Coverage" together with insurance against sprinkler damage (if
applicable), vandalism and malicious mischief. Landlord, subject to availability
thereof and, as part of Operating Expenses, shall further insure against flood,
environmental hazard and earthquake, loss or failure of building equipment,
rental loss during the period of repair or rebuild, workmen's compensation
insurance and fidelity bonds for employees employed to perform services. All
insurance procured by Landlord shall be maintained with an insurance company
authorized to do business in the State of Maryland with a then current Alfred M.
Best Company, Inc. (or if it no longer exists, a comparable rating service)
general policy maker's rating of A or better and financial size category of
Class XII or higher. Landlord shall promptly deliver to Tenant written notice of
(i) any substitution of such company or companies, and (ii) any change in their
Alfred M. Best Company, Inc. general policy maker's rating of any such company
or substituted company. Landlord shall also maintain boiler and machinery
coverage in a type and amount normally maintained by prudent owners of buildings
managed and operated in a first class manner. The deductible on Landlord's All
Risk Coverage Insurance shall not exceed One Hundred Thousand Dollars
($100,000.00) or such greater amount as shall be commercially reasonable and as
may customarily be accepted from time to time by prudent owners of buildings
managed in a first class manner. Any insurance required to be carried by
Landlord under this Lease shall be noncontributory and primary over any policy
that might be carried by Tenant. Landlord shall provide certificates of
insurance on ACORD form 27 evidencing all insurance required under this Section
21.1.
21.2. Landlord, as part of Operating Expenses, shall further carry
commercial general liability insurance with a single loss limit of not less than
Ten Million Dollars ($10,000,000.00) for death or bodily injury, or property
damage with respect to the Project. Landlord's commercial general liability
insurance policy shall name Tenant as an additional insured. No insurance policy
required under this Lease to be obtained by Landlord shall be cancelable or
subject to reduction of coverage or other modification or cancellation except
after thirty (30) days prior written notice to Tenant from the insurer.
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21.3. Tenant at its own cost shall procure and continue in effect from the
Term Commencement Date and continuing throughout the Term (and occupancy by
Tenant, if any, after the expiration or earlier termination of this Lease)
commercial general liability insurance with limits of not less than Ten Million
Dollars ($10,000,000.00) per occurrence for combined single limit for death or
bodily injury and property damage with respect to the Demised Premises.
21.4. Tenant shall have the right, upon sixty (60) days' prior written
notice to Landlord, to obtain any insurance policy required under this Lease to
be obtained by Landlord, provided that Tenant names Landlord as an additional
insured with respect to such insurance policy or policies. In the event Tenant
obtains insurance pursuant to this Section 21.4, Landlord shall reimburse Tenant
for the cost of the premiums for such insurance within thirty (30) days after
delivery by Tenant of evidence of payment therefor, and Landlord shall then be
permitted to pass through the costs of such insurance premiums to tenants of the
Building or the Project as Operating Expenses.
21.5. The insurance required of Tenant in Section 21.3 shall name Landlord,
its officers, employees and agents, as an additional insured. Said insurance
shall be with companies having a rating of not less than policyholder rating of
A and financial category rating of at least Class XII in "Best's Insurance
Guide." Tenant shall obtain for Landlord from the insurance companies or cause
the insurance companies to furnish certificates of coverage to Landlord. No such
policy shall be cancelable or subject to reduction of coverage or other
modification or cancellation except after thirty (30) days prior written notice
to Landlord from the insurer. All such policies shall be written as primary
policies, not contributing with and not in excess of the coverage which Landlord
may carry. Tenant's policy may be a "blanket policy" which specifically provides
that the amount of insurance shall not be prejudiced by other losses covered by
the policy. Tenant shall, at least twenty (20) days prior to the expiration of
such policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and require Tenant
to pay for the additional cost of such insurance as Additional Rent.
21.6. Tenant assumes the risk of damage to any fixtures, goods, inventory,
merchandise, equipment, and leasehold improvements, and Landlord shall not be
liable for injury to Tenant's business or any loss of income therefrom relative
to such damage all as more particularly heretofore set forth within this Lease.
Tenant at Tenant's cost shall carry such insurance as Tenant desires for
Tenant's protection with respect to personal property of Tenant or business
interruption.
21.7. In each instance where insurance is to name Landlord as an additional
insured, Tenant shall upon written request of Landlord also designate and
furnish certificates so evidencing Landlord as an additional insured to (i) any
lender of Landlord holding a security interest in the Building or real property
upon which the Building is situated, and/or (ii) the landlord under any lease
wherein Landlord is tenant of the real property whereupon the Building is
located if the interest of Landlord is or shall become that of a tenant under a
ground lease rather than that of a fee owner, and/or (iii) any management
company retained by Landlord to manage the Building or the Project.
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21.8. Landlord and Tenant each hereby waive any and all rights of recovery
against the other or against the officers, directors, employees, agents, and
representatives of the other, on account of loss or damage occasioned to such
waiving party or its property or the property of others under its control to the
extent that such loss or damage is insured against under any fire and extended
coverage insurance policy which either may have in force at the time of such
loss or damage. Such waivers shall continue as long as their respective insurers
so permit. Any termination of such a waiver shall be by written notice of
circumstances as hereinafter set forth. Landlord and Tenant upon obtaining the
policies of insurance required or permitted under this Lease shall give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease. If such policies shall not be obtainable
with such waiver or shall be so obtainable only at a premium over that
chargeable without such waiver, the party seeking such policy shall notify the
other thereof, and the latter shall have ten (10) days thereafter to either (i)
procure such insurance with companies reasonably satisfactory to the other party
or (ii) agree to pay such additional premium (in the Tenant's case, in the
proportion which the area of the Demised Premises bears to the insured area). If
neither (i) nor (ii) are done, this Section 21.8 shall have no effect during
such time as such policies shall not be obtainable or the party in whose favor a
waiver of subrogation is desired refuses to pay the additional premium. If such
policies shall at any time be unobtainable, but shall be subsequently
obtainable, neither party shall be subsequently liable for a failure to obtain
such insurance until a reasonable time after notification thereof by the other
party. If the release of either Landlord or Tenant, as set forth in the first
sentence of this Section 21.8 shall contravene any law with respect to
exculpatory agreements, the liability of the party in question shall be deemed
not released but shall be secondary to the other's insurer.
21.9. Landlord may require insurance policy limits to be raised to conform
with requirements of Landlord's lender and/or to bring coverage limits to levels
then being required of new tenants within the Project.
22. DAMAGE OR DESTRUCTION.
22.1. If the Demised Premises or any part thereof shall be damaged by fire,
casualty or any other cause, Tenant shall give prompt notice thereof to
Landlord.
22.2. If the Building or Demised Premises are damaged by fire, casualty or
other cause thereby rendering the Demised Premises totally or partially
inaccessible or untenantable for Tenant's purposes, Landlord shall provide
notice to Tenant within [*] after the date of such damage of Landlord's
reasonable estimate of the time required to restore the Demised Premises
("Restoration Notice"). If less than [*] of the insurable value of the Building
was destroyed by such damage and Landlord sets forth in the Restoration Notice
that the Demised Premises can be restored within [*] from the date of the
damage, Landlord, at Landlord's sole expense (which shall not be passed through
as an Operating Expense (except to the extent of any insurance deductible amount
paid by Landlord that is a capital expenditure), shall repair such damage and
this Lease shall continue in full force and effect.
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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22.3. If more than [*]of the insurable value of the Building is destroyed
by fire, casualty or any other cause and Landlord sets forth in the Restoration
Notice that the Demised Premises can not be repaired within [*] from the date of
the damage, Landlord shall have the right to terminate this Lease by delivering
notice of termination to Tenant, and this Lease shall be terminated effective
[*] after delivery of such notice.
22.4. Notwithstanding anything to the contrary in this Article 22, if the
Demised Premises is damaged and (i) [*] or more of the space then used by Tenant
exclusively for office purposes, or (ii) [*] or more of the space then used by
Tenant for research and development and production purposes or (iii) [*] or more
of the space then used by Tenant for warehouse purposes, is thereby rendered
untenantable or not reasonably usable by Tenant for its purposes, or if the
Building shall be so damaged that Tenant is deprived of reasonable access to or
reasonable use of the appropriate percentage of any of (i), (ii) or (iii) above,
and Landlord's Restoration Notice indicates that repair of the Demised Premises
will require more than [*] from the date of such damage, then Tenant shall have
the right to terminate this Lease by giving notice to Landlord not later than
[*] following Tenant's receipt of the Restoration Notice. In addition, if the
restoration is not actually substantially complete by the estimated date of
completion set forth in the Restoration Notice, Tenant shall have the right to
terminate this Lease by giving notice to Landlord not later than [*] after such
estimated date of completion. If Tenant delivers to Landlord a termination
notice pursuant to the terms of the preceding two sentences, this Lease shall be
deemed to have terminated as of the date of the receipt by Landlord of the
termination notice.
22.5. Landlord shall give written notice to Tenant of its election not to
repair, reconstruct or restore the Building or Project pursuant to the terms of
Section 22.3 within the [*] period following the date of damage or destruction.
