<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-19910
CREATIVE BIOMOLECULES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2786743
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
45 SOUTH STREET, HOPKINTON, MA 01748
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 782-1100
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.
[ X ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 6, 1998, the registrant had 33,617,975 shares of common stock
outstanding.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1998 and December 31,
1997 3
Consolidated Statements of Operations for the three months and
six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
</TABLE>
2
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CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,374,213 $ 2,158,909
Marketable securities 39,524,981 28,438,841
Accounts receivable 1,343,366 4,572,518
Inventory 1,421,052 1,249,330
Prepaid expenses and other 493,040 284,649
------------- -------------
Total current assets 49,156,652 36,704,247
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - net 18,200,262 17,245,338
------------- -------------
OTHER ASSETS:
Notes receivable - officers 260,005 273,334
Patents and licensed technology - net 412,391 417,070
Deferred patent application costs - net 4,796,253 4,220,080
Deposits and other 145,579 177,930
------------- -------------
Total other assets 5,614,228 5,088,414
------------- -------------
TOTAL $ 72,971,142 $ 59,037,999
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lease obligations - current portion 247,057 124,575
Accounts payable 2,299,261 2,311,710
Accrued liabilities 776,228 575,171
Accrued compensation 1,120,644 1,312,274
------------- -------------
Total current liabilities 4,443,190 4,323,730
------------- -------------
LEASE OBLIGATIONS 2,537,092 2,004,927
------------- -------------
SERIES PREFERRED STOCK, $.01 par value,
25,000 shares issued and outstanding at June 30, 1998,
liquidation preference of $25,116,438 at June 30, 1998 23,870,293
-------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
25,000 shares and none issued and outstanding at June 30, 1998
and December 31, 1997, respectively
Common stock, $.01 par value, 100,000,000 shares authorized,
33,582,620 shares and 33,392,582 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively 335,826 333,926
Additional paid-in capital 141,054,299 140,465,512
Accumulated deficit (99,269,558) (88,090,096)
------------- -------------
Total stockholders' equity 42,120,567 52,709,342
------------- -------------
TOTAL $ 72,971,142 $ 59,037,999
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Research and development contracts $ 1,800,615 $ 3,137,593 $ 4,803,474 $ 5,889,065
Manufacturing contracts -- 161,687 -- 393,926
Interest and other 480,175 616,951 895,435 1,280,177
------------ ------------ ------------ ------------
Total revenues 2,280,790 3,916,231 5,698,909 7,563,168
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Research and development 6,130,923 6,437,127 12,428,790 12,016,180
Manufacturing contracts -- 112,720 -- 273,758
General and administrative 2,171,785 1,536,937 4,138,395 3,139,853
Interest 86,633 52,882 159,143 105,354
------------ ------------ ------------ ------------
Total costs and expenses 8,389,341 8,139,666 16,726,328 15,535,145
------------ ------------ ------------ ------------
NET LOSS (6,108,551) (4,223,435) (11,027,419) (7,971,977)
------------ ------------ ------------ ------------
ACCRETION ON SERIES
PREFERRED STOCK
(152,043) -- (152,043) --
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $ (6,260,594) $ (4,223,435) $(11,179,462) $ (7,971,977)
============ ============ ============ ============
BASIC AND DILUTED
LOSS PER COMMON SHARE $ (.19) $ (.13) $ (.33) $ (.24)
============ ============ ============ ============
COMMON SHARES FOR BASIC AND DILUTED 33,507,137 33,016,188 33,474,918 32,934,903
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,027,419) $ (7,971,977)
------------ ------------
Adjustment to reconcile net loss to net cash
provided by (used for) operating
activities:
Depreciation and amortization 1,285,577 1,037,675
Consulting expense -- 196,500
Compensation expense 13,329 --
Increase (decrease) in cash from:
Accounts receivable 3,229,152 (2,470,176)
Inventory and prepaid expenses (380,113) (166,785)
Accounts payable and accrued liabilities (3,022) (775,917)
Deferred contract revenue -- 6,250
------------ ------------
Total adjustments 4,144,923 (2,172,453)
------------ ------------
Net cash used for operating activities (6,882,496) (10,144,430)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (22,938,601) (21,572,059)
Sales of marketable securities 11,852,461 4,344,070
Expenditures for property, plant and equipment (1,596,529) (1,606,163)
Expenditures for patents (673,361) (611,923)
Decrease in deposits and other 32,351 110,598
------------ ------------
Net cash used for investing activities (13,323,679) (19,335,477)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of equity:
Series Preferred Stock 25,000,000 --
Common Stock - other 590,687 933,348
Cost of raising equity (1,281,750) --
Increase in obligations under capital leases 193,524 --
Repayments of obligations under capital leases (80,982) (26,582)
------------ ------------
Net cash provided by financing activities 24,421,479 906,766
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,215,304 (28,573,141)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,158,909 38,248,988
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,374,213 $ 9,675,847
============ ============
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment purchased under capital lease obligations $ 542,105
============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Opinion of Management - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles applicable to interim periods. These statements are condensed and do
not include all disclosures as required by generally accepted accounting
principles. In the opinion of management, the financial statements contain all
adjustments (all of which were considered normal and recurring) necessary to
present fairly the Company's financial position and the results of operations
and cash flows for the periods presented. The financial statements should be
read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the year ended December 31, 1997.
Interim results are not necessarily indicative of results for a full year and
such results are subject to year-end adjustments and independent audit.
2. New Accounting Standards - The Financial Accounting Standards Board has
issued two new statements that became effective in reporting periods after
December 15, 1997. Statement of Financial Accounting Standards ("SFAS") Number
130 "Reporting Comprehensive Income" ("SFAS 130") establishes standards for
reporting comprehensive income and its components in the consolidated financial
statements. SFAS Number 131 "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") establishes standards for reporting
information on operating segments in interim and annual financial statements.
The Company adopted both standards on January 1, 1998. The adoption of SFAS 130
and SFAS 131 resulted in no additional reporting as the Company has no other
items of comprehensive income or loss and does not have multiple operating
segments.
3. Series 1998/A Convertible Preferred Stock - On May 27, 1998 (the "Issue
Date"), the Company completed a private placement with three institutional
investors (the "Investors") for the sale of 25,000 shares of Series 1998/A
Convertible Preferred Stock, $.01 par value per share (the "Series Preferred
Stock"), with a stated value of $1,000 per share resulting in gross proceeds of
$25,000,000. Issuance costs totaled approximately $1,282,000 (offset against the
Series Preferred Stock proceeds in the accompanying balance sheet at June 30,
1998). Accretion of the issuance costs will be recorded on the interest
method over three years.
The Series Preferred Stock is convertible into the number of shares of the
Company's common stock, $.01 par value per share (the "Common Stock") equal to
the stated value plus accretion of 5% per annum divided by the then applicable
conversion price. The conversion price is equal to the average of the five
lowest closing bid prices of the Common Stock during the twenty consecutive
trading days immediately preceding the conversion date (the "Conversion Price").
From the Issue Date through May 1999, the Conversion Price may not exceed
$10.00. From June 1999 through January 2000, the Conversion Price may not exceed
$11.00. The Investors are subject to certain limits on the number of shares of
Series Preferred Stock that they can convert per month from the Issue Date
through January 2000 and no Investor will be permitted at any time to convert an
amount of shares of Series Preferred Stock which would result in such Investor
owning more than 4.9% of the then outstanding Common Stock.
The Series Preferred Stock is subject to redemption at varying percentages of
the stated value plus the accretion of 5% per annum. The Company may redeem all
or a portion of the Series Preferred Stock (i) at a redemption percentage of
115% or (ii) if the market price of the Common Stock falls below certain
thresholds, at a redemption percentage of 105%. The Company may also redeem the
Series Preferred Stock in connection with certain acquisitions of the Company
at redemption percentages ranging from 125% to 135%. Upon the occurrence of
certain events described in the Certificate of Designations, the Company may be
required to redeem the Series Preferred Stock at a redemption percentage of
110%. If the market price of the Common Stock falls below certain thresholds,
the Company may be required to redeem a portion of the outstanding Series
Preferred Stock at a redemption percentage of 100%. Any shares of Series
Preferred Stock not converted into Common Stock by May 2001 will convert into
Common Stock at the then effective Conversion Price.
6
<PAGE> 7
4. Stock Plans - In April 1998, the Board of Directors adopted and in June 1998,
the stockholders of the Company approved the 1998 Stock Plan (the "1998 Plan"),
which permits the granting of incentive and non-qualified stock options to
consultants, employees or officers of the Company at prices determined by the
Board of Directors. The number of shares of Common Stock subject to the 1998
Plan is 3,000,000. Also in June 1998, the stockholders of the Company voted to
amend the Company's Employee Stock Purchase Plan to increase by 250,000 from
500,000 to 750,000 the aggregate number of shares of Common Stock which may be
purchased by eligible employees.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
To date, most of the Company's revenues have been derived from
research and development payments and license fees under agreements with
collaborative partners. In 1996 and 1995, a significant portion of the Company's
revenues also were derived from contract manufacturing. The Company anticipates
that over the next several years its revenues will be derived primarily from
agreements with collaborative partners and from contract manufacturing. The
Company has been unprofitable since its inception and expects to incur
additional operating losses over the next several years.
The Company's research agreements with collaborative partners have
typically provided for the partial or complete funding of research and
development for specified projects and royalties payable to the Company in
exchange for licenses to market the resulting products. The Company is presently
a party to major research collaborations with Stryker Corporation ("Stryker") to
develop products for orthopaedic reconstruction and with Biogen, Inc. ("Biogen")
to develop products for the treatment of renal disorders. Under the research
portion of the collaboration with Stryker, the Company supplies OP-1 products to
Stryker for clinical trials and other uses, provides clinical support and
performs research work pursuant to work plans established periodically by the
two companies. The current work plan established research objectives and funding
through June 1998. The two companies currently are negotiating whether and to
what extent Stryker will continue to provide financial support for research
work. During the current negotiations, the Company continues to supply OP-1
products to Stryker, provide clinical support and perform research work pursuant
to work plans established on a month to month basis by the two companies. In
December 1996, the Company signed a Research Collaboration and License Agreement
with Biogen (the "Biogen Research Agreement"). Under the Biogen Research
Agreement, the Company will perform research work through December 1999 pursuant
to work plans established periodically by the two companies. Although the
Company is seeking and in the future may seek to enter into collaborative
arrangements with respect to certain other projects, there can be no assurance
that the Company will be able to obtain such agreements on acceptable terms or
that the costs required to complete the projects will not exceed the funding
available for such projects from the collaborative partners.
The Company's manufacturing contracts provide for technical
collaboration and manufacturing for third parties at the Company's manufacturing
facility in Lebanon, New Hampshire and at the Company's research facility in
Hopkinton, Massachusetts. The Company is presently a party to a manufacturing
contract with Biogen (the "Manufacturing Contract") to produce several of
Biogen's protein-based therapeutic candidates. The companies agreed that the
supply of OP-1 to Biogen pursuant to the Biogen Research Agreement during 1997
satisfied Biogen's 1997 obligation under the Manufacturing Contract. The
companies also agreed to extend the Manufacturing Contract for two years through
1999, with Biogen having the option, but not the obligation, to use the
manufacturing facility for a mutually agreeable number of months in one of the
two years. Although the Company is seeking additional manufacturing contracts
for available cell culture and bacterial fermentation capacity, there can be no
assurance that the Company will be able to obtain such contracts on acceptable
terms, if at all.
Revenue is earned and recognized based upon work performed, upon the
sale or licensing of product rights, upon shipment of product for use in
preclinical and clinical testing or upon attainment of benchmarks specified in
collaborative agreements. The Company's results of operations vary significantly
from year to year and quarter to quarter and depend on, among other factors, the
timing of contract manufacturing activities and the timing of payments made by
collaborative partners. The timing of the Company's contract revenues may not
match the timing of the Company's associated product development expenses. As a
result, research and development expenses may exceed contract revenues in any
particular period. Furthermore, aggregate research and development contract
revenues for any product may not offset all of the Company's development
expenses for such product.
8
<PAGE> 9
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997. The
Company's total revenues for the three and six month periods ended June 30, 1998
were $2,281,000 and $5,699,000, respectively. This compared to total revenues of
$3,916,000 and $7,563,000 for the three and six month periods ended June 30,
1997, respectively. Research and development contract revenues decreased 43% to
$1,801,000 for the three month period ended June 30, 1998 from $3,138,000 for
the three month period ended June 30, 1997 and 18% to $4,803,000 for the six
month period ended June 30, 1998 from $5,889,000 for the six month period ended
June 30, 1997. The decrease in research and development contract revenues is due
to a reduction in research funding from Stryker. The Company anticipates that
research and development contract revenues for each of the remaining quarters in
1998 will be less than the three month period ended June 30, 1998 and less than
the research and development contract revenues for the comparable periods in
1997 due to decreases in research funding from Stryker (see discussion under
"Liquidity and Capital Resources" below). In addition, research and development
contract revenues for the six month period ended June 30, 1997 included revenue
from the supply of OP-1 to Biogen pursuant to the Biogen Research Agreement. The
Company does not anticipate significant revenues from the supply of OP-1 to
Biogen during the year ending December 31, 1998.
Manufacturing contract revenues for the three and six month periods
ended June 30, 1997 reflect manufacturing for Biogen, under a Service Agreement
separate from the Biogen Research Agreement and Manufacturing Contract,
conducted at the Company's research facility in Hopkinton, Massachusetts.
Interest revenues decreased 22% to $480,000 for the three month
period ended June 30, 1998 from $617,000 for the three month period ended June
30, 1997 and 30% to $895,000 for the six month period ended June 30, 1998 from
$1,280,000 for the six month period ended June 30, 1997. The decrease is due to
a decrease in the average funds available for investment. The Company
anticipates that interest income in each of the remaining quarters of 1998 will
be higher than for the six month period ended June 30, 1998 due to an increase
in the average funds available for investment. In May 1998, the Company sold
25,000 shares of Series Preferred Stock. Net proceeds to the Company, after
deducting fees and other expenses of the offering, were approximately
$23,700,000. See discussion under "Liquidity and Capital Resources" below.