22.6. Upon any termination of this Lease under any of the provisions of
this Article, the parties shall be released thereby without further obligation
to the other from the date possession of the Demised Premises is surrendered to
the Landlord except for items which have theretofore occurred.
22.7. If the Demised Premises or any portion thereof is rendered
untenantable or inaccessible by reason of fire, casualty or other similar cause,
then Rent shall abate for such period with respect to such untenantable or
inaccessible portion of the Demised Premises, PROVIDED, HOWEVER, that, for
purposes of determining the amount of such abatement, if such untenantable or
inaccessible portion of the Demised Premises shall be (i) space then used by
Tenant for research and development or production purposes, the Basic Annual
Rent per square foot with respect to such space shall be deemed to be [*] per
square foot, (ii) space then used by Tenant for office purposes, the Basic
Annual Rent per square foot shall be deemed to be [*] per square foot and (iii)
space then used by Tenant for warehouse purposes, the Basic Annual Rent per
square foot shall be deemed to be [*] per square foot. Notwithstanding the
foregoing, if Tenant vacates portions of the Demised Premises not rendered
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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untenantable or inaccessible by such damage, then Rent shall abate with respect
to such portion so vacated, but only so long as, and to the extent, Landlord
recovers insurance proceeds pursuant to its rental interruption insurance policy
with respect to the same.
22.8. Notwithstanding anything to the contrary contained in this Article,
should Landlord be delayed or prevented from completing the repair or
restoration of the damage to the Demised Premises after the occurrence of such
damage or destruction by reason of acts of God or war, governmental
restrictions, inability to procure the necessary labor or materials, strikes, or
other uses beyond the control of Landlord, the time for Landlord to commence or
complete repairs shall be extended, provided, at the election of Landlord,
Landlord shall be relieved of its obligation to make such repairs or restoration
and Tenant shall be released from all obligations under this Lease as of the end
of one year from date of destruction, if repairs required to provide Tenant use
of the Demised Premises are not then substantially complete.
22.9. If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall be obligated to make repairs or restoration only of
those portions of the Building and the Demised Premises which were originally
provided at Landlord's expense or were paid for out of the Tenant Improvement
Allowance. The repair and restoration of Tenant's Property shall be the
obligation of Tenant.
22.10. Notwithstanding anything set forth in this Article 22 to the
contrary, in the event that, during the final [*] of the Term, if the Demised
Premises is damaged and (i) [*] or more of the space then used by Tenant
exclusively for office purposes, (ii) [*] or more of the space then used by
Tenant for research and development and production purposes or (iii) [*] or more
of the space then used by Tenant for warehouse purposes, is thereby rendered
untenantable or not reasonably usable by Tenant for its purposes, or if the
Building shall be so damaged that Tenant is deprived of reasonable access to or
reasonable use of the appropriate percentage of any of (i), (ii) or (iii) above
for a period of at least [*] Tenant may, by notice to Landlord within [*] after
the occurrence of such damage, elect to (x) terminate this Lease, (y) extend the
term of this Lease pursuant to Section 42, or (z) purchase the Project pursuant
to Section 39. If Tenant elects to terminate this Lease, this Lease shall
terminate on the date of Tenant's notice. If Tenant elects to extend the term of
this Lease, the terms of Sections 22.2 and 22.3 shall be applicable. If Tenant
elects to purchase the Project, Landlord shall have no obligation to repair the
damage and Landlord, at the closing of the sale of the Project, shall assign to
Tenant all of the casualty insurance proceeds paid and payable in connection
with such damage. If Tenant fails to make any election within the aforesaid [*]
period, Landlord may terminate this Lease by notice to Tenant within [*] after
the expiration of the first [*] period following the occurrence of such damage.
23. EMINENT DOMAIN.
23.1. Landlord shall give Tenant notice of the commencement of any
condemnation or eminent domain proceeding affecting the Demised Premises
promptly following Landlord's obtaining knowledge thereof. In the event the
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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whole of the Demised Premises, or such part thereof as shall, in Tenant's
reasonable determination, substantially interfere with Tenant's use and
occupancy of the Demised Premises for its purposes, shall be taken for any
public or quasi-public purpose by any lawful power or authority by exercise of
the right of appropriation, condemnation or eminent domain, or sold to prevent
such taking, Tenant or Landlord may terminate this Lease effective as of the
date possession is required to be surrendered to said authority.
23.2. In the event of a partial taking of the Building, or of drives,
walkways, and parking areas serving the Building for any public or quasi-public
purpose by any lawful power or authority by exercise of right of appropriation,
condemnation, or eminent domain, or sold to prevent such taking, then without
regard as to whether any portion of the Demised Premises occupied by Tenant was
so taken, Landlord may elect to terminate this Lease as of such taking if such
taking is, in the reasonable discretion of Landlord, of a material nature such
as to make it uneconomical to continue use of the unappropriated portion for the
purposes set forth in Section 2.1.9.
23.3. Tenant shall be entitled to any award or other compensation which is
specifically awarded as compensation for the taking of Tenant's Property and for
the costs of Tenant moving to a new location. Except as before set forth, any
award for such taking shall belong to Landlord.
23.4. If upon any taking of the nature described in this Article 23 this
Lease continues in effect, the Landlord shall promptly proceed to restore the
Demised Premises, Building and the Project to substantially their same condition
prior to such partial taking. To the extent such restoration is feasible (as
determined by Landlord in its sole discretion), the Rent shall be abated
proportionately based upon the extent to which Tenant's use of the Demised
Premises has decreased on the basis of the percentage of the rental value of the
Demised Premises after such taking and the rental value of the Demised Premises
prior to such taking and taking into account the different rental values for the
laboratory, warehouse and office portions of the Demised Premises.
24. DEFAULTS AND REMEDIES.
24.1. Late payment by Tenant to Landlord of Rent and other sums due will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Such costs
include, but are not limited to, processing and accounting charges and late
charges which may be imposed on Landlord by the terms of any mortgage or trust
deed covering the Demised Premises. Therefore, if any installment of Rent due
from Tenant is not received by Landlord within [*] after the date such payment
is due, Tenant shall pay to Landlord an additional sum of [*] of the overdue
Rent as a late charge, PROVIDED, HOWEVER, that on up to [*] occasions in any [*]
period, unless Landlord shall have given written notice of such failure to
Tenant and Tenant shall not have made the payment within [*] after such written
notice, Tenant shall not be obligated to pay such late charge. The parties agree
that this late charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of late payment by Tenant. In addition to the
late charge, Rent not paid when due shall bear interest from the 5th day after
the due date until paid at the lesser of (i) [*] per annum or (ii) the maximum
rate permitted by law.
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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24.2. No payment by Tenant or receipt by Landlord of a lesser amount than
the Rent payment herein stipulated shall be deemed to be other than on account
of the Rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or pursue any other remedy provided.
If at any time a dispute shall arise as to any amount or sum of money to be paid
by Tenant to Landlord, Tenant shall have the right to make payment "under
protest" and such payment shall not be regarded as a voluntary payment, and
there shall survive the right on the part of Tenant to institute suit for
recovery of the payment paid under protest.
24.3. If Tenant fails to pay any sum of money (other than Basic Annual
Rent) required to be paid by it hereunder, or shall fail to perform any other
act on its part to be performed hereunder, Landlord may, without waiving or
releasing Tenant from any obligations of Tenant, but shall not be obligated to,
make such payment or perform such act if Tenant does not cure such failure to
pay within [*] after delivery of written notice by Landlord. All sums so paid or
incurred by Landlord, together with interest thereon, from the date such sums
were paid or incurred, at the annual rate equal to [*] per annum or highest rate
permitted by law, whichever is less, shall be payable to Landlord on demand as
Additional Rent.
24.4. The occurrence of any one or more of the following events shall
constitute a "DEFAULT" hereunder by Tenant:
24.4.1 The abandonment or vacation of the Demised Premises by Tenant,
unless Tenant shall continue to pay Rent and perform all of its other
obligations in accordance with the terms of this Lease;
24.4.2 The failure by Tenant to make any payment of Rent as and when
due, and such failure continues for more than [*] following receipt by Tenant of
written notice of such failure (provided, however, that no such notice shall be
required in the event that Landlord has given [*] such notices to Tenant within
the preceding 365 day period);
24.4.3 The failure by Tenant to observe or perform any obligation or
covenant contained herein (other than described in Section 24.4.1 and 24.4.2) to
be performed by Tenant, where such failure shall continue for a period of [*]
after written notice thereof from Landlord to Tenant. Such notice shall be in
lieu of, and not in addition to, any notice required under Maryland law;
provided that if the nature of Tenant's Default is such that it reasonably
requires more than [*] to cure, then Tenant shall not be deemed to be in Default
if Tenant shall commence such cure within said [*] period and thereafter
diligently prosecutes the same to completion;
24.4.4 Tenant makes an assignment for the benefit of creditors;
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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24.4.5 A receiver, trustee or custodian is appointed to, or does, take
title, possession or control of all, or substantially all, of Tenant's assets;
24.4.6 Tenant files a voluntary petition under the Bankruptcy Code (or
any similar law) or an order for relief is entered against Tenant pursuant to a
voluntary or involuntary proceeding commenced under any chapter of the
Bankruptcy Code;
24.4.7 Any involuntary petition is filed against the Tenant under any
chapter of the Bankruptcy Code and is not dismissed within ninety (90) days; or
24.4.8 Tenant's interest in this Lease is attached, executed upon, or
otherwise judicially seized and such action is not released within ninety (90)
days of the action.