The Company's total costs and expenses were $8,389,000 and
$16,726,000 for the three and six month periods ended June 30, 1998,
respectively. This compared to total costs and expenses of $8,140,000 and
$15,535,000 for the three and six month periods ended June 30, 1997,
respectively. Research and development expenses, decreased 5% to $6,131,000 for
the three month period ended June 30, 1998 from $6,437,000 for the three month
period ended June 30, 1997 and increased 3% to $12,429,000 for the six month
period ended June 30, 1998 from $12,016,000 for the six month period ended June
30, 1997. Research and development activities for the three and six month
periods ended June 30, 1998 include work in preparation for the filing of a
Pre-Market Approval ("PMA") application and work in preparation for the U.S.
Food and Drug Administration's ("FDA") regulatory review of Stryker's bone
graft substitute product, research into renal disease therapy as part of the
Biogen collaboration and research into neurological disease therapies and other
indications proprietary to the Company. Stryker has initiated regulatory review
of the bone graft substitute product following a 122 patient pivotal trial in
the treatment of tibial non-union fractures which was presented at the American
Academy of Orthopaedic Surgeons in March 1998. The filing will be done on a
modular basis under a new regulatory review procedure initiated by the FDA. Two
of the three modules have been submitted and the FDA review is ongoing. In
connection with the review of the manufacturing module, the Company is
currently revalidating certain manufacturing processes. The Company expects
that this revalidation will be completed and that the submission of the modular
PMA to the FDA will be completed in the fall of 1998. As part of the Biogen
collaboration, the two companies are conducting extensive preclinical studies
to understand questions associated with the development of OP-1 as a therapy
for acute and chronic renal failure. Based upon these data, the Company and
Biogen expect to determine the appropriate future development plans and time
line for the renal program. The Company anticipates that research and
development expenses for each of the remaining quarters in 1998 will continue
at amounts consistent with the three month period ended June 30, 1998.
9
<PAGE> 10
Cost of manufacturing contracts for the three and six month period
ended June 30, 1997 consists of the costs associated with the manufacturing for
Biogen, discussed under manufacturing contract revenues above.
General and administrative expenses increased 41% to $2,172,000 for
the three month period ended June 30, 1998 from $1,537,000 for the three month
period ended June 30, 1997 and 32% to $4,138,000 for the six month period ended
June 30, 1998 from $3,140,000 for the six month period ended June 30, 1997. The
increase is primarily due to added headcount and higher consulting expenses.
The Company anticipates that general and administrative expenses for each of
the remaining quarters in 1998 will continue at amounts consistent with the
three month period ended June 30, 1998 but at amounts higher than the
comparable periods in 1997.
Interest expense increased 64% to $87,000 for the three month period
ended June 30, 1998 from $53,000 for the three month period ended June 30, 1997
and 51% to $159,000 for the six month period ended June 30, 1998 from $105,000
for the six month period ended June 30, 1997. The increase is due to an increase
in obligations under capital leases. In October 1997, the Company entered into a
master lease agreement for the sale and leaseback or lease of up to $2,000,000
of laboratory and office equipment, of which $1,218,000 is outstanding at June
30, 1998. See discussion under "Liquidity and Capital Resources" below.
As a result of the foregoing, the Company incurred a net loss of
$6,109,000 and $11,027,000 for the three and six month periods ended June 30,
1998, respectively, compared to a net loss of $4,223,000 and $7,972,000 for the
three and six month periods ended June 30, 1997, respectively.
Accretion on Series Preferred Stock includes $116,000 calculated at
the rate of 5% per annum of $25,000,000 of Series Preferred Stock from the Issue
Date through June 30, 1998 and $36,000 of accretion of issuance costs related to
the sale of Series Preferred Stock.
The net loss applicable to common stockholders for the three and
six month periods ended June 30, 1998 reflects the net loss and the accretion
on Series Preferred Stock mentioned in the paragraphs above.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's principal sources of liquidity
consisted of cash, cash equivalents and marketable securities of $45,899,000, a
$15,000,000 unsecured line of credit from Biogen and $782,000 remaining on an
equipment lease line, as discussed further below.
On May 27, 1998, the Company completed a private placement with
three institutional investors for the sale of 25,000 shares of Series Preferred
Stock, with a stated value of $1,000 per share resulting in net proceeds of
approximately $23,718,000.
The Series Preferred Stock is convertible into the number of shares
of the Company's Common Stock, equal to the stated value plus accretion of 5%
per annum divided by the then applicable Conversion Price. The Conversion Price
is equal to the average of the five lowest closing bid prices of the Common
Stock during the twenty consecutive trading days immediately preceding the
conversion date. From the Issue Date through May 1999, the Conversion Price may
not exceed $10.00. From June 1999 through January 2000, the Conversion Price may
not exceed $11.00. The Investors are subject to certain limits on the number of
shares of Series Preferred Stock that they can convert per month from the Issue
Date through January 2000 and no Investor will be permitted at any time to
convert an amount of shares of Series Preferred Stock which would result in such
Investor owning more than 4.9% of the then outstanding Common Stock.
The Series Preferred Stock is subject to redemption at varying
percentages of the stated value plus the accretion of 5% per annum. The Company
may redeem all or a portion of the Series Preferred Stock (i) at a redemption
percentage of 115% or (ii) if the market price of the Common Stock falls below
certain thresholds, at a redemption percentage of 105%. The Company may also
redeem the Series Preferred Stock in connection with certain acquisitions of
the Company at redemption percentages ranging from 125% to 135%. Upon the
occurrence of certain events described in the Certificate of Designations, the
Company may be required to redeem the Series Preferred Stock at a redemption
percentage of 110%. If the market price of the Common Stock falls below certain
thresholds, the Company may be required to redeem a portion of the outstanding
Series Preferred Stock at a redemption percentage of 100%. Any shares of Series
Preferred Stock not converted into Common Stock by May 2001 will convert into
Common Stock at the then effective Conversion Price.
10
<PAGE> 11
The Company increased its investment in property, plant and
equipment to $33,016,000 at June 30, 1998 from $31,378,000 at December 31, 1997.
The Company currently plans to spend up to approximately $7,000,000 in the year
ending December 31, 1998 in leasehold improvements, equipment purchases and
validation expenses required to obtain FDA approval of the manufacturing
facility and to expand the Company's research, development and manufacturing
capabilities. In October 1997, the Company entered into a master lease agreement
for the sale and leaseback or lease of up to $2,000,000 of laboratory and office
equipment. At June 30, 1998, $782,000 is available under this lease commitment.
The Company's collaborative agreements with Stryker provide for
research payments to the Company and royalty payments to the nonseller from
sales of any OP-1 products. The Company also has the exclusive right to supply
Stryker's worldwide commercial requirements for OP-1 products for use in
orthopaedic reconstruction. Under the research portion of the collaboration,
the Company supplies OP-1 products to Stryker for clinical trials and other
uses and provides clinical support and performs research work pursuant to work
plans established periodically by the two companies. The current work plan
established research objectives and funding through June 1998. The two
companies currently are negotiating whether and to what extent Stryker will
continue to provide financial support for research collaborations. During the
current negotiations, the Company continues to supply OP-1 products to Stryker,
provide clinical support and perform research work pursuant to work plans
established on a month to month basis by the two companies.
In December 1996, the Company signed the Biogen Research Agreement
to collaborate on the development of the Company's morphogenic protein, OP-1,
for the treatment of renal disorders. Under the agreement, the Company granted
to Biogen exclusive worldwide rights to manufacture, market and sell OP-1 for
the treatment of renal disease. Biogen paid a $10,000,000 license fee in 1996
and made an $18,000,000 equity investment in Common Stock at a premium over the
then-current market price per share. In addition, the agreement provides for
$10,500,000 in research funding over a three year period ending December 31,
1999. Biogen also will pay up to an additional $69,000,000 upon the attainment
of certain milestones and make available a $15,000,000 line of credit. The
Biogen Research Agreement further provides for the payment of royalties to the
Company based on product sales. The Company may draw upon the $15,000,000 line
of credit over the next two years to fund the research and development of small
molecule products based on OP-1. Advances are limited to $10,000,000 in 1998
and the remaining balance in 1999. In exchange for the line of credit, Biogen
received an option to obtain an exclusive, worldwide license to OP-1 based
small molecule products for the treatment of renal disorders. In the event
Biogen exercises its option, Biogen will forgive the lesser of $10,000,000 or
the principal amount outstanding under the line of credit. The remaining
principal, together with all accrued and unpaid interest is due and payable
five years from the date of the first advance and may be repaid, at the
Company's option, in either cash, Common Stock or reduction of royalties due
the Company from Biogen.
In September 1994, the Company signed a three year manufacturing
contract with Biogen to produce in the Company's manufacturing facility in
Lebanon, New Hampshire several of Biogen's protein-based therapeutic candidates
for use in Biogen's clinical trials. The contract covered the period from
January 1995 through December 1997. As part of the research collaboration, the
two companies agreed to extend the Manufacturing Contract for two years through
December 31, 1999, with Biogen having the option, but not the obligation, to use
the manufacturing facility for a mutually agreeable number of months in one of
the two extension years. To enable the Company to meet its obligations under the
Manufacturing Contract, Biogen financed the construction of a 7,000 square foot
addition to the present facility for cGMP production using bacterial
fermentation at an estimated total cost of $3,500,000. The Company agreed to
reimburse Biogen for the construction costs and leasehold improvements at the
end of the contract term, including the extension, at an amount equal to
Biogen's construction costs less $300,000 and less all accumulated depreciation.
The reimbursement to Biogen is estimated to be no more than $2,500,000. Biogen
also agreed to lease equipment to the Company for the operation of such portion
of the facility and for cGMP production using bacterial fermentation by the
Company at an estimated total cost of $2,100,000, as provided in an equipment
lease agreement. The Company has the option to purchase the equipment at the end
of the extended lease term for an amount equal to its then fair market value or
for such other amount as is negotiated by the two parties.
The Company anticipates that its existing capital resources,
including the net proceeds of the private placement in May 1998, should enable
it to maintain its current and planned operations through late 2000. The
11
<PAGE> 12
Company expects to incur substantial additional research and development and
other costs, including costs related to preclinical studies and clinical trials.
The Company's ability to continue funding its planned operations beyond late
2000 is dependent upon its ability to generate sufficient cash flow from
collaborative arrangements and manufacturing contracts, and to obtain additional
funds through equity or debt financings, or from other sources of financing, as
may be required. The Company is seeking additional collaborative arrangements
and also expects to raise funds through one or more financing transactions, as
conditions permit. Over the longer term, because of the Company's significant
long-term capital requirements, the Company intends to raise funds when
conditions are favorable, even if it does not have an immediate need for
additional capital at such time. If substantial additional funding is not
available, the Company's business will be materially and adversely affected.
CAUTIONARY FACTORS WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements which are based
on management's current expectations and which involve risks and uncertainties.
The Company's actual results may differ significantly from the results
discussed in the forward-looking statements. The Company cautions investors
that there can be no assurance that the actual results or business conditions
will not differ materially from those projected or suggested in such
forward-looking statements as a result of various factors, including, but not
limited to the following: uncertainty as to timing of and the Company's ability
to commercialize its products; the Company's reliance on its lead product
candidate and the Company's lack of control over the research, clinical
progress and regulatory filings of several applications of its products, which
are controlled by the Company's collaborative partners; the Company's reliance
on current and prospective collaborative partners to supply funds for research
and development and to commercialize its products; intense competition related
to the research and development of morphogenic and other proteins for various
applications and therapies and the possibility that others may discover or
develop, and the Company may not be able to gain rights with respect to, the
technology necessary to commercialize its products; the Company's lack of
experience in commercial manufacturing and unproven ability to manufacture
products on a large scale; the Company's lack of marketing and sales experience
and the risk that any products that the Company develops may not be able to be
marketed at acceptable prices or receive commercial acceptance in the markets
that the Company expects to target; uncertainty as to whether there will exist
adequate reimbursement for the Company's products from government, private
health insurers and other organizations; and uncertainties as to the extent of
future government regulation of the Company's business. As a result, the
Company's future development and commercialization efforts involve a high
degree of risk.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) On May 26, 1998, the Company filed a Certificate of Designations,
Preferences and Rights of Series 1998/A Convertible Preferred Stock
(the "Certificate of Designations"), which amended the Company's
Restated Certificate of Incorporation (the "Restated Certificate")
to create a new series of preferred stock designated as Series
1998/A Convertible Preferred Stock (the "Series Preferred Stock").
Pursuant to the Certificate of Designations, the shares of Series
Preferred Stock ranks senior to the Company's Common Stock, par
value $.01 per share (the "Common Stock"), now or hereafter issued,
as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary. In addition, at the Annual Meeting of
Stockholders of the Company held on June 16, 1998, the Restated
Certificate was amended to increase the authorized number of shares
of Common Stock by 50,000,000 from 50,000,000 to 100,000,000.
(b) On May 26, 1998, the Company filed the Certificate of Designations,
which amended the Company's Restated Certificate to create the
Series Preferred Stock. Pursuant to the Certificate of Designations,
the shares of Series Preferred Stock ranks senior to the Company's
Common Stock , now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding
up of the Company, whether voluntary or involuntary.
(c) (1) Securities sold. (A) On May 27, 1998, the Company sold 25,000
shares (the "Preferred Shares") of Series Preferred Stock. (B) On
June 1, 1998, the Company issued a total of 14,779 shares (the
"Warrant Shares") of its Common Stock.
(2) Underwriters and other purchasers. (A) No underwriters were
involved in the transaction. Diaz & Altschul Capital, LLC was the
placement agent in the transaction. The Company sold the Preferred
Shares to three institutional investors. (B) No underwriters were
involved in the transaction. The Company issued the Warrant Shares
pursuant to the cashless exercise of a warrant held by an
institutional investor.
(3) Consideration. (A) The Preferred Shares were sold for an
aggregate purchase price of $25,000,000. In consideration for its
services as placement agent, the Company paid Diaz & Altschul
Capital, LLC a fee of $1,187,500. (B) The Warrant Shares were issued
at an exercise price of $2.385 per share for an aggregate exercise
price of $35,247.92.
(4) Exemption from registration claimed. (A) The Preferred Shares
were issued in reliance upon Section 4(2) of the Securities Act of
1933, as amended (the "Act"), because the transaction did not
involve any public offering by the Company. (B) The Warrant Shares
were issued in reliance upon Section 4(2) of the Act because the
transaction did not involve any public offering by the Company.
(5) Terms of conversion or exercise. (A) Each Preferred Share is
convertible into the number of shares of Common Stock equal to the
stated value plus accretion of 5% per annum divided by the then
applicable Conversion Price. The "Conversion Price" is equal to the
average of the five lowest closing bid prices of the Common Stock
during the 20 consecutive trading days immediately preceding the
date of conversion. From the issuance date through May 1999 and from
June 1999 through January 2000 the Conversion Price may not exceed
$10.00 and $11.00, respectively. In addition, there are certain
limits on the number of Preferred Shares that can be converted at
certain times and no investor will be
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<PAGE> 14
permitted at any time to convert an amount of Preferred Shares which
would result in such investor owning more than 4.9% of the then
outstanding Common Stock. (B) Not applicable.
(6) Use of Proceeds. (A) Not applicable. (B) Not applicable.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on June
16, 1998. The following actions were voted upon by the stockholders
at the Annual Meeting:
1. The following persons were elected as Directors of the Company
and the number of votes cast for and withheld for each nominee for
Director is set forth below:
<TABLE>
<CAPTION>
Votes
Name Votes For Withheld
---- --------- --------
<S> <C> <C>
Brian H. Dovey (term expiring in 2001) 26,429,735 1,253,390
Arthur J. Hale, M.D. (term expiring in 2001) 26,430,485 1,252,640
Michael M. Tarnow (term expiring in 2001) 26,397,452 1,285,673
</TABLE>
The terms of office of the following persons as Directors of the
Company continued after the meeting:
Martyn D. Greenacre (term expiring in 1999)
Michael Rosenblatt, M.D. (term expiring in 1999)
James R. Tobin (term expiring in 1999)
Charles Cohen, Ph.D. (term expiring in 2000)
Jeremy Curnock Cook (term expiring in 2000)
Suzanne Denbo Jaffe (term expiring in 2000)
2. The stockholders of the Company voted to amend the Company's
Restated Certificate of Incorporation to increase the authorized
number of shares of Common Stock by 50,000,000 from 50,000,000 to
100,000,000. The record votes cast by the holders of shares of
Common Stock of the Company entitled to vote for or against, as well
as the number of abstentions and shares not voted were as follows:
25,714,661 shares FOR, 1,901,312 shares AGAINST, 67,152 shares
ABSTAINED and 5,815,269 shares NOT VOTED.
3. The stockholders of the Company voted to approve the 1998 Stock
Plan. The record votes cast by the holders of shares of Common Stock
of the Company entitled to vote for or against, as well as the
number of abstentions, broker no votes and shares not voted were as
follows: 10,033,318 shares FOR, 5,968,182 shares AGAINST, 1,805,648
shares ABSTAINED, 9,875,977 BROKER NO VOTES and 5,815,269 shares NOT
VOTED.
4. The stockholders of the Company voted to amend the Company's
Employee Stock Purchase Plan to increase by 250,000 from 500,000 to
750,000 the aggregate number of shares of Common Stock which may be
purchased by eligible employees. The record votes cast by the
holders of shares of Common
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<PAGE> 15
Stock of the Company entitled to vote for or against, as well as the
number of abstentions, broker no votes and shares not voted were as
follows: 17,340,298 shares FOR, 373,678 shares AGAINST, 93,175
shares ABSTAINED, 9,875,974 BROKER NO VOTES and 5,815,269 shares NOT
VOTED.
ITEM 5. OTHER INFORMATION.
In order to be considered for inclusion in the Proxy Statement and
Form of Proxy distributed to Stockholders prior to the Annual
Meeting of Stockholders in 1999, a stockholder proposal must be
received by the Company no later than January 14, 1999. To be
considered for presentation at the Annual Meeting of Stockholders in
1999 although not included in the Proxy Statement and Form of Proxy,
proposals must be received no later than April 17, 1999. All
proposals should be delivered in writing to Wayne E. Mayhew III,
Vice President and Chief Financial Officer, Treasurer and Secretary,
Creative BioMolecules, Inc., 45 South Street, Hopkinton,
Massachusetts 01748.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit
Number Description
10.41 Employee Stock Purchase Plan, as amended on April 16,
1998.
10.55 Lease Agreement, dated as of May 15, 1998, by and
between the Registrant and Storm Meadows, Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
On June 5, 1998, the Company filed a Current Report on Form 8-K,
dated May 27, 1998, to report the sale of 25,000 shares of the
Company's Series 1998/A Convertible Preferred Stock, with a stated
value of $1,000 per share, for an aggregate purchase price of
$25,000,000.
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<PAGE> 16
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, in Hopkinton, Massachusetts, on August
14, 1998.
CREATIVE BIOMOLECULES, INC.
By: /s/Wayne E. Mayhew III
------------------------------------------
Wayne E. Mayhew III
Vice President and Chief Financial Officer
By: /s/Susan B. Blanton
------------------------------------------
Susan B. Blanton
Controller
<PAGE> 17
EXHIBIT INDEX
Exhibit
Number Description
10.41 Employee Stock Purchase Plan, as amended on April 16, 1998.
10.55 Lease Agreement, dated as of May 15, 1998, by and between the
Registrant and Storm Meadows, Inc.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10.41
CREATIVE BIOMOLECULES, INC.
EMPLOYEE STOCK PURCHASE PLAN
(as amended April 16, 1998)
- --------------------------------------------------------------------------------
Creative BioMolecules, Inc., a Delaware corporation (the "Company")
establishes this Employee Stock Purchase Plan (the "Plan") so that eligible
employees of the Company and Affiliated Companies, if any, may be granted
options to purchase Common Stock of the Company.
1. Purpose.
The Plan provides Eligible Employees an opportunity to acquire
shares of Company Common Stock, $.01 par value, under circumstances which enable
them to obtain the income tax benefits described in Code Section 423. The Plan
is intended to provide employees incentive to continue to promote the Company's
best interests and to enhance its long-term performance.
2. Definitions.
Wherever used, the following words and phrases will have the
meanings stated below unless a different meaning is plainly required by the
context:
"Affiliated Company" means any subsidiary corporation of the Company, as defined
in Code Sections 424(f).
"Applicable Grant Date" means for any Option the date on which such Option was
granted, which shall be the Effective Date or a Semiannual Grant Date, as the
case may be.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a committee appointed by the Board to which the Board may
delegate its powers to administer the Plan.
"Common Stock" means shares of the common stock of the Company,
$.01 par value.
"Company" means Creative BioMolecules, Inc., a Delaware
corporation.
"Compensation" means the total cash remuneration a Participant receives during
an Exercise Period as salary or wages, including overtime pay and bonuses and
excluding all other forms of remuneration.
"Disability" means permanent and total disability as defined in
Code Section 22(e)(3).
"Effective Date" means the effective date of a registration statement under the
Securities Act of 1933, as amended, for the shares of Common Stock to be issued
pursuant to the Plan. Filing of any such registration statement is at the
discretion of the Company.
<PAGE> 2
"Eligible Employee" means each person who, on the Effective Date or on an
applicable Semiannual Grant Date, is employed by the Company or an Affiliated
Company and has been an employee for 3 or more months at that date. An employee
will not be eligible to participate during an Exercise Period if his or her
customary employment as of the first day of the period is either less than 20
hours per week or 5 months or less on a calendar year basis. No employee will be
eligible if he or she is an owner of 5% or more of the stock of the Company or
an Affiliated Company, as determined under Code Section 423(b)(3). In addition,
in no event may any person subject to Section 16 of the Exchange Act who has
ceased participation (within the meaning of Rule 16b-3) be considered an
Eligible Employee for participation until at least six months have elapsed from
the date participation ended.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exercise Date" means any date on which an Eligible Employee purchases Common
Stock pursuant to an Option under this Plan, which shall, with respect to each
Option, be the last day of the Exercise Period in which such Option is granted.
"Exercise Period" means the six month period commencing on an Applicable Grant
Date and ending at 5 p.m on June 30 or December 31, as applicable. However, the
first exercise period commences on the Effective Date and ends at 5 p.m on
December 31, 1992. If the Plan is terminated, then the Exercise Period in which
it is terminated shall end on the date immediately preceding the effective date
of such termination. If any of the preceding ending dates falls on a Saturday,
Sunday or legal holiday in the Commonwealth of Massachusetts, then that Exercise
Period shall end on the day most closely preceding such date which is not a
Saturday, Sunday or legal holiday in the Commonwealth of Massachusetts.
"Fair Market Value Per Share of Common Stock" shall mean (i) the average (on
that date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange, or on the NASDAQ
National Market System, if the Common Stock is not then traded or a national
securities exchange; or (ii) the closing bid price (or average of bid prices)
last quoted (on that day) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market System. If the Common Stock is neither listed on a national
securities exchange nor reported on the NASDAQ National Market System nor traded
on the over-the-counter market, fair market value shall be such value as the
Board, in good faith, determines. Notwithstanding any provision of the Plan to
the contrary, no determination made with respect to the Fair Market Value of
Common Stock subject to an Option shall be inconsistent with Code Section 423.
"Initial Notice Period" means the period beginning on the Effective Date and
ending on the 15th day thereafter.
2
<PAGE> 3
"Notice Period" means that period beginning 30 days prior to the applicable
Semiannual Grant Date and ending on the 15th day prior to said date.
"Option" means an option granted hereunder which will entitle an Eligible
Employee to purchase shares of Common Stock.
"Option Price" means the lower of: (1) 85% of the Fair Market Value per share of
Common Stock as of the Applicable Grant Date on which the Option being exercised
was granted or (2) 85% of the Fair Market Value per share of Common Stock as of
the Exercise Date on which such Option is exercised.
"Participant" means an Eligible Employee who has elected to participate in the
Plan during the period between such election and the termination of such
Eligible Employee's participation in the Plan.
"Plan" means the Creative BioMolecules, Inc. Employee Stock Purchase Plan as set
forth herein.
"Retirement" is a termination on or after the first day of the month of a
Participant's 65th birthday.
"Semiannual Grant Date" means each January 1 and July 1 following the completion
of the first Exercise Period. If any of the dates falls on a Saturday, Sunday or
legal holiday in the Commonwealth of Massachusetts, then that Exercise Period
shall end on the day most closely succeeding such date which is not a Saturday,
Sunday or legal holiday in the Commonwealth of Massachusetts.
"Withholding Account" means a bookkeeping record of all amounts withheld during
an Exercise Period for a specific Eligible Employee, which are available for the
exercise of an Option granted hereunder. Specific segregation of funds is not
required.
3. Administration.
The Plan shall be administered by the Board, which, to the extent it
shall determine, may delegate its powers with respect to the administration of
the Plan (except its powers to terminate or amend the Plan) to the Committee. If
the Board chooses to appoint a Committee, references hereinafter to the Board
shall be deemed to refer to the Committee. Subject to the express provisions of
the Plan, the Board may interpret the Plan, prescribe, amend and rescind rules
and regulations relating to it, determine the terms and provisions of the
Options granted hereunder and make all other determinations necessary or
advisable for the administration of the Plan; provided, however, that all such
interpretations, rules, determinations, terms and conditions shall be made and
prescribed in the context of preserving the tax treatment of the Options under
this Plan granted to Eligible Employees subject to United States Federal Income
Taxation and the Plan itself under Section 423 of the Code. In addition, this
Plan is intended to comply in all respects with Rule 16b-3 or its successor
promulgated under the 1934 Act with respect to participants who are subject to
Section
3
<PAGE> 4
16 of the 1934 Act. Any provision in this Plan with respect to such persons
contrary to Rule 16b-3 shall be modified to the extent necessary for such
provision to comply with Rule 16b-3 to the extent permissible by law and deemed
appropriate by the Board. The determinations of the Board on all matters
regarding the Plan shall be conclusive.
4. Maximum Shares to be Granted under the Plan.
The aggregate number of shares of Common Stock available for grant
as Options pursuant to Section 5 shall not exceed seven-hundred fifty thousand
(750,000), subject to adjustment pursuant to Section 9. Shares of Common Stock
granted pursuant to the Plan may either be authorized but unissued shares or
shares now or hereafter held in the treasury of the Company. In the event that
any Option granted pursuant to Section 5 expires or is terminated, surrendered
or cancelled without being exercised, in whole or in part, for any reason, the
number of shares of Common Stock theretofore subject to such Option shall again
be available for grant as an Option pursuant to Section 5 and shall not reduce
the aggregate number of shares of Common Stock available for grant as such
Options, as set forth in the first sentence of this Section.
5. Eligibility for Participation and Granting of Options.
(a) Each employee of the Company who enrolls in the Plan and who is
an Eligible Employee on the Effective Date or a Semiannual Grant Date, as the
case may be, is granted without any further action by Company an Option
hereunder which will entitle him or her to purchase, on the immediately
following Exercise Date at the Option Price per share for Options granted on
such date, shares of Common Stock equal in value up to fifteen percent (15%) of
the Eligible Employee's Compensation during the Election Period divided by such
applicable Option Price per share of Common Stock.
(b) If the number of shares of Common Stock for which Options are
granted pursuant to paragraph 5(a) exceeds the applicable number set forth in
Section 4, then the Options granted under paragraph 5(a) to all Eligible
Employees shall, in a nondiscriminatory manner, be reduced on a pro rata basis
in a manner which the Board determines to be consistent with Code Section 423.