Notices given under this Section 24.4 shall specify the alleged Default and
shall demand that Tenant perform the provisions of this Lease or pay the Rent
that is in arrears, as the case may be, within the applicable period of time, or
quit the Demised Premises. No such notice shall be deemed a forfeiture or a
termination of this Lease unless Landlord elects otherwise in such notice.
24.5. In the event of a Default by Tenant, and at any time thereafter, with
or without notice or demand and without limiting Landlord in the exercise of any
right or remedy which Landlord may have, Landlord shall be entitled to terminate
Tenant's right to possession of the Demised Premises by any lawful means, in
which case this Lease shall terminate and Tenant shall immediately surrender
possession of the Demised Premises to Landlord. In such event, Landlord shall
have the immediate right to re-enter and remove all persons and property, and
such property may be removed and stored in a public warehouse or elsewhere at
the cost of, and for the account of Tenant, all without service of notice or
resort to legal process and without being deemed guilty of trespass, or becoming
liable for any loss or damage which may be occasioned thereby. In the event that
Landlord shall elect to so terminate this Lease, then Landlord shall be entitled
to recover from Tenant all damages incurred by Landlord by reason of Tenant's
default, including:
24.5.1 The worth at the time of award of any unpaid Rent which had
been earned at the time of such termination;
24.5.2 The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds that portion of such rental loss which Tenant proves could have
been reasonably avoided; plus
24.5.3 The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss which Tenant proves could have been or can be
reasonably avoided; plus
24.5.4 Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligation under
this Lease or which in the ordinary course of things would be likely to result
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therefrom, including, but not limited to, the cost of restoring the Demised
Premises to the condition required under the terms of this Lease.
As used in Sections 24.5.1 and 24.5.2 above, "worth at the time of award" shall
mean an award of money damages by a court of competent jurisdiction and shall be
computed by allowing interest at the rate specified in the last sentence of
Section 24.1. As used in Section 24.5.3, "worth at the time of award" shall be
computed by taking the present value of such amount, by using the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award plus [*]
percentage points.
24.6. If Landlord does not elect to terminate this Lease as provided in
this Section, then Landlord may, from time to time, recover all Rent as it
becomes due under this Lease. At any time thereafter, Landlord may elect to
terminate this Lease and to recover damage to which Landlord is entitled.
24.7. In the event Landlord elects to terminate this Lease and relet the
Demised Premises, it may execute any new lease in its own name. Tenant hereunder
shall have no right or authority whatsoever to collect any Rent from such
tenant. The proceeds of any such reletting shall be applied as follows:
FIRST, to the payment of any indebtedness other than Rent due
hereunder from Tenant to Landlord pursuant to this Lease, including, but
not limited to, storage charges or brokerage commissions owing from Tenant
to Landlord as the result of such reletting;
SECOND, to the payment of the costs and expenses of reletting the
Demised Premises, including alterations and repairs which Landlord deems
reasonably necessary and advisable and reasonable attorneys' fees, charges
and disbursements incurred by Landlord in connection with the retaking of
the Demised Premises and such reletting;
THIRD, to the payment of Rent and other charges due and unpaid
hereunder; and
FOURTH, to the payment of future Rent and other damages payable by
Tenant under this Lease.
24.8. All rights, options, and remedies of Landlord contained in this Lease
shall be construed and held to be nonexclusive and cumulative. Landlord shall
have the right to pursue any one or all of such rights, options and remedies or
any other remedy or relief which may be provided by law, whether or not stated
in this Lease. No waiver of any default of Tenant hereunder shall be implied
from any acceptance by Landlord of any Rent or other payments due hereunder or
any omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver. Landlord hereby waives all statutory and
common law rights of distraint available under applicable law.
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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24.9. Termination by Landlord of (i) this Lease or (ii) Tenant's right to
possession of the Demised Premises shall not relieve Tenant from any liability
to Landlord which has theretofore accrued or shall arise based upon events which
occurred prior to the last to occur of (y) the date of Lease termination or (z)
the date possession of Demised Premises is surrendered.
24.10. The occurrence of any of the following shall constitute a "Landlord
Default" hereunder:
24.10.1 Landlord shall have failed to pay when due any sum owing from
Landlord to Tenant hereunder, and such failure shall continue for a period of
more than [*] after Tenant delivers notice to Landlord of such failure; or
24.10.2 Except as otherwise specifically excused as provided in this
Lease, the neglect or failure of Landlord to perform or observe any of the
terms, covenants or conditions contained in this Lease on Landlord's part to be
performed or observed which is not remedied by Landlord within [*] after Tenant
shall have given to Landlord notice specifying such neglect or failure, provided
that, for any neglect or failure which cannot reasonably be cured within such
[*], the cure period therefor shall be extended for such time as is reasonably
necessary to effect a cure of such neglect or failure, on the conditions that
Landlord immediately commences and diligently pursues such cure to completion.
24.10.3 In the event of any Landlord Default, Tenant shall, in
addition to any other remedy available hereunder or at law or in equity, have
the right of injunction and the right to invoke any remedy allowed at law or in
equity, including specific performance, injunctive relief, reasonable attorneys'
fees and damages arising from all damages incurred by Tenant as a result of such
Landlord Default (including costs of mitigation), and mention in this Lease of
any particular remedy shall not preclude Tenant from any other remedy at law or
in equity. Tenant shall not have the right to offset against or deduct from
installments of Rent any amounts allegedly owed to Tenant pursuant to any claim
of Tenant against Landlord.
24.11. In the event of any Landlord Default, Tenant will give notice by
registered or certified mail to any beneficiary of a deed of trust or mortgagee
of a mortgage covering the Demised Premises and to any landlord of any lease of
any building in which Demised Premises is located whose address shall have been
furnished, and Tenant shall offer such beneficiary, mortgagee and/or landlord a
reasonable opportunity to cure the default, including time to obtain possession
of the Building by power of sale or a judicial action if such should prove
necessary to effect a cure, provided that Landlord shall have furnished to
Tenant in writing the names and addresses of all such persons who are to receive
such notices.
25. ASSIGNMENT OR SUBLETTING.
25.1. Except as hereinafter provided, Tenant shall not, either voluntarily
or by operation of law, directly or indirectly, sell, hypothecate, assign,
pledge, encumber or otherwise transfer this Lease, or sublet the Demised
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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Premises or any part thereof, or permit or suffer the Demised Premises or any
part thereof to be used or occupied as work space, storage space, mailing
privileges, concession or otherwise by anyone other than Tenant or Tenant's
employees, without the prior written consent of Landlord in each instance, which
consent shall not be unreasonably withheld, conditioned or delayed.
25.2. In the event Tenant desires to assign, sublease, hypothecate or
otherwise transfer this Lease or sublet the Demised Premises, then at least [*],
but not more than [*], prior to the date when Tenant desires the assignment or
sublease to be effective (the "ASSIGNMENT DATE"), Tenant shall give Landlord a
notice (the "ASSIGNMENT NOTICE") containing information (including references)
concerning the character of the proposed assignee or sublessee, the Assignment
Date, any ownership or commercial relationship between Tenant and the proposed
assignee or sublessee, and the consideration and all other material terms and
conditions of the proposed assignment or sublease along with such other
information as Landlord may reasonably require, all in such detail as Landlord
shall reasonably require.
25.3. Landlord in making its determination as to whether consent should be
given to a proposed assignment or sublease, shall give consideration to the
financial strength of such successor (notwithstanding the assignor remaining
liable for Tenant's performance) and any change in use which such successor
proposes to make of the Demised Premises. In no event shall Landlord be deemed
to be unreasonable for declining to consent to transfer to a successor of poor
reputation, lacking financial qualifications, or seeking a change in use of the
Demised Premises.
25.4. As conditions precedent to Landlord considering a request by Tenant
to Tenant's transfer of rights or subletting of the Demised Premises, Landlord
may require any or all of the following:
25.4.1 Tenant shall remain fully liable under this Lease during the
unexpired Term;
25.4.2 Tenant shall reimburse Landlord for Landlord's actual costs and
expenses, including, without limitation, reasonable attorneys' fees, charges and
disbursements incurred in connection with the review, processing and
documentation of such request;
25.4.3 Written agreement from any sublessee that in the event Landlord
gives such third party notice that Tenant is in Default under this Lease, such
third party shall, during the continuance of such Default, make all payments
otherwise due Tenant directly to Landlord, which payments will be received by
Landlord without any liability on Landlord except to credit such payment against
those due under the Lease, and any such third party shall agree to attorn to
Landlord or its successors and assigns should this Lease be terminated for any
reason;
25.4.4 Any such transfer and consent shall be effected on forms
reasonably approved by Landlord;
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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25.4.5 Tenant shall not then be in Default hereunder;
25.4.6 Such third party's proposed use of the Demised Premises shall
be substantially the same as Tenant's use;
25.4.7 Any agreement pertaining to Tenant's transfer of this Lease or
subletting of any portion of the Demised Premises shall be in a form reasonably
acceptable to Landlord, and Landlord shall not be bound by any modification or
amendment made without Landlord's prior written consent, which may be withheld
in Landlord's reasonable discretion;
25.4.8 Tenant shall deliver to Landlord one original executed copy of
any and all written instruments evidencing or relating to Tenant's transfer of
rights or subletting of the Demised Premises; and
25.4.9 A list of Hazardous Materials, certified by the proposed
sublessee to be true and correct, which the proposed sublessee intends to use or
store in the Demised Premises. Additionally, Tenant shall deliver to Landlord,
on or before the date any proposed sublessee takes occupancy of the Demised
Premises, all of the items relating to Hazardous Materials of such proposed
sublessee as described in Article 41 below.