(c) No Eligible Employee shall be granted an Option under the Plan
which permits his or her rights to purchase stock under all employee stock
purchase plans (as defined in Code Section 423) of the Company and any
Affiliated Company to accrue at a rate which exceeds $25,000 of fair market
value of such stock (determined at the time of the grant of such Option) for
each calendar year in which such Option is outstanding at any time. Any Option
granted under the Plan shall be deemed to be modified to the extent necessary to
satisfy this paragraph.
4
<PAGE> 5
6. Terms of Options.
(a) Each Option shall automatically be exercised on the last day of
the Exercise Period for such Option, using the funds which have accrued in a
Participant's Withholding Account as of such day, unless the Participant
withdraws from the Plan or is deemed to withdraw during the Exercise Period. An
Option granted hereunder may be exercised only through the use of the funds
which have accrued in a Participant's Withholding Account. Any Option, to the
extent unexercised on the Exercise Date, shall expire on the Exercise Date.
(b) As soon as reasonably possible following exercise in accordance
with Paragraph 6(a) and upon the Participant's written request, a certificate
representing the whole number of shares of Common Stock purchased, registered in
the name of the Optionee, shall be delivered to the Optionee or to such other
person designated by Optionee including, without limitation, the Participant's
broker.
(c) A Participant shall be deemed to have withdrawn from
participation in the Plan upon the occurrence of any of the following:
(i) Voluntary discontinuance while employed. A Participant may
discontinue his or her election and withdraw from this Plan by giving written
notice to the Company no later than the last day of the Notice Period within
that Exercise Period, specifying that the Participant is so withdrawing from the
Plan, provided, however, that a Participant who shall have discontinued his or
her election to participate and withdrawn from this Plan may not participate in
the Plan during the next following Offering Period.
(ii) Termination of employment. Unless employment has terminated
due to Retirement, Disability or death, a Participant will be deemed to have
discontinued participation on the first day of the Exercise Period in which
termination occurs and amounts withheld from compensation during the Exercise
Period will be refunded without election by the Participant.
(iii) Retirement. In the event a Participant's employment
terminates because of Retirement during the first three months of an Exercise
Period, the Participant will be deemed to have discontinued participation on the
first day of the Exercise Period in which Retirement occurs and amounts withheld
from Compensation during the Exercise Period will be refunded. If Retirement
occurs during the last three months of the Exercise Period, the Participant will
continue to participate through the balance of the Exercise Period in which
Retirement occurs (without further withholding) unless he or she elects a
voluntary discontinuance within the Notice Period for that Exercise Period.
(iv) Death or Disability. In the event the employment of the
Participant by the Company or an Affiliated Company terminates as a result of
the Participant's Disability or Death, the Participant will be deemed to
participate (without further withholding) through the balance of the Exercise
Period in which
5
<PAGE> 6
death or Disability occurs, unless he or she (or the executor, administrator or
representative, as the case may be) elects a voluntary discontinuance within the
Notice Period for that Exercise Period.
(v) Levy or attachment. The filing with or levying upon the
Company or the custodian of any judgment, attachment, garnishee, or other Court
order affecting the Participant's account under this Plan will terminate his or
her participation.
(vi) Plan Termination/ Expiration. The termination of this Plan
by the Company prior to its expiration or its expiration upon allocation of all
available shares will terminate participation.
(d) A Participant's employment shall not be deemed terminated by
reason of a transfer to another employer which is related to the Company within
the meaning of Code Sections 423 (e) or (f). A Participant who has elected
participation under the Plan who is absent from work with the Company or with an
Affiliated Company because of temporary disability (any disability other than a
permanent and total Disability) or who is on leave of absence for a period of
less than 90 days shall not, during the period of any such absence, be deemed,
by virtue of such absence alone, to have terminated employment. In the case of a
leave of absence which is longer than 90 days, a Participant will not be deemed
to have terminated employment until the later of the 91st day of such leave or,
if later, such date as the Participant's reemployment rights are not protected
by contract or law.
(e) Upon the discontinuance of an election and withdrawal from this
Plan by a Participant, all withheld amounts in the account which are
attributable to such Participant shall be transferred to such Participant within
thirty (30) days of such discontinuance and withdrawal, except to the extent
such withheld amounts are applied to the exercise of an Option as provided
above. In no event shall any amounts be withheld from a Participant's
Compensation for allocation to such Participant's Withholding Account after the
date such Participant's employment shall cease.
(f) In no event may any discontinuance of a Participant's election
and withdrawal from this Plan be in respect to a portion rather than all of such
Participant's Withholding Account on such date.
7. Payment for Common Stock Through Withholding.
(a) Employee Contributions
Each Eligible Employee may elect to participate in this Plan by
filing an enrollment application and payroll withholding form with his or her
employer's payroll department during the Initial Notice Period or during a
Notice Period, which election shall be effective in the case of an election
filed during the Initial Notice Period, for the Exercise Period commencing on
the Effective Date and all subsequent Exercise Periods, or, in the
6
<PAGE> 7
case of an election filed during a Notice Period, for the next Exercise Period
and for all subsequent Exercise Periods, until, in any case, such Participant's
participation in the Plan terminates. Each Eligible Employee who elects to
participate shall specify the amount of his or her contributions to be made by
payroll deduction by specifying a whole percentage from 1% to 15% of such
Participant's Compensation payable for each payroll period.
No interest shall accrue or be payable to any Participant in the
Plan with respect to any sums withheld at the Participant's election, whether
such sums be applied to purchase Common Stock, or are returned to the
Participant.
Payroll deductions may be increased by a Participant only during a
subsequent Notice Period, but may be decreased, upon the Participant's written
election, effective as of the first payroll period for which it is
administratively practical to put the decrease into effect.
(b) Application of Payroll Contributions
The Company shall maintain a separate account into which it shall
deposit all amounts withheld for payment of shares of Common Stock and shall
maintain sufficient records to show each Participant's Withholding Account.
On the last day of each Exercise Period all amounts in a
Participant's Withholding Account shall be paid over to the Company in payment
of the Option Price for the number of whole shares of Common Stock which can be
purchased on such date with such withheld total amount, unless otherwise
directed in accordance with Section 6 above. In lieu of fractional shares,
unapplied cash shall be carried forward to the next Exercise Period unless the
Participant requests a cash payment.
8. Transferability of Options and Common Stock.
(a) No Option may be transferred, assigned, pledged, or hypothecated
(whether by operation of law or otherwise), except as provided by will or the
applicable laws of descent or distribution, and no Option shall be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of an Option, or levy of attachment
or similar process upon the Option not specifically permitted herein shall be
null and void and without effect. An Option may be exercised only by the
Eligible Employee during his or her lifetime, or by his or her legal
representative if permitted by Section 423 of the Code, or pursuant to Section 6
by his or her estate or the person who acquires the right to exercise such
Option upon his or her death by bequest or inheritance.
(b) Participants in the Plan who wish to avail themselves of the
favorable tax benefits of Code Section 423 may not transfer or otherwise dispose
of shares of Common Stock acquired by them or on their behalf under this Plan
(other than in the case of a Participant's death) until after the later of one
year
7
<PAGE> 8
from the date of acquisition of said shares or two years after the Applicable
Grant Date of the Option pursuant to which said shares of Common Stock were
acquired. In the case of any person subject to Section 16 of the 1934 Act,
shares purchased under this Plan must be held for six months from the Exercise
Date in order for the Participant to obtain the benefit of Rule 16b-3.
(c) Each Eligible Employee who receives shares of Common Stock
pursuant to this Plan agrees, by electing to participate, to notify the Company,
in writing, immediately after such Participant makes a Disqualifying Disposition
of any shares acquired pursuant to the exercise of an Option under this Plan. A
Disqualifying Disposition is any disposition (including any sale) of such shares
before the later of two years after the Applicable Grant Date for said Option or
one year after the receipt of shares pursuant to the exercise of said Option. If
the Participant has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
9. Adjustment Provisions.
The aggregate number of shares of Common Stock with respect to which
Options may be granted, the aggregate number of shares of Common Stock subject
to each outstanding Option, and the Option Price per share of each Option shall
all be appropriately adjusted for any increase or decrease in the number of
shares of issued Common Stock resulting from a subdivision or consolidation of
shares, whether through reorganization, recapitalization, stock split-up, stock
distribution or combination of shares, or the payment of a share dividend or
other increase or decrease in the number of such shares outstanding effected
without receipt of consideration by the Company. Adjustments shall be made
according to the sole discretion of the Board, and its decision shall be binding
and conclusive.
10. Dissolution, Merger and Consolidation.
Upon the dissolution or liquidation of the Company, or upon a merger
or consolidation of the Company in which the Company is not the surviving
corporation, the holder of each Option then outstanding under the Plan will
thereafter be entitled to receive at the next Exercise Date upon the exercise of
such Option for each share as to which such Option shall be exercised, as nearly
as reasonably may be determined, the cash, securities and/or property which a
holder of one share of the Common Stock was entitled to receive upon and at the
time of such transaction. The Board shall take such steps in connection with
such transactions as the Board shall deem necessary to assure that the
provisions of this Section 10 shall thereafter be applicable, as nearly as
reasonably may be determined, in relation to the said cash, securities and/or
property as to which such holder of such Option might thereafter be entitled to
receive.
11. Shareholder Approval.
The Plan is subject to approval by the holders of a majority of the
outstanding shares of Common Stock (and the holders of any
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<PAGE> 9
other class of stock to the extent required by agreement or Code Section 423)
within 12 months before or after the date of adoption of the Plan by the Board.
The Plan shall be null and void and of no effect if the foregoing condition is
not fulfilled.
12. Miscellaneous.
(a) Legal and Other Requirements. The obligations of the Company to
sell and deliver Common Stock under the Plan shall be subject to all applicable
laws, regulations, rules and approvals, including, but not by way of limitation,
the effectiveness of a registration statement under the Securities Act of 1933
if deemed necessary or appropriate by the Company. Certificates for shares of
Common Stock issued hereunder may be legended as the Board shall deem
appropriate.
(b) Termination and Amendment of Plan. Except as provided in the
following sentence, the Plan may be terminated or amended by the shareholders,
by the Board, or by the Committee, including amendment of the Plan from time to
time to designate corporations whose employees may be offered options under the
plan from among a group consisting of the Company and any corporation which is
or becomes its Affiliate. Amendments effecting: (1) any increase in the
aggregate number of shares which may be issued under the Plan (other than an
increase merely reflecting a change in capitalization such as a stock dividend
or stock split) or (2) changing the designation of corporations whose employees
may be offered options under the Plan, except designations described in the
preceding sentence, must be approved by the shareholders within twelve (12)
months after such amendment is adopted by the Board or by the Committee or such
amendment is void ab initio. No amendment shall affect any Options theretofore
granted or any Common Stock theretofore acquired by a Participant, unless such
amendment shall expressly so provide and unless any Participant to whom an
Option has been granted who would be adversely affected by such amendment
consents in writing thereto. If the scope of any amendment is such as to require
shareholder approval in order to comply with Rule 16b-3 under the 1934 Act, then
such amendment shall also require approval by the shareholders.
(c) Application of Funds. The proceeds received by the Company from
the sale of Common Stock pursuant to Options will be used for general corporate
purposes.
(d) Withholding Taxes. Upon a Disqualifying Disposition, within the
meaning of Paragraph 8(c), of any shares of Common Stock received pursuant to
the exercise of any Option under the Plan, the Company shall have the right to
require the Participant to remit to the Company an amount sufficient to satisfy
all federal, state and local requirements as to income tax withholding and
employee contributions to employment taxes or, alternatively, in the Board's
sole discretion, the Company may withhold all such amounts from other cash
compensation then being paid to the Participant by the Company.
(e) Right to Terminate Employment. Nothing in the Plan or any
agreement entered into pursuant to the Plan shall confer upon
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<PAGE> 10
any Eligible Employee or other optionee the right to continue in the employment
of the Company or any Affiliated Company or affect any right which the Company
or any Affiliated Company may have to terminate the employment of such Eligible
Employee or other optionee.
(f) Rights as a Shareholder. A Participant shall not have any right
as a shareholder with respect to shares of Common Stock issuable pursuant to the
exercise of an Option hereunder, unless and until a certificate or certificates
for such shares of Common Stock are issued to him or her or the Company reflects
the Participant's ownership in its stock ledger or other appropriate record of
Common Stock ownership.
(g) Leaves of Absence. The Board shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by any Eligible Employee, provided such
rules are consistent with Code Section 423.
(h) Notices. Every direction, revocation or notice authorized or
required by the Plan shall be deemed delivered to the Company (1) on the date it
is personally delivered to the Treasurer of the Company (or such other person as
may be designated by the Company from time to time with notice given to each
Participant) at its principal executive offices or (2) three business days after
it is sent by registered or certified mail, postage prepaid, addressed to the
Treasurer of the Company (or such other person as may be designated by the
Company from time to time with notice given to each Participant) at such offices
or (3) on the date on which delivery was guaranteed by a third party business
(such as Federal Express and including the postal service); and shall be deemed
delivered to a Participant (1) on the date it is personally delivered to him or
her or (2) three business days after it is sent by registered or certified mail,
postage prepaid, addressed to him or her at the last address shown for him or
her on the records of the Company or of any Affiliate or (3) on the date on
which delivery was guaranteed by a third party business (such as Federal Express
and including the postal service), provided that the documents were sent to him
or her at the last address shown for him or her on the records of the Company or
of any Affiliate.
(i) All Eligible Employees shall have the same rights and privileges
under the Plan, except that the amount of Common Stock which may be purchased
under Options granted under this Plan shall bear a uniform relationship to the
Compensation of Eligible Employees. All rules and determinations of the Board in
the administration of the Plan shall be uniformly and consistently applied to
all persons in similar circumstances.
(j) Applicable Law. All questions pertaining to the validity,
construction and administration of the Plan and Options granted hereunder shall
be determined in conformity with the law of Delaware, to the extent not
inconsistent with Section 423 of the Code and regulations thereunder.
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<PAGE> 1
Exhibit 10.55
LEASE AGREEMENT
BETWEEN
STORM MEADOWS, INC.
AND
CREATIVE BIOMOLECULES
<PAGE> 2
LEASE AGREEMENT
THIS AGREEMENT made this 15th day of May, 1998 by and between Storm
Meadows, Inc. (hereinafter referred to as "Landlord") and Creative Biomolecules
(hereinafter referred to as "Tenant").
W I T N E S E T H:
THAT Landlord, for and in consideration of the rentals and covenants
hereinafter mentioned on the part of Tenant, its successors and assigns to be
performed, has leased, and by these presents does lease, unto Tenant, and Tenant
does hereby take and hire from Landlord upon and subject to the conditions
hereinafter expressed the premises described as the westerly portion of the
"Building" located on lots 8 and 9 at The Olcott Park in Wilder, Vermont, and
consisting of approximately 9,200 square feet. Said premises are shown outlined
in red on Exhibit "A" annexed hereto and made a part hereof (hereinafter
referred to as the "Premises").
IT IS FURTHER understood and agreed by and between the parties
hereto as follows:
ARTICLE 1
TERM
A. TERM - The initial term (the "term") of this Lease shall be for a
period of three (3) years beginning on May 15, 1998 and ending on April 15,
2001.
B. OPTIONS TO EXTEND LEASE - Provided that Tenant is not, and has
not been, in default or in breach of its lease obligations as set forth herein,
Tenant shall have the right to extend the terms of this Lease for two (2)
additional terms of five (5) years each, under the same terms and conditions as
set forth herein except that the rent for each year of said renewal term shall
be as set forth in Article 2 below. To exercise an option to extend, the Tenant
must give the Landlord written notice of its intention to exercise such option
no later than 120 days prior to the expiration date of the prior term. Upon the
exercise of an option by Tenant, Tenant shall execute any documentation required
by Landlord to memorialize said extension including, but not limited to, any
estoppel certificates.
<PAGE> 3
ARTICLE 2
FIXED RENT AND ADDITIONAL RENT
A. BASE RENT - The term "lease year" shall mean the period of twelve
(12) months commencing on May 1, 1998 and ending on the following April 30,
1999, and each successive period of twelve months thereafter during the term of
this Lease.
Landlord agrees that Tenant shall not pay base rent for the
period beginning May 1, 1998 and ending on July 31, 1998 (three months) in
consideration for Tenant's agreement to make the improvements to the Premises
identified on Exhibit B as referenced in Article 7 hereof.
Except for the waiver of the first three months rent as described
above, the Tenant shall pay to the Landlord the base rent of Forty-Eight
Thousand, Three Hundred Dollars ($48,300) per lease year in twelve (12) monthly
installments of Four Thousand Twenty-Five Dollars ($4,025) each payable in
advance on the first day of each month during the term of this Lease, at
Landlord's original address, or at such other place as Landlord shall from time
to time designate by written notice, with adjustments at the beginning of years
two and three and for any renewal term in accordance with Section 2B below.
In the event Tenant exercises the option or options described
above to extend the Lease Term, the Base Rent for each respective option term
(four (4) through eight (8) and years nine (9) through thirteen (13)) will be
based upon the last years rent for the prior lease term increased by the
Consumer Price Index set forth in Section 2B. Said rent shall constitute the
rent of the first year of each option term and shall thereafter be increased for
each year of each option term based upon the Consumer Price Index calculation
set forth in Section 2B.
The Tenant's failure to pay any rent due under the terms of this
Lease for a period of ten (10) days following the due date of said payment
shall, in addition to all other remedies or penalties otherwise available to
Landlord, require the payment of an amount equal to five percent (5%) of the
amount due Landlord for the defaulted payment, This five percent (5%) payment
shall be deemed rent.
B. ADJUSTMENTS TO BASE RENT - At the beginning of the second lease
year of the term, the annual base rent shall be increased by the percentage
increase for the preceding lease year in the All Urban Boston Region "All Items"
Consumer Price Index published by the United States Department of Labor, Bureau
of Labor Statistics ("CPI") or in an amount equal to four percent (4%),
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<PAGE> 4
whichever is greater. At the beginning of the third lease year and at the
beginning of each lease year thereafter and for any renewal period, the annual
base rent for the preceding year shall be increased annually by the percentage
increase in the CPI during the prior lease term immediately preceding the lease
year for which the base rent is being adjusted. The base rent adjustment shall
be the greater of the CPI increase as calculated above or four percent (4%).
If the CPI is changed so that the base year of the CPI differs
from that used as of the commencement of this Lease, the CPI shall be converted
in accordance with the conversion factor published by the United States
Department of Labor, Bureau of Labor Statistics. If the CPI is discontinued or
revised while this Lease is in effect, such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the CPI had not been
discontinued or revised.
C. TENANT'S SHARE OF INCREASES IN INSURANCE, REAL ESTATE TAXES AND
OTHER COSTS - The Tenant shall be responsible for and shall pay the Landlord as
additional rent an amount equal to the Landlord's total costs for each of the
following costs attributable to the leased Premises for each lease year. The
Tenant's share of the Landlord's costs attributable to the leased Premises
equals 57.14% of the Landlord's total costs.
1. Fire and Casualty Insurance (see Paragraph 3F below).
2. Real Estate Taxes and Assessments Attributable to the
Building and the Land Upon which it is Situated (see
Paragraph 4 below).
3. Trash Removal Charges (see Paragraph 5 below).
4. Water Charges Assessed by the Town of Hartford (see Paragraph
5 below).
5. Sewer Charges Assessed by the Town of Hartford (see Paragraph
5 below).
6. Snow Plowing Charges.
7. Such other charges, costs or expenses payable by Landlord and
directly attributable to Tenant's use and possession of the
Premises.
The Landlord shall bill the Tenant for any amount of additional
rent due to the Landlord as a result of the costs of such items; such bill or
bills shall include a statement showing the actual underlying costs to the
Landlord for such items for the lease year in question and the calculation by
which the Landlord determines the amount due on the leased Premises as
additional
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<PAGE> 5
rent. Landlord shall bill Tenant on a quarterly basis. Each such bill shall be
payable within twenty days of issuance by the Landlord. All charges provided for
in this paragraph shall be collectible as rent, the nonpayment of which shall
entitle Landlord to all rights and remedies to which Landlord is entitled for
the nonpayment of rent pursuant to the terms of this Lease Agreement.
Excluded from additional rent under Article 2(C) of the Lease are
late charges, interest or other penalties or expenses incurred as a result of
Landlord's acts and omissions; charges incurred by Landlord for services,
supplies, or equipment purchased or leased for other real estate of Landlord;
depreciation and amortization on the Building; expenses for services provided
solely to other tenants or occupants and not to Tenant; costs to refurbish any
other Premises in order to lease said other Premises to a present or new tenant;
overhead and profit increments paid to Landlord or its subsidiaries or
affiliates; commercial concessions; repairs or other work occasioned by fire,
windstorm or other casualty of an insurable nature or other work paid from
insurance or condemnation proceeds; costs for correcting code violations;
capital improvements; and expenses attributable to increasing the size of the
Building or Common Areas.
ARTICLE 3
INSURANCE
The Tenant shall maintain with responsible companies reasonably
approved by the Landlord:
A. Liability insurance, with contractual liability endorsement
against all claims, demands or actions for personal injury to or death of any
one person in an amount of not less than Two Million Dollars and for injury to
or death of not more than one person in any one accident or occurrence to the
limit of not less than Three Million Dollars and/or damage to property in an
amount not less than Five Hundred Thousand Dollars for personal property and
Three Million Dollars for damage to real property, made by or on behalf of any
person, arising from, related to or in any way connected with the conduct and
operation of the Tenant's business, including the uses, storage or
transportation of hazardous or toxic materials in the leased Premises, or caused
by actions or omissions to act, where there is a duty to act, of the Tenant, its
agents, servants and contractors.
B. Casualty and fire insurance policies with full extended coverage
provisions with respect to the Premises in an amount not less than the full
replacement cost of the Premises and improvements thereon, but in no event less
than the amount sufficient to avoid the effect of the co-
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<PAGE> 6
insurance provisions of the applicable policy or policies.
C. Boiler insurance policies of insurance, against loss or damage
arising from incidents relating to the heating systems, electrical systems, gas
pipes, gas and/or oil boilers, other pressure vessels, high pressure and/or oil
piping and machinery, if any, installed in the building and improvements, in an
amount reasonably satisfactory to Landlord.
D. Business interruption and/or loss of rental value insurance
policies on an actual loss sustained basis in such amounts as are reasonably
satisfactory to the Landlord.
E. The Landlord shall not be liable to the Tenant for loss or damage
from any cause whatsoever to machinery and equipment, furnishings, fixtures,
inventory or other personal property, except arising from or relating to the
negligent acts of Landlord or its employees, contractors or agents.
F. The Landlord shall carry and shall pay for such additional fire
and other casualty insurance on the structure as Landlord deems advisable in
such amounts as may be necessary to replace or repair the structure and
improvements thereto, subject to reimbursement by the Tenant for the cost of
said insurance, as provided under Paragraph 2C above.
G. The Tenant shall obtain, if available, a waiver from any
insurance carrier with which the Tenant carries insurance against fire and other
casualties covering the Tenant's property and merchandise releasing its right of
subrogation as against the Landlord. Similarly, the Landlord shall obtain, if
available, a waiver from any insurance on the structure, releasing the
Landlord's right of subrogation as against the Tenant.
All of said insurance as identified in subsections A, B, C and D
above shall name the Landlord as a co-insured thereunder and shall be in a form
satisfactory to the Landlord and shall provide that it shall not be subject to
cancellation, termination, or modification except after at least ten (10) days
prior written notice to the Landlord. All policies required or duly executed
certificates for the same shall be deposited with the Landlord upon execution of
this Lease and upon renewals of said policies not less than fifteen (15) days
prior to the expiration of the term of such coverage. All such policies or
certificates shall be delivered with satisfactory evidence of the payment of the
premium therefore. The Tenant may carry any of the foregoing insurance as part
of a blanket policy maintained by the Tenant covering other locations.
5
<PAGE> 7
ARTICLE 4
REAL ESTATE TAXES
The Landlord shall pay all real estate taxes assessed against the
leased Premises during the term of this Lease subject to reimbursement by the
Tenant as provided under Paragraph 2.C.2 above. Tenant shall reimburse Landlord
for any other assessments or fees which may in the future be levied against the
use of the Premises by the Town of Hartford or any other governing body or
public utility including, but not limited to real estate or ad valorem taxes.
Tenant shall also pay to the appropriate taxing authority the amount
of all assessments, impositions and taxes made, levied or assessed against or
imposed upon any and all property of Tenant.
If at any time during the term of this Lease the methods of taxation
prevailing at the execution hereof shall be changed or altered so that in lieu
of or as a supplement to or a substitute for the whole or any part of the real
estate taxes or assessments now or from time to time hereafter levied, assessed
or imposed by applicable taxing authorities, there shall be imposed (i) a tax,
assessment, levy, imposition or charge, wholly or partially as a capital levy or
otherwise, on the rents received from the Premises, or (ii) a tax, assessment,
levy (including but not limited to any municipal, state or federal levy),
imposition or charge measured by or based in whole or in part upon the Premises
and imposed upon Landlord, or (iii) a license fee measured by the rent payable
under this Lease, then all such taxes, assessments, levies, impositions and/or
charges, or the part thereof so measured or based shall be deemed to be included
in the general real estate taxes and assessments payable by Tenant pursuant
hereto, to the extent that such taxes, assessments, levies, impositions and
charges would be payable if the Premises were the only property of Landlord
subject thereto, and Tenant shall pay and discharge the same as herein provided
in respect of the payment of general real estate taxes and assessments.
The Tenant, after notice to the Landlord, may contest in good faith,
by appropriate proceedings conducted promptly at the Tenant's expense, in the
Tenant's name or (whenever necessary) in the Landlord's name, any such taxes,
assessments, duties or charges and the Landlord agrees to cooperate reasonably
with the Tenant and to execute any documents or pleadings reasonably required
for such purpose, provided that the Landlord shall not incur any expense or
6
<PAGE> 8
liability in connection therewith. The Tenant may defer payment of the contested
tax, assessment, duty or charge pending such contest, provided that the Tenant
shall deposit with the Landlord a sum which shall be at least equal to the
amount of the payment so deferred plus estimated penalties and interest thereon,
and provided further that the Landlord may, upon reasonable notice to Tenant,
pay such contested item or items out of any sums so deposited in case of undue
delay in the prosecution of such contest or if the protection of the property or
of the Landlord's interest therein shall, in the reasonable judgment of the
Landlord, require such payment. The Tenant may not, however, defer payment of
such contested item unless the Tenant shall procure and deliver to the Landlord
a written agreement, in form reasonably satisfactory to the Landlord, signed by
the holder or holders of any mortgage covering the demised Premises, to the
effect that no default will be declared under such mortgage by reason of such
deferment. When any such contested item shall have been paid or cancelled, any
sums so deposited to cover the same and not applied by the Landlord as aforesaid
shall be repaid to the Tenant without interest. Any tax refund shall be the
property of the Tenant to the extent to which it may be based on a payment made
by the Tenant.
ARTICLE 5
WATER AND SEWER CHARGES, TRASH REMOVAL CHARGES,
HEAT AND ELECTRICITY CHARGES
The Landlord shall provide and/or bear the expense of water and
sewer charges, trash and snow removal charges, subject to reimbursement by
Tenant as provided under Paragraph 2.C. above. The Tenant shall provide and/or
bear and be solely responsible for all electrical expenses and any expenses
necessary for the providing of heat for the Premises.