25.4.10 Evidence with respect to the business experience, reputation
and financial responsibility of the third party concerned.
25.5. Any sale, assignment, hypothecation or transfer of this Lease or
subletting of the Demised Premises that is not in compliance with the provisions
of this Article 25 shall be void.
25.6. The consent by Landlord to an assignment or subletting shall not
relieve Tenant or any assignees of this Lease or sublessee of the Demised
Premises from obtaining the consent of Landlord to any further assignment or
subletting nor shall it release Tenant or any assignee or sublessee of Tenant
from full and primary liability under this Lease.
25.7. In the event of any subletting, Tenant shall remain fully and
primarily liable for the payment of all Rent and other sums due, or to become
due hereunder, and for the full performance of all other terms, conditions, and
covenants to be kept and performed by Tenant. The acceptance of Rent or any
other sum due hereunder, or the acceptance of performance of any other term,
covenant, or condition thereof, from any other person or entity shall not be
deemed to be a waiver of any of the provisions of this Lease or a consent to any
subletting of the Demised Premises.
25.8. Notwithstanding anything to the contrary set forth in this Article
25, Tenant shall have the right, upon prior written notice to Landlord in each
instance but without the necessity of obtaining Landlord's consent, to (i)
assign or otherwise transfer this Lease or any of its rights hereunder, (ii)
sublet the Demised Premises or any part thereof, (iii) permit the use of the
Demised Premises or any part thereof by any persons other than Tenant or its
employees, agents or invitees, and (iv) permit the assignment or other transfer
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of this Lease or any of Tenant's rights hereunder by operation of law, in each
case if the proposed assignee or subtenant is an Affiliate or Successor Entity
of Tenant. "Affiliate" shall mean any entity which, directly or indirectly,
controls or is controlled by or is under common control with Tenant. For
purposes of the definition of "Affiliate," the word "Control" (including
"Controlling", "Controlled by" and "under common Control with") shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policy of a particular entity, whether through
the ownership of voting securities, by contract or otherwise. A "Successor
Entity" shall mean (x) an entity into which or with which Tenant, its successors
or assigns, is merged, amalgamated or consolidated, or (y) an entity acquiring
this Lease for the term hereby demised, the good will and all or substantially
all of the other property and assets of Tenant, its successors or assigns, and
assuming all or substantially all of the liabilities of Tenant, its successors
and assigns.
25.9. Notwithstanding anything to the contrary in this Lease, Tenant shall
have the right, without obtaining the consent of Landlord, to permit
office-sharing arrangements pursuant to which clients or subcontractors of
Tenant may use space in the Premises.
26. ATTORNEYS' FEES AND COSTS.
26.1. If either party commences an action against the other party arising
out of or in connection with this Lease, the prevailing party shall be entitled
to have and recover from the non-prevailing party reasonable attorneys' fees,
charges and disbursements and costs of suit.
27. BANKRUPTCY.
27.1. In the event a debtor, trustee, or debtor in possession under the
Bankruptcy Code, or other person with similar rights, duties and powers under
any other law, proposes to cure any default under this Lease or to assume or
assign this Lease, and is obliged to provide adequate assurances to Landlord
that (i) a default will be cured, (ii) Landlord will be compensated for its
damages arising from any breach of this Lease, or (iii) future performance under
this Lease will occur, then adequate assurances shall include any or all of the
following:
27.1.1 Those acts specified in the Bankruptcy Code or other law as
included within the meaning of adequate assurance, even if this Lease does not
concern a shopping center or other facility described in such laws;
27.1.2 A prompt cash payment to compensate Landlord for any monetary
defaults or actual damages arising directly from a breach of this Lease;
27.1.3 A cash deposit in an amount at least equal to the Security
Deposit as referenced in Section 2.1.8.
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27.1.4 The assumption or assignment of all of Tenant's interest and
obligations under this Lease.
28. ESTOPPEL CERTIFICATE.
Tenant shall within [*] of written notice from Landlord, execute,
acknowledge and deliver a statement in writing substantially in the form
attached to this Lease as EXHIBIT "F" with the blanks filled in, and on any
other form reasonably requested by a proposed lender or purchaser, (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this Lease
as so modified is in full force and effect) and the dates to which the rental
and other charges are paid in advanced, if any, (ii) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed and (iii) setting
forth such further information with respect to this Lease or the Demised
Premises as may reasonably be requested thereon. Any such statement may be
relied upon by any prospective purchaser or encumbrancer of all or any portion
of the real property of which the Demised Premises are a part. Tenant's failure
to deliver such statement within such time shall, at the option of Landlord,
constitute a Default under this Lease, and, in any event, shall be conclusive
upon Tenant that the Lease is in full force and effect and without modification
except as may be represented by Landlord in any certificate prepared by Landlord
and delivered to Tenant for execution.
29. JOINT AND SEVERAL OBLIGATIONS
29.1. If more than one person or entity executes this Lease as Tenant,
29.1.1 Each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant, and
29.1.2 The term "TENANT" as used in this Lease shall mean and include
each of them jointly and severally. The act of, notice from, notice to, refund
to, or the signature of, any one or more of them, with respect to the tenancy of
this Lease, including, but not limited to, any renewal, extension, expiration,
termination or modification of this Lease, shall be binding upon each and all of
the persons executing this Lease as Tenant with the same force and effect as if
each and all of them had so acted, so given or received such notice or refund or
so signed.
30. DEFINITION OF LANDLORD; LIMITATION OF LANDLORD'S LIABILITY.
30.1. The term "LANDLORD" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only Landlord or the successor-in-interest of Landlord under this Lease
at the time in question. In the event of any transfer, assignment or the
conveyance of Landlord's fee title or leasehold interest, the landlord herein
named (and in case of any subsequent transfers or conveyances, the then grantor)
shall be automatically freed and relieved from, and after the date of such
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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transfer, assignment or conveyance, of all liability for the performance of any
covenants or obligations contained in this Lease thereafter to be performed by
Landlord and, without further agreement, the transferee of such title or
leasehold shall be deemed to have assumed and agreed to observe and perform any
and all obligations of Landlord hereunder during its ownership or ground lease
of the Demised Premises. Subject to Tenant's rights under Section 43 hereof,
Landlord may transfer its interest in the Demised Premises or this Lease without
the consent of Tenant and such transfer or subsequent transfer shall not be
deemed a violation on the part of Landlord or the then grantor of any of the
terms or conditions of this Lease. If on the date of transfer, assignment or
conveyance of Landlord's fee title interest in the Project all or any portion of
the Tenant Improvement Allowance (as such term is defined in EXHIBIT "D") or the
Loan Amount has not been disbursed by Landlord to Tenant, Landlord shall, on the
date of such transfer, deposit such undisbursed Tenant Improvement Allowance and
Loan Amount with an escrow agent reasonably satisfactory to Tenant which escrow
agent shall enter in to an escrow agreement with Tenant and the
successor-in-interest to Landlord pursuant to which the escrowed funds shall be
disbursed to Tenant in accordance with and subject to the terms of EXHIBIT "D"
and the Loan Agreement which shall be incorporated into the escrow agreement by
reference.
30.2. If Landlord is in default of this Lease, and as a consequence, Tenant
recovers a money judgment against Landlord, such judgment shall be satisfied
only out of the proceeds of sale received on execution of the judgment and levy
against the right, title and interest of Landlord in the Building and Project,
and out of rent or other income from such real property receivable by Landlord
or out of the consideration received by Landlord from the sale, financing,
refinancing, or other disposition of all or any part of Landlord's right, title,
and interest in the Building and Project.
30.3. Landlord shall not be personally liable for any deficiency. If
Landlord is a partnership or joint venture, the partners of such partnership
shall not be personally liable and no partner of Landlord shall be sued or named
as a party in any suit or action or service of process be made against any
partner of Landlord except as may be necessary to secure jurisdiction of the
partnership or joint venture. If Landlord is a corporation, the shareholders,
directors, officers, employees, and/or agents of such corporation shall not be
personally liable and no shareholder, director, officer, employee or agent of
Landlord shall be sued or named as a party in any suit or action or service of
process made against any shareholder, director, officer, employee or agent of
Landlord. No partner, shareholder, director, employee, or agent of Landlord
shall be required to answer or otherwise plead to any service of process and no
judgment will be taken or writ of execution levied against any partner,
shareholder, director, employee or agent of Landlord. Nothing contained in this
Section 30.3 shall restrict Tenant from commencing a legal action against any
person described in this Section 30.3 seeking to obtain a return of any amounts
distributed to or otherwise received by such person from and after the date that
Tenant first made a written demand upon Landlord for such amounts. The
immediately preceding sentence shall not be applicable to shareholders or other
owners (in such capacity) so long as the stock of Landlord is publicly traded.