ARTICLE 6
REPAIR AND MAINTENANCE OBLIGATIONS
A. Except as provided in Article 6(C), the Tenant shall at its own
cost and expense, at all times, keep the leased Premises in good order,
condition and repair. The said obligations for maintenance and repair shall
include, but not be limited to, all interior partitions, doors, door closures,
fixtures, equipment and appurtenances thereto (including the lighting,
electrical, heating, plumbing and air conditioning systems), signs, floor
coverings, windows, interior walls and ceilings.
B. All repairs required to be made by Tenant shall be performed in a
good and
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<PAGE> 9
workmanlike manner, shall be at least equal in quality, utility and usefulness
to the condition at the commencement of this Lease, shall be of a first-class
character and shall not diminish the overall value of the Premises. All such
repairs, replacements and renewals in connection with the Premises shall,
immediately upon the expiration or earlier termination of the term hereof, be
and become the property of Landlord without payment therefor by Landlord and
shall be surrendered to Landlord upon the expiration or earlier termination of
the term hereof. Upon the expiration or earlier termination of the term hereof,
Tenant shall surrender the Premises to Landlord in good order, condition and
repair, except for ordinary wear and tear.
In the event that Tenant shall fail or neglect to make any
necessary repairs as and to the extent required of Tenant pursuant to this
Lease, then Landlord or its agent may, without any obligation so to do, after
thirty (30) days' notice to Tenant and upon Tenant's failure to cure the same
within said thirty (30) days, enter the Premises and make said repairs at the
cost and expense of Tenant, and in case of Tenant's failure to pay therefor, the
said cost and expense shall be payable on demand together with interest at nine
percent (9%) per annum (or the maximum amount permitted by law, whichever shall
be less).
C. Landlord shall maintain, replace and repair when necessary the
exterior of the structure including, but not limited to, the roof, exterior
walls, and all exterior service pipes and mains which service the lease
Premises, the parking areas and other common areas, unless any of the above is
damaged or the need to repair any of the above is caused by the acts of Tenant,
its agents, employees or business invitees.
ARTICLE 7
ALTERATIONS
Except as set forth in Exhibit B attached hereto Tenant shall not
make or cause to be made any alterations, additions or improvements in or make
any changes with respect to the leased Premises without first obtaining the
Landlord's written approval and consent, which such approval and consent shall
not be unreasonably withheld or delayed. Any such additions, alterations or
improvements approved by the Landlord shall be completed in a workmanlike manner
and in accordance with complete construction plans and specifications approved
by the Landlord, and all work shall conform to any and all government
regulations, rules or laws related to said improvements.
8
<PAGE> 10
A. No alteration or addition shall be undertaken until Tenant shall
have procured and paid for, so far as the same may be required from time to
time, all permits and authorizations of the various governmental agencies having
jurisdiction thereover. Landlord agrees to join in the application for such
permits or authorizations whenever such action is necessary.
B. All alterations and additions when completed shall be of such a
character as not to reduce, or otherwise adversely affect the value of the
Premises, nor to reduce the size of the building, the cubic content thereof, nor
change the character of the Premises. Tenant or its contractors shall make all
repairs to and replacements of such alterations and additions made by it in and
to the Premises.
C. All work done by Tenant shall be done promptly, in a good and
workmanlike manner, and in compliance with the building and zoning laws of the
municipality in which the Premises are located and in compliance with all laws,
ordinances, orders, rules, regulations and requirements of all federal, state
and municipal governments and the appropriate departments, commissions, boards
and officers thereof, and in accordance with the orders, rules and regulations
of the Board of Fire Underwriters where the Premises are situated or any other
body exercising similar functions and having jurisdiction thereof; said
alterations or additions shall be constructed and completed free of liens for
labor and material supplied or claimed to have been supplied to the Premises.
D. Tenant shall at Tenant's sole cost and expense, at all times when
any work is in process in connection with any alterations or additions, maintain
Builders Risk casualty insurance policy coverage in the amount of the full
replacement cost thereof, and Statutory Workmen's Compensation Insurance
covering all persons employed in connection with the work and with respect to
whom death or injury claims could be asserted against Landlord, Tenant or the
Premises, general liability insurance with the same limitations of coverages as
set forth in Article 3, during the period of construction. All such insurance
will be issued by a company or companies authorized to do business in Vermont
and satisfactory to Landlord, and all such policies (or certificates therefor)
shall be delivered to Landlord and shall provide for at least ten (10) days'
prior written notice to Landlord of cancellation.
E. All alterations and additions made or installed by Tenant shall
be and become the property of Landlord without payment therefor by Landlord, and
shall be surrendered to Landlord upon the expiration or sooner termination of
the term of this Lease. If Tenant shall not be in default
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<PAGE> 11
of any of its obligations under this Lease and all prior defaults shall have
been fully cured at the termination of the term hereof, upon the termination of
the lease term or any renewal thereof, Tenant shall have the right to remove its
trade fixtures and personal property from the Premises provided, however, that
Tenant shall, at its own cost and expense, repair any damage caused by such
removal and shall have restored the Premises to the condition that it was in
prior to the installation of Tenant's said trade fixtures and personal property.
F. Notwithstanding the above, Tenant shall have the right, at is own
expense and without Landlord's consent, to decorate the Premises and to make any
non-structural alterations and changes less than $1,500 per alteration or
change, as it shall deem expedient to the better conduct of its business,
provided that (a) such alterations and/or changes do not injure the structural
safety of either the Premises or the Building, and in no way diminish the value
of either, and (b) such alterations and/or changes are done in a good and
workmanlike manner, employing materials of good quality and complying with all
proper governmental requirements.
G. Landlord agrees at its sole cost and expense to: (1) Hard pack
the rear driveway and parking apron areas; and (2) Build a new shed type roof,
front step and associated stone work at the front entryway of the leased
Premises. All work to be done by Landlord shall be done promptly, in a good and
workmanlike manner, and in compliance with the building and zoning laws of the
municipality in which the Premises are located and in compliance with all laws,
ordinances, orders, rules, regulations and requirements of all federal, state
and municipal governments and the appropriate departments, commissions, boards
and officers thereof.
ARTICLE 8
MECHANICS' LIENS
Tenant shall not suffer or permit any liens, mechanics' liens,
mechanics' notices of intention, or the like to be filed against the Premises or
any part thereof by reason or work, labor, services, equipment or materials
supplied or claimed to have been supplied to or on behalf of Tenant or anyone
holding the Premises or any part thereof through Tenant. Before any persons or
entities perform any work or supply any materials to the Premises which could
form the basis for a mechanics' lien, Tenant shall require such persons or
entities to waive their mechanics' lien rights, said waiver to be done in
writing and conspicuously. If any such liens, mechanics' liens, mechanics'
notices of intention, or the
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like shall at any time be filed against the Premises, Tenant shall cause the
same to be discharged of record within thirty (30) days after the date of filing
the same, or if Landlord shall by written agreement with Tenant, permit same to
remain undischarged, Tenant shall post an insurance company surety bond
providing for and securing due payment thereof and saving Landlord harmless and
indemnifying it with respect thereto. Tenant shall not have any right whatsoever
to subject the interests of Landlord in the Premises or in the fee simple title
thereto to any mechanics' liens or other liens whatsoever and nothing contained
in this Lease shall be deemed to operate as an express or implied consent to
Tenant to subject the interests of Landlord to any such lien or liens.
ARTICLE 9
COMPLIANCE WITH LAW
Tenant throughout the term of this Lease at Tenant's sole cost and
expense, shall promptly comply with all laws and ordinances and the orders,
rules, regulations and requirements of all federal, state and municipal
governments and appropriate departments, commissions, boards and officers
thereof and the orders, rules and regulations of any Board of Fire Underwriters
or similar body or agency where the Premises are situated, or any body, now or
hereafter constituted, exercising similar functions, foreseen or unforeseen,
ordinary or extraordinary, relating to the Premises or to Tenant's use and
occupancy thereof.
Tenant will observe and comply with the requirements of the carriers
of any reasonable policy of insurance respecting the Premises of which Tenant
has written notice, and the requirements of all policies of public liability,
fire, casualty and other policies of insurance at any time in force with respect
to the Premises.
In the event that Tenant shall fail or neglect to comply with any of
the aforesaid obligations, then Landlord without any obligation so to do, after
thirty (30) days' notice to Tenant and upon Tenant's failure to cure the same
within said thirty (30) days, may enter the Premises and effect compliance at
the cost and expense of Tenant, and in case of Tenant's failure to pay therefor,
the said cost and expense shall be payable on demand, together with interest at
nine percent (9%) per annum.
Landlord hereby represents to Tenant that, to the best of Landlord's
knowledge, the Landlord's land and building have received all necessary permits
and approvals for occupancy and the Landlord has received no notice of any
violation of any said permit or approval. Landlord further
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represents to Tenant that the driveways, sidewalks and parking areas will
throughout the term hereof comply with all laws, ordinances, rules and
regulations of any permitting authorities, and Landlord shall hold Tenant
harmless from any costs, liability, losses or damages (including reasonable
legal fees) arising out of any failure to so comply, unless failure to comply
shall be a result of the acts or omissions of Tenant or its agents or employees.
ARTICLE 10
CONDITION OF PREMISES
The Tenant acknowledges that it has knowledge of the condition of the leased
Premises and that no representation as to the condition or the repair thereof
has been made by Landlord and that no repairs, alterations or renovations are to
be made by the Landlord except as set forth herein.
ARTICLE 11
INSPECTION BY LANDLORD
A. Tenant agrees to permit Landlord and the authorized
representatives of Landlord, upon reasonable advance notice, to enter the
Premises during usual business hours of Tenant in a manner not to unreasonably
interfere with Tenant's business: (i) for the purpose of inspecting the same,
and (ii) if Landlord so elects, but without any obligation so to do, and if
Tenant has failed to do so within a reasonable time, for the purpose of making
any necessary repairs to the Premises and performing any work therein which may
be reasonably necessary to comply with any laws, ordinances, rules, regulations
or requirements of any public authority or of the Board of Fire Underwriters or
any similar body, or which may be reasonably necessary to prevent waste or
deterioration in connection with the Premises. Nothing herein shall imply any
duty upon the part of Landlord to do any work which, under any provision of this
Lease Tenant may be required to perform, and the performance thereof by Landlord
shall not constitute a waiver by Landlord of Tenant's default in failing to
perform the same. Landlord may, during the progress of any such work in the
Premises, keep and store upon the Premises all necessary materials, tools and
equipment. Landlord shall not in any event be liable for inconvenience,
annoyance, disturbance, loss of business or other damage to Tenant by reason of
making such repairs or the performance of any such work in the Premises, or on
account of bringing materials, supplies and equipment into or through the
Premises during the course thereof, and the obligations of Tenant under this
Lease shall not thereby
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be affected in any manner whatsoever; provided always, however, that to the
extent that Landlord elects to perform or is obligated to perform any such
repairs pursuant to the provisions of this Lease, Landlord agrees that (to the
extent reasonably practicable under the circumstances) Landlord shall use its
best efforts to cause such repairs to be performed in such a way as to cause a
minimum of inconvenience to Tenant in the operation of Tenant's business in the
Premises and to cause the said work to be accomplished in as expeditious a
manner as is reasonably practicable.
B. During the final six (6) months of the term, Landlord is hereby
given the right at any time during usual business hours and upon prior
reasonable notice to Tenant to enter the Premises and to exhibit the same for
the purposes of sale and/or lease. Landlord shall be entitled to show the
Premises to potential buyers and/or prospective tenants and to display on the
Premises in such manner as not unreasonably to interfere with Tenant's business
the usual "For Sale" or "To Let" signs and Tenant agrees that such signs may
remain, unmolested, upon the Premises.
ARTICLE 12
ASSIGNMENT AND SUBLETTING
A. Provided that this Lease shall be in good standing and that
Tenant shall not be in default of any of its obligations hereunder, Tenant may,
without Landlord's consent, hereafter assign this Lease or sublet the Premises
to any subsidiary or parent corporation of the Tenant or to any corporation into
or with which the Tenant or its parent or subsidiary corporation shall be duly
merged, converted or consolidated under any statutory proceeding, provided that
the total assets and net worth of such assignee, after such consolidation or
merger, shall be equal to or more than that of Tenant immediately prior to such
consolidation or merger, and provided further that such successor shall execute
an instrument in writing reasonably satisfactory to Landlord's counsel fully
assuming all of the obligations and liabilities imposed upon Tenant hereunder
and shall deliver the same to Landlord. No such assignment or subletting shall
operate to relieve Tenant from any liability hereunder.
B. Unless Landlord shall have given its prior written consent
thereto, which consent Landlord agrees it shall not unreasonably withhold or
delay, subject to the consent of its mortgagee(s), and except as provided in
Article 12(A), Tenant may not assign, mortgage, pledge, encumber or otherwise
transfer this Lease or sublet the Premises. In the event that this Lease shall
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be assigned or the Premises sublet, then and in that event and in addition to
any other remedies for breach available to Landlord, all of the net proceeds,
avails and profits of any such assignment or subletting shall be paid to and
shall constitute the sole and exclusive property of the Landlord herein.
C. Should Tenant at any time during the term hereof desire to assign
this Lease or sublet the Premises to a party other than a party under Section A.
of this Article 12, Tenant shall furnish Landlord with thirty (30) days or more
advance written notice (prior to the date of such proposed assignment)
specifying therein the date of such proposed assignment or subletting, the name
and address of the proposed assignee or subtenant, and if a corporation or
partnership, its principals and the nature of the business proposed to be
conducted in the Premises by said assignee or subtenant. If Tenant assigns this
Lease or sublets the Premises without previously obtaining Landlord's consent as
aforesaid, Landlord, by giving notice to the Tenant within thirty (30) days
after receipt of notice thereof, shall have the option to cancel and terminate
this Lease effective as of the date of such assignment or subletting or as of
the last day of the thirty (30) day notice period mentioned in this sentence,
whichever date shall be later. Landlord's failure to exercise its option as
contemplated by this section C. shall not be deemed to constitute Landlord's
consent to Tenant's proposed assignment of this Lease of the Premises or any
part thereof. Landlord shall not in any event whatsoever be deemed to be
obligated to consent to any proposed assignment of this Lease or subletting of
the Premises.