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30.4. Each of the covenants and agreements of this Article 30 shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or by common law and shall survive the termination of this
Lease.
31. PROJECT CONTROL BY LANDLORD.
31.1. Landlord reserves full control over the Building and the Project to
the extent not inconsistent with Tenant's enjoyment of the Demised Premises, the
obligations of Landlord to Tenant under the terms of this Lease, or Section 31.4
below. This reservation includes but is not limited to, subject to Tenant's
rights under this Lease, the right of Landlord to expand the Project, and the
right to grant easements and licenses to others. Landlord's reservation of
rights does not include the rights to subdivide the Project or the right to
convert the Building to condominium units.
31.2. Tenant shall, should Landlord so request, promptly join with Landlord
in execution of such documents as may be reasonably appropriate to assist
Landlord to implement any such action, provided that Tenant need not execute any
document which is of nature wherein liability is created in Tenant or, if by
reason of the terms of such document, Tenant will be deprived of the quiet
enjoyment and use of the Demised Premises as granted by this Lease.
31.3. Except in the event of an emergency, Landlord or its designees shall
be permitted to enter the Demised Premises upon at least twenty-four (24) hours'
prior written notice to Tenant, accompanied by an agent of Tenant designated by
Tenant for such purpose to (a) inspect the same and to determine whether Tenant
is in compliance with its obligations hereunder, (b) supply any service Landlord
is required to provide hereunder, (c) show the Demised Premises to prospective
lenders, insurers, investors, purchasers or, during the last year of the Term,
tenants, (d) post notices of nonresponsibility, (e) access the telephone
equipment, electrical substation and fire risers, and (f) alter, improve or
repair any portion of the Building other than the Demised Premises, but for
which access to the Demised Premises is necessary. In connection with any such
alteration, improvement or repair, Landlord may erect in the Demised Premises or
elsewhere in the Building or the Project scaffolding and other structures
reasonably required for the work to be performed. In no event shall Tenant's
Rent abate as a result of any such entry or work; PROVIDED, HOWEVER, in
connection with any such entry, Landlord shall coordinate with Tenant in order
to minimize the disruption to Tenant's use of the Demised Premises. In the event
of an emergency, Landlord or its designees shall be permitted to enter the
Demised Premises unaccompanied and without notice; provided that Landlord shall
have, prior to such entry, used diligent efforts to have a Tenant representative
accompany Landlord or its designee; Landlord hereby acknowledging that Tenant's
use of the Demised Premises includes the storage and handling of Hazardous
Materials and biologic agents and that Landlord's entry into the Demised
Premises without a Tenant representative will be at Landlord's peril.
Notwithstanding anything to the contrary set forth in this Lease, Landlord will
not be permitted access to areas previously designated in writing by Tenant as
security areas, unless Landlord or its representatives are accompanied by an
agent of Tenant designated by Tenant for such purpose. Landlord shall at all
times retain a key with which to unlock all of the doors in the Demised
Premises. If an emergency necessitates immediate access to the Demised Premises,
Landlord may use whatever force is necessary to enter the Demised Premises and
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any such entry to the Demised Premises shall not constitute a forcible or
unlawful entry to the Demised Premises, an unlawful detainer of the Demised
Premises, or an eviction of Tenant from the Demised Premises, or any portion
thereof. Any access by Landlord or its agents and invitees hereunder, including
access in the event of an emergency, shall be subject to compliance with such
reasonable confidentiality and security procedures as are reasonably imposed on
Tenant's business operations and Tenant's standard operating procedures.
Landlord reserves the right, after consultation with Tenant, to stop service of
a Building system when necessary by reason of accident or emergency. It is
expressly understood and agreed that any covenants on Landlord's part to furnish
any service or system or to perform any act shall not be deemed breached if
Landlord is unable to do so by reason of unavoidable delays.
31.4. Notwithstanding anything contained in this Article 31, Landlord shall
not commence construction of the Expansion Space (as defined in Section 40)
during the initial [*] of the Term without the prior written consent of Tenant,
which consent shall be granted in Tenant's sole and absolute discretion. If
Landlord desires to develop the Expansion Space at any time after the initial
[*] of the Term, Landlord may do so subject to the terms of Article 40 hereof.
32. QUIET ENJOYMENT.
So long as Tenant is not in Default, Landlord covenants that Landlord or
anyone acting through or under Landlord will not disturb Tenant's occupancy of
the Demised Premises except as permitted by the provisions of this Lease.
33. QUITCLAIM DEED.
Tenant shall execute and deliver to Landlord on the expiration or earlier
termination of this Lease, immediately on Landlord's request, in recordable
form, a quitclaim deed to the Demised Premises or such other documentation
reasonably requested by Landlord evidencing termination of this Lease.
34. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the Rules and Regulations
attached hereto as Exhibit "E" and all reasonable and nondiscriminatory
modifications thereof and additions thereto from time to time put into effect by
Landlord. Landlord shall not be responsible to Tenant for the violation or
non-performance by any other tenant or any agent, employee or invitee thereof of
any of said Rules and Regulations.
35. SUBORDINATION AND ATTORNMENT.
35.1. This Lease shall be subject and subordinate to the lien of any
mortgage, deed of trust, ground lease, master lease or other lease in which
Landlord is tenant which may hereafter encumber the Project or the Building
(collectively, "Mortgages"), and to all advances made or hereafter to be made
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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upon the security thereof, provided that Tenant receives a non-disturbance
agreement from any holder of a Mortgage (a "Mortgagee") in form and substance
reasonably satisfactory to Tenant. In the event that Landlord does not secure a
Nondisturbance Agreement from a future Mortgagee, this Lease shall be deemed
senior in priority to such future Mortgage held by such future Mortgagee.
35.2. Notwithstanding Section 35.1, Tenant shall execute and deliver upon
demand such further instrument or instruments evidencing such subordination of
this Lease to any such Mortgage as may be reasonably required by Landlord.
However, if any such Mortgagee or landlord under lease wherein Landlord is
tenant so elects, this Lease shall be deemed prior in lien to any such lease or
mortgage, regardless of date and Tenant will execute a statement in writing to
such effect at Landlord's request. If Tenant fails to execute any document
required from Tenant under this Section within fifteen (15) days after written
request therefor, Tenant hereby constitutes and appoints Landlord or its special
attorney-in-fact to execute and deliver any such document or documents in the
name of Tenant. Such power is coupled with an interest and is irrevocable.
35.3. In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any Mortgage made by the
Landlord covering the Demised Premises, Tenant shall at the election of the
purchaser at such foreclosure or sale attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as Landlord under this Lease.
35.4. Landlord hereby represents and warrants to Tenant that as of the date
hereof there is no Mortgage, ground lease, master lease or other lease in which
Landlord is tenant.
36. SURRENDER.
36.1. No surrender of possession of any part of the Demised Premises shall
release Tenant from any of its obligations hereunder unless accepted by
Landlord.
36.2. The voluntary or other surrender of this Lease by Tenant shall not
work a merger, unless Landlord consents and shall, at the option of Landlord,
operate as an assignment to it of any or all subleases or subtenancies.
36.3. The voluntary or other surrender of any ground or underlying lease
that now exists or may hereafter be executed affecting the Building or the
Project, or a mutual cancellation, thereof, or of Landlord's interest therein,
shall not work a merger and shall, at the option of the successor of Landlord's
interest in the Building or Project, operate as an assignment of this Lease.
36.4. Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Demised Premises to Landlord broom clean and free of debris;
with all of Tenant's personal property and effects removed therefrom and all
damage as a result of or caused by such removal repaired; and with all licenses,
permits and similar items which restrict or affect the use of the Demised
Premises released and fully terminated.
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37. WAIVER AND MODIFICATION.
No provision of this Lease may be modified, amended or added to except by
an agreement in writing. The waiver by Landlord of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained.
38. WAIVER OF JURY TRIAL AND COUNTERCLAIMS.
THE PARTIES HERETO SHALL AND THEY HEREBY DO WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO
AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE
OR OCCUPANCY OF THE DEMISED PREMISES, AND OR ANY CLAIM OF INJURY OR DAMAGE.
39. TENANT'S PURCHASE OPTION.
Tenant shall have the option (the "PURCHASE OPTION") during the Term of the
Lease and any extensions thereto, to purchase the Project upon the following
terms and conditions:
39.1. The price for the Project payable by Tenant to Landlord pursuant to
the Purchase Option shall be equal to [*]
39.2. In the event that Tenant desires to purchase the Project, Tenant
shall deliver to Landlord written notice (the "OPTION NOTICE") of Tenant's
intent to buy the Project. Landlord and Tenant shall within [*] following
determination of the [*] pursuant to Section 39.2.1 enter into a written
purchase agreement in substantially the form attached as EXHIBIT "G" hereto,
with respect to the Project incorporating the terms described in Section 39.1
and providing for a closing date that is neither more than [*] nor less than [*]
after the date of the execution of the purchase agreement by both Landlord and
Tenant. If Landlord does not timely (i) execute and deliver a purchase agreement
as contemplated by this Section 39.2 or (ii) perform under the terms of any such
purchase agreement, Tenant shall have the right to pursue all remedies available
to Tenant at law or in equity, including specific performance and other
injunctive relief.
39.2.1 For purposes of determining the [*] to be employed in Section
39.1, each of Landlord and Tenant shall designate an independent, licensed real
estate appraiser within ten (10) days after delivery by Tenant of the Option
Notice. Each such real estate appraiser shall have more than five (5) years'
experience as a real estate appraiser specializing in commercial leasing and who
shall be familiar with the commercial real estate
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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market in which the Project is located. Said appraisers shall each make a
determination of the appropriate [*] within [*] after being designated. [*]
Landlord and Tenant shall each bear the cost of its appraiser.
39.3. Notwithstanding the above, the Purchase Option shall not be in effect
and may not be exercised by Tenant during [*]; provided, however, that in the
event that Tenant extends the maturity date of the loan made by Landlord to
Tenant pursuant to the Loan Agreement, the date on and after which the Purchase
Option may be exercised by Tenant shall be extended [*] for every [*] extension
of the loan maturity date.
39.4. The Purchase Option shall terminate and be of no further force or
effect upon the expiration or earlier termination of the Lease.
39.5. Upon request by Tenant, Landlord shall execute and deliver to Tenant
a memorandum of purchase option (the "Memorandum") in recordable form. The
Memorandum shall not set forth the method to be used to determine the purchase
price and shall otherwise be in form and substance reasonably satisfactory to
Landlord. Tenant shall have the right, at its sole cost and expense, to have the
Memorandum recorded in the appropriate governmental records.
40. RIGHT TO EXPAND.
Tenant shall have the right, but not the obligation, to expand the Demised
Premises (the "EXPANSION RIGHT") to include the as yet undeveloped additional
space which may be constructed in the Project on land adjacent to the Building
(the "EXPANSION SPACE"), upon the following terms and conditions:
40.1. In the event that Landlord desires to lease all or any portion of the
Expansion Space, Landlord shall deliver to Tenant written notice (the "EXPANSION
NOTICE") of the availability of such portion of the Expansion Space, together
with the terms and conditions upon which Landlord is prepared to lease to Tenant
such portion of the Expansion Space and reasonably detailed architectural and
engineering reports with respect to the proposed Expansion Space. Tenant shall
have [*] following delivery of the Expansion Notice to deliver to Landlord
written notification ("Expansion Notice Response") of either (i) Tenant's
exercise of the Expansion Right and agreement to lease such portion of the
Expansion Space upon the terms and conditions of the Expansion Notice, (ii)
Tenant's election to develop the Expansion Space itself as more fully described
in Section 40.2 below ("Tenant's Development Election"), or (iii) Tenant's
rejection of the Expansion Notice. In the event Tenant fails to timely deliver
the Expansion Notice Response or pursuant thereto rejects the Expansion Notice,
or if Landlord and Tenant are unable to agree upon any of the terms of the lease
or sale agreement for such portion of the Expansion Space after negotiating in
good faith, Landlord shall have the right, for a period of [*] thereafter, to
lease the Expansion Space to a third
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
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party upon any terms and conditions which Landlord desires, PROVIDED, HOWEVER,
that, such terms and conditions are no more favorable to such third party than
the terms and conditions offered to Tenant. If Landlord does not enter into a
lease with respect to the Expansion Space within the [*] period referenced
above, Tenant shall again have all rights to lease Expansion Space under this
Section 40.1.
40.2.
40.2.1 Landlord shall not cause the commencement of any development or
construction activity with respect to the Expansion Space until the date (the
"Option Date") that is the later of (i) the [*] of the Term Commencement Date or
(ii) the date on which Tenant shall first have the right to exercise the
purchase option pursuant to Section 39.
40.2.2 At any time after the Option Date, provided that Tenant is not
then in Default under this Lease and Tenant is occupying the entire Demised
Premises, Tenant may deliver to Landlord written notice ("TENANT'S EXPANSION
NOTICE") of Tenant's desire to lease the Expansion Space, together with (i) the
terms and conditions upon which Tenant is prepared to lease the Expansion Space
and (ii) a reasonably detailed proposal setting forth the design of the
Expansion Space. Landlord shall notify Tenant in writing within [*] of delivery
of Tenant's Expansion Notice as to whether Landlord wishes to develop and lease
the Expansion Space to Tenant on the terms set forth in Tenant's Expansion
Notice or whether Landlord declines to develop and lease the Expansion Space to
Tenant ("Development Notice"). If Landlord sets forth in its Development Notice
that it does not wish to go forward with developing and leasing the Expansion
Space to Tenant, or if Landlord does not timely deliver the Development Notice,
then Tenant shall have the rights set forth in Section 40.2.3 below. If Landlord
sets forth in its Development Notice that it wishes to develop and lease the
Expansion Space to Tenant, then Landlord and Tenant shall negotiate in good
faith the terms upon which Landlord shall develop and lease the Expansion Space
to Tenant, including without limitation the specifications of the building
constituting the Expansion Space (construction of which shall be of the same or
better quality than the Building), the condition of the Expansion Space upon
delivery to Tenant, the timing of delivery and the terms of the lease and work
letter applicable to the Expansion Space. If Landlord and Tenant are unable to
agree on the terms upon which Landlord will develop and lease the Expansion
Space to Tenant within the [*] period immediately following delivery of the
Development Notice, then Tenant shall have the rights set forth in Section
40.2.3 below.
40.2.3 In the event that (i) Tenant exercises Tenant's Development
election under Section 40.1, (ii) Landlord does not timely deliver a Development
Notice, (iii) Landlord indicates in the Development Notice that it does not wish
to develop and lease the Expansion Space to Tenant or (iv) Landlord sets forth
in the Development Notice that it wishes to develop and lease the Expansion
Space to Tenant, and Landlord and Tenant are thereafter unable to agree on the
terms upon which Landlord will develop and lease the Expansion Space to Tenant
during the [*] period following delivery of the Development Notice, Tenant shall
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
45
<PAGE>
have the right to elect at any time thereafter during the Term to (a) purchase
the entire Project in accordance with the terms of Section 39 or (b) develop the
Expansion Space at Tenant's sole cost and expense.
40.2.4 If Tenant wishes to elect to develop the Expansion Space
pursuant to Section 40.2.3, Tenant shall deliver to Landlord written notice
indicating Tenant's desire to construct the Expansion Space, which notice shall
include a reasonably detailed proposal setting forth the design of the Expansion
Space. The following shall apply to Tenant's development and construction of the
Expansion Space.
(a) Tenant's plans for construction of the Expansion Space shall
provide for construction of a minimum of [*] square feet of gross rentable area,
and the Expansion Space shall be constructed with materials of equal or better
quality than the existing Building.
(b) Landlord shall have the right to review Tenant's design and
construction plans and to approve the same, which approval shall not be
unreasonably withheld, conditioned or delayed. If in addition to the Expansion
Space proposed to be constructed by Tenant, the then applicable zoning laws
would permit further expansion, Landlord shall be deemed to have acted
reasonably in not approving Tenant's design and construction plans if such plans
would make it impractical to further expand the Building. The design of the
Expansion Space must be architecturally compatible with the existing Building.
(c) Upon completion of construction of the Expansion Space by Tenant,
this Lease shall be amended to include the Expansion Space, except that Tenant
shall have no obligation to pay rent with respect to the Expansion Space other
than Operating Expenses.
(d) Landlord must be reasonably assured that the construction of the
Expansion Space will be completed in a timely fashion.
(e) Tenant shall indemnify and hold Landlord harmless from and against
any and all liabilities, losses, costs, expenses, claims, demands, damages and
judgments (including, without limitation, reasonable attorneys' fees, charges
and disbursements) arising directly or indirectly out of the construction by
Tenant of the Expansion Space, unless caused by the wilful act or negligence of
Landlord.
40.3. In the event Tenant elects to exercise the Expansion Right pursuant
to the Expansion Notice Response, within [*] Tenant and Landlord shall enter
into a written amendment to the Lease (the "EXPANSION AMENDMENT") which shall
provide, unless otherwise agreed in writing, (i) the commencement date of the
Expansion Space; (ii) that the Demised Premises under this Lease shall be
increased to include the rentable square feet of the Expansion Space; (iii) the
new Basic Annual Rent; (iv) Tenant's new Pro Rata Share based upon the addition
of the Expansion Space to the Demised Premises; (v) the proportionate increase
to the Security Deposit (which shall be payable upon execution of the Expansion
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
46
<PAGE>
Amendment); and (vi) any other terms contained in the Expansion Notice. In all
other respects, this Lease shall remain in full force and effect, and shall
apply to the Expansion Space.
40.4. Notwithstanding the above, the Expansion Right shall not be in effect
and may not be exercised by Tenant during any period of time that Tenant is in
Default under any provision of the Lease.