D. Without limiting any of the provisions hereof, if pursuant to the
Federal Bankruptcy Code (or any similar law hereafter enacted having the same
general purpose), Tenant is permitted to assign this Lease or sublet the
Premises notwithstanding the restrictions contained in this Lease, adequate
assurance of future performance by an assignee or subtenant expressly permitted
under such Code shall be deemed to mean the deposit of cash security in an
amount equal to the sum of one year's fixed rent plus an amount equal to the
additional rent for the lease year preceding the year in which such assignment
or subletting is intended to become effective, which deposit shall be held by
Landlord for the balance of the term, without interest, as security for the full
performance of all of Tenant's obligations under this Lease.
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ARTICLE 13
UTILITIES
Tenant agrees, at its own sole cost and expense, to pay, or cause to
be paid immediately when due, all utility charges separately metered to it
including for electricity, light, heat, power, telephone or other communication
service, and to indemnify the Landlord and save it harmless against any
liability therefor or damages on such account. Landlord shall not in any event
be liable to Tenant or responsible to Tenant for any stoppage or interruption in
any utility service furnished to the Premises or for the failure to obtain or
inability to obtain any energy source or fuel of any type or nature whatsoever,
unless such stoppage or interruption results from the negligent acts of Landlord
or its employees or contractors. No such stoppage or inability of Tenant to
obtain any such energy source or fuel shall operate to constitute a constructive
eviction of Tenant or relieve Tenant of its obligations to pay rent under this
Lease.
ARTICLE 14
REMEDIES FOR BREACH OR DEFAULT
A. FAILURE TO PAY RENT AND BANKRUPTCY OR INSOLVENCY -If the Tenant
shall fail to pay the rent as it falls due and that failure shall continue for a
period of fifteen (15) days, or in the case of the filing of a bankruptcy or
insolvency proceeding by or of the Tenant, the Tenant shall be deemed to have
breached the Lease, and the Landlord shall be entitled forthwith and without
notice to its remedies as herein set forth.
B. OTHER DEFAULT - If the Tenant shall otherwise default in its
obligations hereunder, the Landlord before seeking its remedies shall give the
Tenant notice of the default in writing and within thirty (30) days thereafter
the Tenant shall remedy such default. If within such period of thirty (30) days
the Tenant has not remedied the default, the Tenant shall be deemed to have
breached the Lease and the Landlord shall forthwith and without further notice
be entitled to its remedies as hereinafter set forth.
Upon the Landlord's failure or neglect to perform or observe any of
its covenants contained herein, the Tenant agrees to give written notice of such
failure or neglect to the Landlord, and if the latter does not cure or remedy
the failure or neglect complained within thirty (30) days after such notice has
been transmitted in accordance hereof, or if the Building, or the estate created
hereby shall
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be taken on execution or by other process of law, or if a petition shall be
filed by or against the Landlord under the Federal Bankruptcy Act or acts
amendatory thereof or supplemental thereto, and shall not be dissolved within
sixty (60) days after filing, or if any assignment shall be made of the
Landlord's property for the benefit of creditors, or if a receiver or similar
officer shall be appointed to take charge of all or any part of the Landlord's
property by a court of competent jurisdiction, and such assignment or
receivership shall not be removed within sixty (60) days, the Tenant shall have
the right to terminate this Lease.
C. REMEDIES - In case of the breach of this Lease by the Tenant, the
Landlord may terminate this Lease by giving notice of the termination in writing
to the Tenant, and upon delivery of such notice of termination the Landlord may
enter upon the leased Premises or any part thereof and repossess the same as of
the Landlord's former estate, and expel the Tenant and those claiming through or
under the Tenant and remove the effects of either or both (forcibly if
necessary) without being guilty of any manner of trespass and without prejudice
to any remedies for arrears of rent or preceding breach of condition or
agreement, and without prejudice to any remedies the Landlord has to repossess
itself of the leased Premises by process of law or to recover damages for such
breach or default, including loss of future rents and profits. The parties
hereto stipulate that neither the Tenant's breach or default, the giving of a
notice of termination, or the repossession of the Premises by the Landlord shall
relieve Tenant from rental obligations for the full term of this Lease. The
Tenant shall pay to the Landlord all the Landlord's costs, losses, damages and
expenses, including attorney's fees, occasioned by the Tenant's failure to
surrender possession at such time as the Landlord may lawfully demand possession
thereof.
ARTICLE 15
HOLD HARMLESS AND INDEMNIFICATION
This Lease is made upon the express condition that Tenant agrees to
save Landlord harmless from and indemnify it against any and all claims of
whatever nature arising from (a) Tenant's use of the Premises, (b) the conduct
of Tenant's business, including, but not limited to Tenant's use, if any, of any
hazardous materials, substances or products, or (c) any activities, work, or
things done, committed, or suffered by Tenant in or about the Premises. Tenant
shall further indemnify and hold Landlord harmless from and against any and all
claims arising from (i) any breach or default of the
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performance of any obligation on Tenant's part required to be performed under
the terms of this Lease, or (ii) any negligent or intentional act or omission of
Tenant or any of Tenant's agents, employees, representatives, contractors,
customers, or visitors. If any action or proceeding shall be brought against
Landlord by reason of any such claim identified, Landlord shall notify Tenant
thereof, and Tenant, upon notice from Landlord, shall defend the same at
Tenant's expense, including attorneys' fees. Tenant, as a material part of the
consideration to Landlord under this Lease, hereby assumes all risk of damage to
property or injury to persons in or about the Premises arising from any such
cause and Tenant hereby waives all claims in respect thereof against Landlord.
Landlord covenants and agrees to indemnify Tenant and hold Tenant
harmless of any and all damages for injuries to persons or property relating to
the building and common areas when such damages are solely occasioned by any
failure of Landlord to perform any of the terms, covenants and conditions
hereof, or are occasioned by the negligent act of Landlord or its agents,
contractors, employees or invitees.
ARTICLE 16
CASUALTY
In case of total or partial destruction of the Premises by fire, the
elements, or other insured causes during the term of this Lease, the term hereby
created shall not terminate and shall nonetheless continue.
If the Premises shall be damaged by fire, the elements, or other
insured cause, in whole or in part, then Landlord, its successors or assigns,
agree to repair the same with reasonable promptness, provided always however and
upon the express condition that there are funds available to Landlord from
casualty insurance policy proceeds actually paid to and received by Landlord for
such repair work and provided further that such duty to repair by Landlord shall
at all times be subject to the approval and consent of the then mortgagee and
the willingness of such mortgagee to make the proceeds of casualty insurance
policies payable to such mortgagee available to Landlord for such purposes, and
subject to the terms and conditions of any mortgage affecting the Premises.
Tenant shall give immediate written notice to Landlord of any such fire or other
damage to the Premises.
Upon the occurrence of any damage to the Premises by fire, the
elements, or other insured cause, Landlord and Tenant shall mutually agree upon
an architect or engineer to prepare a report
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as to the reasonable time necessary to repair or restore the said damage. Said
report shall be furnished to Tenant within thirty (30) days from the date of
such damage unless the preparation of the report is delayed by the acts or
omissions of Tenant. If in the opinion of such architect or engineer, the
Premises have been damaged to such an extent as to make the building thereof
wholly untenantable for a period of forty-five (45) days or more from the date
of the issuance of such report by the architect or engineer, then and in such
event Landlord or Tenant may terminate within ten (10) days after the issuance
of the report by the architect or engineer. Upon the exercise of the option
herein granted, this Lease shall terminate and be of no further force or effect
whatsoever. For the purposes of this agreement, "untenantable" shall mean that
the Premises have been materially damaged and Tenant is not able to use the
Premises in a manner substantially consistent with Tenant's business.
Provided that this Lease shall not have been terminated in
accordance with the provisions of this Article, Landlord agrees that it shall
complete all repair and restoration work within a period of sixty (60) days from
and after the date of issuance of any such report by the architect or engineer.
In the event that Landlord shall not have substantially completed its work
within that time period (subject to unavoidable delays) Tenant may terminate
this Lease Agreement at any time after the expiration of such sixty (60) day
period and prior to substantial completion by Landlord of its work in connection
with the repair and restoration by serving Landlord with thirty (30) days' prior
written notice thereof. Landlord may vitiate the effect of such notice by
substantially completing its work within such thirty (30) day period.
Anything contained in this Lease to the contrary notwithstanding, in
the event that the Premises or any part thereof shall be damaged or destroyed by
fire or other casualty, the Landlord shall have the right to elect, within
twenty (20) days after receipt by Landlord of written notice from Tenant of such
event, not to repair the same, whereupon Landlord shall, within such time
period, serve written notice upon Tenant of Landlord's election to terminate
this Lease and thereupon the term of this Lease shall expire and the Tenant
shall forthwith quit and surrender the Premises.
The base rent and additional rent, or a just and proportionate part
thereof, according to the nature and extent of the injuries sustained, shall be
suspended or abated until Landlord shall have repaired or restored the Premises
hereunder.
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Landlord's obligations in connection with any repair and/or
restoration work shall be to repair the Premises to the same condition as
existed at the time of the damage so long as there are funds available to
Landlord from casualty insurance policy proceeds actually paid to and received
by Landlord for such repair work and provided further that such duty to repair
by Landlord shall at all times be subject to the approval and consent of the
then mortgagee and the willingness of such mortgagee to make the proceeds of
casualty insurance policies payable to such mortgagee available to Landlord for
such purposes, and subject to the terms and conditions of any mortgage affecting
the Premises. In no event whatsoever shall Landlord be required to replace,
repair or restore Tenant's personal property, furniture, fixtures, equipment or
the like.
ARTICLE 17
PERMITTED USE
A. Tenant agrees that the Premises shall be used and occupied by
Tenant only for office and warehouse space;
B. Tenant shall not perform any act or carry on any practice which
may damage the Premises, or any other property in the area, or cause any
offensive odors or unreasonably loud noises or constitute a nuisance or a menace
to, or otherwise interfere with other properties in the area;
C. Tenant shall not introduce any hazardous or toxic materials onto
the property without first complying with all applicable, federal, state and
local laws or ordinances pertaining to the storage, use or disposal of such
materials including, but not limited to, obtaining proper permits; and Tenant
shall respond to all reasonable requests by Landlord or its agents for
information relating to Tenant's handling and storage of hazardous materials on
the Premises in a timely manner;
D. Without derogating from the foregoing, if Tenant's storage, use
or disposal of hazardous or toxic materials on the property results in (1)
contamination of the soil or surface or ground water or (2) loss or damage to
person(s) or property, then Tenant agrees to clean up the contamination or pay
for such cleanup, at Landlord's option, and indemnify, defend and hold Landlord
harmless from and against any claims, suits, causes of action, penalties, civil
fines, costs and fees, including attorneys' fees, arising from or connection
with any such contamination, loss or damage. This provision shall survive the
termination of this Lease;
E. Tenant shall, in its use of the Premises, comply with the
requirements of all applicable
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governmental laws, rules and regulations.
ARTICLE 18
RIGHTS OF MORTGAGEE
A. This Lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate to all mortgages which may now or hereafter affect the
property whether or not such mortgages shall also cover other lands and/or
buildings, to each and every advance made or hereafter to be made under such
mortgages, and to all renewals, modifications, replacements and extensions of
such mortgages and all consolidations of such mortgages, provided that, with
respect to any such mortgage hereafter placed on the property, Landlord shall
deliver to Tenant an agreement by such holder to the effect that, subject to
qualifications of the type set forth in the second sentence of paragraph B
hereof, all of Tenant's rights hereunder shall be recognized by such holder.
Such subordination shall be automatic and without need for any additional action
or documentation. Without derogating from the foregoing, in confirmation of such
subordination, and subject to the foregoing condition, Tenant shall promptly
execute, acknowledge and deliver any instrument that Landlord or the holder of
any such mortgage or any of their respective successors in interest may
reasonably request to evidence such subordination. Landlord agrees to request
the holder of any existing mortgage on the property to deliver an agreement by
such holder to the effect that, subject to the qualifications of the type set
forth in the second sentence of paragraph B hereof, that such holder recognizes
all of Tenant's rights hereunder. Any mortgage to which this Lease is, at the
time referred to, subject and subordinate, is herein called "Superior Mortgage"
and the holder of a Superior Mortgage is herein called "Superior Mortgagee".
B. If any Superior Mortgagee or the nominee or designee of any
Superior Mortgagee shall succeed to the rights of Landlord (for the purposes of
this paragraph B, the "Preceding Landlord") under this Lease, whether through
possession or foreclosure action or delivery of a new deed, or otherwise, then
Tenant shall attorn to and recognize such party (herein called "Successor
Landlord") so succeeding to the Preceding Landlord's rights as Tenant's Landlord
under this Lease and, upon such Successor Landlord's request, Tenant shall
promptly execute and deliver any instrument that such Successor Landlord may
reasonably request to evidence such attornment provided that such Successor
Landlord give Tenant a written agreement to accept Tenant's
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attornment and recognizes Tenant's rights under this Lease (subject to the
qualifications hereinafter set forth). Upon such attornment, this Lease shall
continue in full force and effect as a direct lease between the Successor
Landlord and Tenant upon all of the terms, conditions and covenants as are set
forth in this Lease, except that the Successor Landlord (unless formerly the
Landlord under this Lease or its nominee or designee) shall not be (1) liable in
any way to Tenant for any act or omission, neglect or default on the part of the
Preceding Landlord under this Lease; (2) responsible for any monies owning by or
on deposit with the Preceding Landlord to the credit of Tenant; (3) subject to
any counterclaim or setoff which theretofore accrued to Tenant against the
Preceding Landlord; (4) bound by any modification of this Lease subsequent to
such Superior Mortgage which was not approved in writing by the Superior
Mortgagee, or by any previous prepayment of Base Rent for more than one (1)
month which was not approved in writing by the Superior Mortgagee; (5) liable to
the Tenant beyond the Successor Landlord's interest in the property and the
rents, income, receipts, revenues, issues and profits issuing from such
property; (6) responsible for the performance of any work to be done by the
Preceding Landlord under this Lease to render the Premises ready for occupancy
by the Tenant; (7) required to remove any person occupying the Premises or any
part thereof, except if such person claims by, through or under the Successor
Landlord.