41. HAZARDOUS MATERIALS.
41.1. PROHIBITION/COMPLIANCE. Tenant shall not cause or permit any
Hazardous Materials (as hereinafter defined) to be brought upon, kept or used in
or about the Demised Premises, the Building or the Project in violation of
applicable law by Tenant, its agents, employees, contractors or invitees. If
Tenant breaches the obligation stated in the preceding sentence, or if
contamination of the Demised Premises, the Building, the Project or any adjacent
property by Hazardous Materials otherwise occurs during the term of this Lease
or any extension or renewal hereof or holding over hereunder as a result of acts
or omissions of Tenant or its agents, Tenant hereby indemnifies and shall defend
and hold Landlord, its officers, directors, employees, agents and contractors
harmless from any and all claims, judgments, damages, penalties, fines, costs,
liabilities, or losses (including, without limitation, diminution in value of
the Demised Premises or any portion of the Building or the Project, damages for
the loss or restriction on use of rentable or usable space or of any amenity of
the Demised Premises, the Building or the Project, damages arising from any
adverse impact on marketing of space in the Demised Premises, the Building or
the Project, and sums paid in settlement of claims, attorneys' fees, consultant
fees and expert fees) which arise during or after the Lease term to the extent
resulting from such contamination. This indemnification of Landlord by Tenant
includes, without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Materials present in the air, soil or
ground water above, on or under the Demised Premises. Without limiting the
foregoing, if the presence of any Hazardous Materials on the Demised Premises,
the Building, the Project or any adjacent property, caused or permitted by
Tenant results in any contamination of the Demised Premises, the Building, the
Project or any adjacent property, Tenant shall promptly take all actions at its
sole expense as are necessary to return the Demised Premises, the Building, the
Project or any adjacent property, to the condition existing prior to such
contamination, provided that Landlord's approval of such action shall first be
obtained, which approval shall not unreasonably be withheld so long as such
actions would not potentially have any material adverse long-term or short-term
effect on the Demised Premises, the Building or the Project.
41.2. BUSINESS. Landlord acknowledges that it is not the intent of this
Article 41 to prohibit Tenant from operating its business as described in
Section 2.1.9 above. Tenant may operate its business according to the custom of
the industry so long as the use or presence of Hazardous Materials is strictly
and properly monitored according to all applicable governmental requirements. As
a material inducement to Landlord to allow Tenant to use Hazardous Materials in
connection with its business, Tenant agrees to deliver to Landlord prior to the
Rent Commencement Date a list identifying each type of Hazardous Materials to be
47
<PAGE>
present on the Demised Premises and setting forth any and all governmental
approvals or permits required in connection with the presence of such Hazardous
Materials on the Demised Premises ("HAZARDOUS MATERIALS LIST"). Tenant shall
deliver to Landlord an updated Hazardous Materials List at least once a year and
shall also deliver an updated list before any new Hazardous Materials is brought
onto the Demised Premises. Tenant shall deliver to Landlord true and correct
copies of the following documents (the "DOCUMENTS") relating to the handling,
storage, disposal and emission of Hazardous Materials prior to the Term
Commencement Date, or if unavailable at that time, concurrent with the receipt
from or submission to a governmental agency: permits; approvals; reports and
correspondence; written storage and management plans, notice of violations of
any laws; plans relating to the installation of any storage tanks to be
installed in or under Building or the Project (provided, said installation of
tanks shall only be permitted after Landlord has given Tenant its written
consent to do so, which consent may be withheld in Landlord's sole and absolute
discretion); and all closure plans or any other documents required by any and
all federal, state and local governmental agencies and authorities for any
storage tanks installed in, on or under the Building or the Project for the
closure of any such tanks. Tenant is not required, however, to provide Landlord
with any portion(s) of the Documents containing information of a proprietary
nature which, in and of themselves, do not contain a reference to any Hazardous
Materials or hazardous activities. It is not the intent of this Section to
provide Landlord with information which could be detrimental to Tenant's
business should such information become possessed by Tenant's competitors. At
the written request of Landlord, Tenant agrees that it shall enter into a
written agreement with other tenants at the Building (if any) concerning the
equitable allocation of fire control areas (as defined in the Uniform Building
Code, and adopted by the City of Columbia ("UBC")) within the Building for the
storage of Hazardous Materials. In the event that Tenant's use of Hazardous
Materials is such that it utilizes fire control areas in the Building in excess
of Tenant's Pro Rata Share of the Building as set forth in Section 2.1.6 above,
Tenant agrees that it shall, at its own expense, and upon the written request of
Landlord, establish and maintain a separate area of the Demised Premises
classified by the UBC as an "H" occupancy area, for the use and storage of
Hazardous Materials, or take such other action so that its share of the fire
control areas of the Building is not greater than Tenant's Pro Rata Share of the
Building.
41.3. TESTING. At any time, and from time to time, prior to the expiration
or earlier termination of the Term (but not more often than [*] during the
initial Term and [*] during each Extension Term, unless Landlord, in its
reasonable judgment, has a demonstrable basis upon which to believe that
contamination has occurred), Landlord shall have the right to conduct
appropriate tests of the Demised Premises, the Building and the Project to
demonstrate that contamination has occurred as a result of Tenant's use of the
Demised Premises. Tenant shall be solely responsible for and shall defend,
indemnify and hold the Landlord, its agents and contractors harmless from and
against any and all claims, costs and liabilities including actual attorneys'
fees, charges and disbursements, arising out of or in connection with any
removal, clean up, restoration and materials required hereunder to return the
Demised Premises and any other property of whatever nature to their condition
existing prior to the time of any contamination by reason of Tenant's use of the
Demised Premises. Tenant shall pay for the cost of the tests of the Demised
Premises.
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
48
<PAGE>
41.4. UNDERGROUND TANKS. If underground or other storage tanks storing
Hazardous Materials are located on the Demised Premises or are hereafter placed
on the Demised Premises at the request of or for the benefit of Tenant, Tenant
shall monitor the storage tanks, maintain appropriate records, implement
reporting procedures, properly close any underground storage tanks, and take or
cause to be taken all other steps necessary or required under all applicable
local, state and federal laws and regulations as they now exist or may hereafter
be adopted or amended including without limitation, Code of Maryland
Regulations, Title 26, Subtitle 10, Chapters 2 through 12.
41.5. TENANT'S OBLIGATIONS. Tenant's obligations under this Article 41
shall survive the expiration or earlier termination of the Lease. During any
period of time employed by Tenant or Landlord after the termination of this
Lease to complete the removal from the Demised Premises of any Hazardous
Materials brought upon, kept or used by Tenant on the Demised Premises during
the Term, and the release and termination of any licenses or permits restricting
the use of the Demised Premises, Tenant shall continue to pay the full Rent in
accordance with this Lease, which Rent shall be prorated daily.
41.6. DEFINITION OF "HAZARDOUS MATERIALS." As used herein, the term
"HAZARDOUS MATERIALS" means any pollutant, contaminant, hazardous or toxic
substance, material or waste, including, without limitation, those that are or
become regulated by any local governmental authority, the State of Maryland, or
the United States government. The term "Hazardous Material" includes, without
limitation, any material or substance which is (i) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), (ii) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conversation and Recovery Act, 42 U.S.C.
Section 6901, ET. SEQ. (42 U.S.C. Section 6903), (iii) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 ET. SEQ. (42 U.S.C.
Section 9601), (iv) defined as "oil" pursuant to Section 4-401(g) of the
Maryland Environmental Code Annotated (1993), or (v) designated as "hazardous
substance" or "hazardous waste" pursuant to Maryland Environmental Code Ann.,
Title 7, Subtitle 2 (1993), all as amended from time to time and together with
the rules and regulations promulgated thereunder.
42. RIGHT TO EXTEND TERM.
Tenant shall have the right to extend the Term of the Lease upon the
following terms and conditions:
42.1. Tenant shall have two (2) consecutive rights (each, an "EXTENSION
RIGHT ") to extend the term of this Lease for five (5) years each (each, an
"EXTENSION TERM") on the same terms and conditions as the Lease. During any
Extension Term, Basic Annual Rent shall be adjusted on the commencement of each
Extension Term and on each one (1) year anniversary of the commencement of such
Extension Term in accordance with Section 6 above.
49
<PAGE>
42.2. Extension Rights are personal to North American Vaccine, Inc. and are
not assignable separate and apart from this Lease except that the Extension
Rights shall be deemed to have been transferred to any assignee of this Lease.
42.3. Extension Rights are conditional upon Tenant giving Landlord written
notice of its election to exercise each Extension Right at least one (1) year
prior to the end of the expiration of the initial term of this Lease or the
expiration of any Extension Term.
42.4. Notwithstanding anything set forth above to the contrary, Extension
Rights shall not be in effect and Tenant may not exercise any of the Extension
Rights during any period of time that Tenant is in Default under any provision
of this Lease.
42.5. The period of time within which any Extension Rights may be exercised
shall not be extended or enlarged by reason of the Tenant's inability to
exercise the Extension Rights because of the provisions of Section 42.4 above.
43. RIGHT OF FIRST OFFER TO PURCHASE.
Tenant shall have the right (the "PURCHASE RIGHT") to purchase the Project
upon the following terms and conditions:
43.1. In the event that Landlord desires to sell the Project, Landlord
shall deliver to Tenant written notice (the "SALE NOTICE") of Landlord's intent
to sell the Project, together with the terms and conditions under which Landlord
is prepared to sell the Project. Tenant shall have [*] following delivery of the
Sale Notice to deliver to Landlord written notification ("Tenant's Response")
exercising one of the following options (i) Tenant's exercise of the Purchase
Right upon the terms and conditions of the Sale Notice, (ii) Tenant's rejection
of its Purchase Right or (iii) Tenant's desire to purchase the Project on terms
other than those offered by Landlord. In the event Tenant fails to timely
deliver such notice, or if Tenant's Response is a rejection, or if Tenant
indicated that it desired to purchase the Project on terms other than those
offered by Landlord, and on the date which is [*] after the delivery of Tenant's
Response Landlord and Tenant have failed to agree upon any of the terms of the
purchase agreement for the Project after negotiating in good faith, Landlord
shall thereafter have the right to market the Project, and the right, for a
period of [*] after the expiration of [*] following delivery of Tenant's
Response, to sell the Project to a third party on terms and conditions no more
favorable to the third party than those set forth in the Sale Notice. If
Landlord does not consummate the sale of the Project within the [*] period
referenced above, Tenant shall again have the Purchase Right.
43.2. In the event that Tenant and Landlord enter into a purchase agreement
following the timely exercise of the Purchase Right, the purchase and sale of
the Project shall close no sooner than the date which is [*], and no later than
the date which is [*], following receipt by Landlord of Tenant's election to
exercise the Purchase Right.
________________________
[*} Confidential information has been omitted and filed separately with the
Commission.
50
<PAGE>
43.3. Notwithstanding the above, the Purchase Right shall not be in effect
and may not be exercised by Tenant during any period of time that Tenant is in
Default under any provision of the Lease.
43.4. The Purchase Right is personal to North American Vaccine, Inc. and
may not be transferred separate and apart from this Lease, except that the
Purchase Right shall be deemed to have been transferred to any assignee of this
Lease.
43.5. The Purchase Right shall terminate and be of no further force or
effect upon the expiration or earlier termination of the Term.
43.6. The Purchase Right is in addition to, and is not to be construed to
limit in any way, Tenant's Purchase Option pursuant to Section 39 hereof.
44. TENANT SIGNAGE.
Subject to Section 16.1, Tenant shall have the right to place signs on the
exterior of the Building as set forth in EXHIBIT "H". Tenant shall have the
right to place signs in the interior of the Demised Premises on floors occupied
solely by Tenant without first obtaining the consent of Landlord. Fabrication,
installation, insurance, and maintenance of such signage shall be at Tenant's
sole cost and expense. Tenant covenants and agrees that all work done by Tenant
shall be performed in full compliance with all laws, rules, orders, ordinances,
directions, regulations, and requirements of all governmental agencies, offices,
departments, bureaus and boards having jurisdiction, and in full compliance with
the rules, orders, directions, regulations, and requirements of any applicable
fire rating bureau. Except for the foregoing, no sign, advertisement or notice
visible from the exterior of the Building shall be inscribed, painted or affixed
by Tenant on any part of the Project without the prior consent of Landlord,
which consent shall not be unreasonably withheld, conditioned or delayed. Tenant
shall remove such signage promptly following the expiration or earlier
termination of this Lease. Any such removal shall be at Tenant's sole expense,
and Tenant shall bear the cost of any resulting repairs to the Building that are
reasonably necessary due to the removal. Should Tenant fail to remove such
signage within ten (10) days following the termination of this Lease, or if
Tenant sooner requests that Landlord remove the signage, Landlord shall effect
the removal and repair at Tenant's expense.
45. MISCELLANEOUS.
45.1. TERMS AND HEADINGS. Where applicable in this Lease, the singular
includes the plural and the masculine or neuter includes the masculine, feminine
and neuter. The section headings of this Lease are not a part of this Lease and
shall have no effect upon the construction or interpretation of any part hereof.
51
<PAGE>
45.2. EXAMINATION OF LEASE. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution by and delivery
to both Landlord and Tenant.
45.3. TIME. Time is of the essence with respect to the performance of every
provision of this Lease.
45.4. CONSENTS. Whenever consent or approval of either party is required,
that party shall not unreasonably withhold, delay or condition such consent or
approval, except as may be expressly set forth to the contrary.
45.5. ENTIRE AGREEMENT. The terms of this Lease are intended by the parties
as a final expression of their agreement with respect to the terms as are
included herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement. The Lease and the Exhibits constitute a single
document.
45.6. SEVERABILITY. Any provision of this Lease which shall provide to be
invalid, void, or illegal in no way affects, impairs or invalidates any other
provision hereof, and such other provisions shall remain in full force and
effect.
45.7. RECORDING. Neither party shall record this Lease or a memorandum
hereof.
45.8. IMPARTIAL CONSTRUCTION. The language in all parts of this Lease shall
be in all cases construed as a whole according to its fair meaning and not
strictly for or against either Landlord or Tenant.
45.9. INUREMENT. Each of the covenants, conditions and agreements herein
contained shall inure to the benefit of and shall apply to and be binding upon
the parties hereto and their respective heirs, legatees, devisees, executors,
administrators, successors, assigns, sublessees, or any person who may come into
possession of said Demised Premises or any part thereof in any manner
whatsoever. Nothing in this Section 45.9 contained shall in any way alter the
provisions against assignment or subletting in this Lease provided.
45.10. NOTICES. Any notice, consent, demand, bill, statement, or other
communication required or permitted to be given hereunder must be in writing and
may be given by personal delivery, reputable overnight courier or by mail, and
if given by mail shall be deemed sufficiently given two (2) days after time when
deposited in United States Mail is sent by registered or certified mail, and if
given by other means shall be deemed given when received, addressed to Tenant or
Landlord at the addresses shown in Sections 2.1.10 and 2.1.11. Either party may,
by notice to the other given pursuant to this Section, specify additional or
different addresses for notice purposes.
45.11. MARYLAND JURISDICTION. This Lease has been negotiated and entered
into in the State of Maryland and shall be governed by, construed and enforced
in accordance with the laws of the State of Maryland, applied to contracts made
in Maryland for Maryland domiciliaries to be wholly performed in Maryland.
52
<PAGE>
45.12. AUTHORITY. That individual or those individuals signing this Lease
guarantee, warrant and represent that said individual or individuals have the
power, authority and legal capacity to sign this Lease on behalf of and to bind
all entities, corporations, partnerships, joint venturers or other organizations
and/or entities on whose behalf said individual or individuals have signed.
45.13. CONFIDENTIALITY. Landlord agrees that any information or
documentation furnished to Landlord by Tenant pursuant to the terms of this
Lease, or any information or documentation that Landlord otherwise obtains in
connection with its rights to access the Demised Premises under this Lease
(collectively, "Confidential Information") shall be used by Landlord only for
the purposes expressly set forth in this Lease. Landlord shall not disclose any
Confidential Information to any third party unless expressly permitted to do so
under the terms of this Lease. In the event that Landlord is required in any
proceeding to disclose any Confidential Information, Landlord shall give Tenant
immediate oral notice of such request so that Tenant may challenge such
disclosure requirement or seek a protective order. Landlord shall cooperate with
Tenant in seeking the same. Landlord agrees that money damages would not be a
sufficient remedy for any breach of this Section 45.13, and that in addition to
all other remedies, Tenant shall be entitled to seek injunctive or other
equitable relief as a remedy for any such breach, and Landlord hereby agrees to
waive any requirement that Tenant post a bond or other security in connection
with seeking such remedy. The terms of this Section 45.13 shall survive the
expiration or earlier termination of this Lease.
45.14. REAL ESTATE INVESTMENT TRUST. Notwithstanding anything to the
contrary set forth herein, nothing in this Lease shall be construed to require
Landlord to take any action or fail to take any action if, in the opinion of
Landlord's counsel, a copy of which shall be provided to Tenant, such action or
inaction would be likely to result in Landlord losing its status as a real
estate investment trust, as defined in Section 856 of the Internal Revenue Code
(as amended).
45.15. This Lease may be executed in two or more counterpart copies, all of
which counterparts shall have the same force and effect as if all parties hereto
had executed a single copy of this Lease.
53
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
Landlord:
ARE - 10150 OLD COLUMBIA, LLC,
a Delaware limited liability company
By: Alexandria Real Estate Equities, L.P.
By: ARE-QRS CORP.
By: /s/ Joel Marcus
--------------------------------------
Name: JOEL MARCUS
Its: CHIEF EXECUTIVE OFFICER
Tenant:
NORTH AMERICAN VACCINE, INC. a
Canadian corporation
By: /s/ Daniel J. Abdun-Nabi
-------------------------------------
Name: DANIEL J. ABDUN-NABI
Its: Senior Vice President-Legal Affairs
& GENERAL COUNSEL
54
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 36,733
<SECURITIES> 1,093
<RECEIVABLES> 516
<ALLOWANCES> 0
<INVENTORY> 2,512
<CURRENT-ASSETS> 41,021
<PP&E> 58,889
<DEPRECIATION> 28,898
<TOTAL-ASSETS> 75,187
<CURRENT-LIABILITIES> 15,702
<BONDS> 83,734
0
6,538
<COMMON> 79,429
<OTHER-SE> (113,904)
<TOTAL-LIABILITY-AND-EQUITY> 75,187
<SALES> 263
<TOTAL-REVENUES> 834
<CGS> 0
<TOTAL-COSTS> 11,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,617
<INCOME-PRETAX> (11,760)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,760)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,760)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