ARTICLE 19
CONDEMNATION/EMINENT DOMAIN
A. This Lease shall terminate: (1) if the entire Premises shall be
taken by condemnation or eminent domain; or (2) at the option of Tenant
(exercisable by notice given to Landlord within thirty (30) days after the date
of any such taking) if a material part of the Premises shall be taken in any
condemnation or eminent domain proceeding(s).
Upon the termination of this Lease by reason of condemnation or
eminent domain, Tenant shall be liable only for the payment of fixed rent, and
additional rent and other charges herein, prorated to the date of such
termination, and Landlord shall refund any payment in excess thereof to Tenant.
B. Tenant may, if permitted by law, make any application for any
award which might be independently payable to it in connection with Tenant's
moving expenses, business dislocation damage or for the taking of Tenant's
leasehold improvements, provided that no such application or any award
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rendered pursuant thereto shall operate to diminish any award which would
otherwise be payable to Landlord. Tenant waives its right to and agrees that it
shall not (i) make any other claim in or with respect to any condemnation or
eminent domain proceedings whatsoever or otherwise, or (ii) make any claim
against Landlord in any other action for the value of the unexpired portion of
this Lease or the term hereof. Except as above specifically provided, the total
amount of all condemnation awards shall be the sole and exclusive property of
the Landlord, and Tenant shall not participate therein or in the negotiation
thereof or have any rights whatsoever with respect to the awards or the proceeds
of any such proceedings.
C. In the event that any part of the Premises is taken in any
condemnation or eminent domain proceedings and this Lease is not terminated
pursuant to Section A. hereof, then this Lease shall remain in full force and
effect as to such remaining portion. Subject to the availability of the proceeds
of any award for reconstruction and restoration, Landlord shall promptly
reconstruct and restore the portion of the building upon the Premises remaining
after such taking to the same condition as initially demised hereunder. In no
event shall Landlord be obligated to expend any sums for such rebuilding or
restoration in excess of the amount of money actually paid to and received by
Landlord from any condemning authority, net of all expenses, which expenses
shall include any payments required to be made to any mortgagee of the Premises
under the terms of its mortgage. The balance of any such proceeds shall, after
completion of restoration and reconstruction, be retained by Landlord.
ARTICLE 20
NOTICES
All notices, demands and requests which may or are required to be
given by either party to the other shall be in writing and shall be served by
personal service or by certified mail, return receipt requested and such notices
shall be deemed to be given hereunder upon the earlier of actual receipt or two
(2) days following deposit in the United States Post Office, certified mail,
return receipt requested. All notices, demands and requests by Landlord to
Tenant shall be sent to Tenant at the Premises, with a copy by regular mail to
Cheryl Lawton, Vice President and General Counsel, at Creative Biomolecules,
Inc., 45 South Street, Hopkinton, Massachusetts 01748, with a copy by regular
mail to Robert Parker, at Creative Biomolecules, Inc., 9 Technology Drive, West
Lebanon,
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New Hampshire 03784, or at such other place as Tenant may, from time to time,
designate in a written notice to Landlord.
All notices, demands and requests by Tenant to the Landlord shall be
sent to Landlord at Storm Meadows, Inc. at PO Box 590, Norwich, Vermont
05055-0590, with a copy by regular mail to C. Daniel Esq., at Hershenson,
Carter, Scott & McGee, PO Box 909, Norwich, Vermont 05055-0909, or at such other
place or to such other parties as Landlord may, from time to time, designate in
a written notice to Tenant.
ARTICLE 21
LESSER AMOUNT OF RENT
No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly base rent and additional rent herein stipulated shall be deemed to
be other than on account of the earliest base rent or additional 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 in this Lease or at law
provided.
ARTICLE 22
QUIET ENJOYMENT
A. Landlord covenants and agrees that it has and will have at the
commencement of the term of this Lease full right and power to execute and
perform this Lease and to grant the estate demised herein.
B. Landlord covenants and warrants that Tenant, upon payment the
base rent, additional rent and all charges herein provided for and observing and
keeping the covenants, agreements and conditions of this Lease on its part to be
kept, shall lawfully and quietly hold, occupy and enjoy the Premises during the
term of this Lease, without hindrance or molestation of Landlord or of any
person or persons claiming under Landlord, and Landlord covenants and agrees
that it will defend Tenant in such peaceful and quiet use and possession of the
Premises against the claims of all such persons and corporations.
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ARTICLE 23
REMEDIES
The specified remedies to which Landlord and Tenant may resort under
the terms of this Lease are cumulative and are not intended to be exclusive of
any other remedies or means of redress to which Landlord or Tenant may be
lawfully entitled in case of any breach or threatened breach by Landlord or
Tenant of any provisions of this Lease. The failure of Landlord or Tenant to
insist in any one or more cases upon the strict performance of any of the
covenants of the Lease or to exercise any option herein contained shall not be
construed as a waiver or a relinquishment for the future of such covenant or
option. A receipt by Landlord of rent with knowledge of the breach of any
covenant hereof shall not be deemed a waiver of such breach, and no waiver by
Landlord or Tenant of any provision of this Lease or of any breach shall be
deemed to have been made unless expressed in writing and signed by Landlord or
Tenant (as the case may be). In addition to the other remedies in this Lease
provided, Landlord or Tenant shall be entitled to the restraint by injunction of
the violation or attempted or threatened violation, of any of the covenants, or
provisions of this Lease.
ARTICLE 24
NOTICE OF LEASE
Upon the request of either of the parties hereto, the parties agree
to execute a notice of this Lease for purposes of recording in the county in
which the Premises are located, in the form required by law. Said notice shall
not amend, alter or modify any of the terms, covenants or conditions of this
Lease. The purpose of such form shall be to furnish notice of the existence of
this Lease to any prospective purchasers or mortgagees of the Premises or
assignees of the interests of either party hereto or to any other party having
an interest in the Premises.
ARTICLE 25
CONDITION OF PREMISES
The Premises are being leased by Landlord to Tenant, and shall be
delivered to Tenant, in their present condition "as is" and Landlord shall not
be obligated to perform any additional work of any type or nature whatsoever in
connection with said Premises in order to prepare same for Tenant's use or
occupancy. Tenant shall, at its own sole cost and expense, obtain any and all
zoning and other governmental permits required in connection with the operation
of its business in the Premises for the
24
<PAGE> 26
use(s) herein specified or permitted, including any building permits and
certificates of occupancy.
ARTICLE 26
SURRENDER OF PREMISES
At the expiration of said term or any renewal term, the Tenant shall
quit and surrender possession of the said Premises to the Landlord. The Landlord
shall in addition to all other rights of inspection have the right during the
last ninety (90) days of the term hereof to make a comprehensive inspection of
the Premises. In the event any repairs must be made by Tenant the same shall be
made prior to the expiration of the lease term.
ARTICLE 27
HOLDOVER
In the event Tenant does not surrender the Premises at the
expiration of the term, Tenant's continued occupancy shall be subject to
Landlord's rights to re-enter the Premises and remove all persons and any
property therefrom either by summary proceedings or by any suitable action or
proceedings at law or in equity. Nevertheless, Tenant, while it continues
occupancy after the expiration of the term hereof, shall remain liable for all
base rent, additional rent and charges payable hereunder as if the term had been
extended, but during such period of occupancy the fixed rent shall be two (2)
times what had been due hereunder prior to the expiration of the term.
ARTICLE 28
SECURITY
The Tenant has this day deposited with the Landlord the sum of Eight
Thousand and Fifty Dollars ($8,050.00) as security for the payment of the rent
hereunder and the full and faithful performance by the Tenant of the covenants
and conditions on the part of the Tenant to be performed. Said sum shall be
returned to the Tenant, without interest, after the expiration of the term
hereof, provided that the Tenant has fully and faithfully performed all such
covenants and conditions and is not in arrears in rent. During the term hereof,
the Landlord may, if the Landlord so elects, have recourse to such security, to
make good any default by the Tenant, in which event the Tenant shall, on demand,
promptly restore said security to its original amount. Liability to repay said
security to the Tenant shall run with the reversion and title to said Premises,
whether any change in ownership thereof be by voluntary alienation or as the
result of judicial sale, foreclosure or other proceedings,
25
<PAGE> 27
or the exercise of a right of taking or entry by any mortgagee. The Landlord
shall assign or transfer said security for the benefit of the Tenant, to any
subsequent owner or holder of the reversion or title to said Premises, in which
case the assignee shall become liable for the repayment thereof as herein
provided, and the assignor shall be deemed to be released by the Tenant from all
liability to return such security. This provision shall be applicable to every
alienation or change in title and shall in no wise be deemed to permit the
Landlord to retain the security after termination of the Landlord's ownership of
the reversion of title. The Tenant shall not mortgage, encumber or assign said
security without the written consent of the Landlord.
ARTICLE 29
INVALIDITY OF PROVISIONS
If any term or provision of this Lease or the application hereof to
any person or circumstance shall, to any extent, be invalid or unenforceable, or
subsequently become invalid or unenforceable, the remainder of this Lease, or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law, except that in the event such
invalidity or unenforceability has the effect of increasing Landlord's
obligations or decreasing Landlord's benefits, including but not limited to
fixed rent or any additional rent, then Landlord shall have the option of
terminating this Lease.
ARTICLE 30
ESTOPPEL CERTIFICATES
Within ten (10) days following any written request which Landlord
may make from time to time to Tenant hereto, the Tenant shall execute and
deliver to the Landlord, any prospective purchaser, mortgagee or prospective
mortgagee, ground lessor or prospective ground lessor, a sworn statement
certifying as to:
A. The Commencement Date of this Lease;
B. The fact that this Lease is unmodified or, if this Lease has been
modified, the extent of such modification, and that this Lease is in full force
and effect, as modified and that the Lease represents the entire agreement
between Landlord and Tenant with respect to the Premises;
C. The date to which the base rent has been paid and the amount of
such base rent and
26
<PAGE> 28
additional rent;
D. The fact that there are no current defaults under this Lease nor
any events or conditions which, with the giving of notice or the lapse of time
or both, would constitute a default, by the Landlord, and that the Tenant, to
the best of the Tenant's knowledge, has no existing defense, offsets, liens,
claims or credits under this Lease or against any amounts payable under this
Lease;
E. The amount of any deposit held by Landlord;
F. The fact that Tenant has not assigned, pledged or transferred any
interest in the Lease or sublet any portion of the Premises or, if Tenant has so
assigned, pledged, transferred or sublet, the extent of such assignment, pledge,
transfer or subletting;
G. To the best of the Tenant's knowledge, all of Landlord's
obligations with respect to the installation of improvements to the Premises to
prepare them for Tenant's use have been satisfied (or the extent to which they
have not been satisfied);
H. That no actions, whether voluntary or otherwise, are pending
against Tenant under any bankruptcy laws of the United States or any state
thereof; and
I. Such other matters reasonably requested by the Landlord. Tenant
and Landlord acknowledge that any statement delivered pursuant to this Article
may be relied upon by any such party, and the Tenant shall be liable for all
loss, cost or expense resulting from or caused by any material misstatement
contained in such estoppel certificate, or the failure to deliver the estoppel
certificate. Tenant hereby irrevocably appoints Landlord, as attorney-in-fact
for Tenant, with full power and authority to execute and deliver in the name of
Tenant such estoppel certificate if Tenant fails to deliver the same within such
ten (10) day period, and such shall be fully binding on Tenant, if Tenant fails
to deliver a contrary certificate within five (5) days after receipt by Tenant
of a copy of the certificate executed by Landlord on behalf of Tenant.
ARTICLE 31
MISCELLANEOUS
A. The covenants and agreements herein contained shall bind and
inure to the benefit of Landlord and Tenant, their heirs, executors,
administrators, successors and assigns.
B. If any provision of this Lease or the application thereof to any
person or circumstance shall be invalid or unenforceable, the remainder of this
Lease shall not be affected thereby.
27
<PAGE> 29
C. Whenever herein the singular number is used, the same shall
include the plural, and the masculine gender shall include the feminine and the
neuter genders.
D. The enumeration anywhere in this Lease of any right or remedy of
either party shall not be construed as an exclusion or substitution of any other
rights or remedies conferred under this Lease or applicable by law.
E. This Lease shall not be modified or cancelled except by a writing
subscribed to by the parties.
F. This Lease shall be governed by and in accordance with the laws
of the State of Vermont.
IN WITNESS WHEREOF, these presents have been signed, sealed and
delivered the day and year first above written.
LANDLORD:
BY: /s/ Mark Schleicher
--------------------
TENANT:
BY: /s/ Cheryl K. Lawton
--------------------
BY:
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND FOR THE
THREE MONTH PERIOD ENDED JUNE 30, 1998.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 6,374,213
<SECURITIES> 39,524,981
<RECEIVABLES> 1,343,366
<ALLOWANCES> 0
<INVENTORY> 1,421,052
<CURRENT-ASSETS> 49,156,652
<PP&E> 18,200,262
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,971,142
<CURRENT-LIABILITIES> 4,443,190
<BONDS> 2,537,092
23,870,293
0
<COMMON> 335,826
<OTHER-SE> 41,784,741
<TOTAL-LIABILITY-AND-EQUITY> 72,971,142
<SALES> 0
<TOTAL-REVENUES> 2,280,790
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,130,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,633
<INCOME-PRETAX> (6,108,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,108,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,108,551)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
