<PAGE> 1
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, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 001-13835
OPHIDIAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 39-1661164
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5445 East Cheryl Parkway, Madison, WI 53711
-------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(608) 271-0878
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING
CLASS AUGUST 3, 1999
----- --------------
Common Stock, $0.0025 par value 9,223,018
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OPHIDIAN PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1...........................................Financial Statements
Condensed Balance Sheets - June 30, 1999 and
September 30, 1998. 3
Condensed Statements of Operations -
Three-months ended June 30, 1999 and 1998,
Nine-months ended June 30, 1999 and 1998 and
the period from inception (November 11, 1989)
to June 30, 1999. 4
Condensed Statements of Cash Flows -
Nine-months ended June 30, 1999 and 1998 and 5
the period from inception (November 11, 1989)
to June 30, 1999.
Notes to Condensed Financial Statements. 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II OTHER INFORMATION 13
EXHIBIT LIST 14
SIGNATURES 15
EXHIBITS 16
2
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OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 8,688,162 $ 4,849,773
Accounts receivable ..................................................... 81,566 5,112
Prepaid expenses and other .............................................. 130,046 87,744
------------ ------------
Total current assets .................................................. 8,899,774 4,942,629
Other assets .............................................................. 12,263 426,982
Equipment and leasehold improvements
Furniture and fixtures .................................................. 96,692 96,692
Manufacturing equipment ................................................. 829,204 1,026,960
Laboratory equipment .................................................... 581,295 661,256
Office equipment ........................................................ 54,537 68,604
Leasehold improvements .................................................. 24,092 53,801
------------ ------------
1,585,820 1,907,313
Accumulated depreciation ................................................ 538,378 783,639
------------ ------------
Net equipment and leasehold improvements .................................. 1,047,442 1,123,674
Patent costs, net of accumulated amortization of
$35,817 and $47,070, September 30, 1998, and
June 30, 1999, respectively ............................................. 1,394,639 1,461,375
------------ ------------
Total assets .......................................................... $ 11,354,118 $ 7,954,660
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 241,142 $ 275,377
Accrued expenses and other liabilities .................................. 130,468 103,347
Current portion of capital lease obligations ............................ 5,839 2,309
------------ ------------
Total current liabilities ............................................. 377,449 381,033
Capital lease obligations, less current portion ........................... 12,069 10,499
Deferred revenue - noncurrent ............................................. 346,887 354,310
Commitments and contingencies
Shareholders' equity:
Common stock, $.0025 par value, 22,400,000 shares
authorized, 9,223,018 issued and outstanding at September
30, 1998, and June 30, 1999, respectively ............................. 23,058 23,058
Additional paid-in capital .............................................. 22,047,154 22,447,154
Deficit accumulated during the
development stage ..................................................... (11,452,499) (15,261,394)
------------ ------------
Total shareholders' equity ................................................ 10,617,713 7,208,818
------------ ------------
Total liabilities and shareholders' equity ................................ $ 11,354,118 $ 7,954,660
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
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OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------- NOTE A
1998 1999 1998 1999 JUNE 30, 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contracts ......................... $ 51,686 $ 7,760 $ 282,440 $ 13,365 $ 4,609,072
License fees ...................... -- 1,000 -- 2,000 2,000
------------ ------------ ------------ ------------ ------------
Total revenues .................. 51,686 8,760 282,440 15,365 4,611,072
Operating expenses:
Research & development ............ 821,208 985,858 2,141,452 2,667,469 13,254,298
General & administrative .......... 399,913 483,511 1,086,706 1,349,860 7,884,346
------------ ------------ ------------ ------------ ------------
Total operating expenses ........ 1,221,121 1,469,369 3,228,158 4,017,329 21,138,644
------------ ------------ ------------ ------------ ------------
Operating loss ...................... (1,169,435) (1,460,609) (2,945,718) (4,001,964) (16,527,572)
Operating income (expense):
Investment income, net ............ 49,409 45,488 140,428 194,703 1,307,118
Interest expense .................. (488) (239) (1,852) (1,634) (41,705)
Other income ...................... -- -- 100 -- 765
------------ ------------ ------------ ------------ ------------
48,921 48,249 138,676 193,069 1,266,178
------------ ------------ ------------ ------------ ------------
Net loss ........................ $ (1,120,514) $ (1,412,360) $ (2,807,042) $ (3,808,895) $(15,261,394)
============ ============ ============ ============ ============
Net loss per share .................. $ (0.13) $ (0.15) $ (0.37) $ (0.41)
</TABLE>
NOTE A: Period from Inception [November 11, 1989] to Date June 30, 1999
See accompanying notes to condensed financial statements.
4
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OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED JUNE 30,
-------------------------- NOTE A
OPERATING ACTIVITIES 1998 1999 JUNE 30, 1999
---- ---- -------------
<S> <C> <C> <C>
Net loss ......................................................... $ (2,807,042) $ (3,808,895) $(15,261,394)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................................. 105,702 249,092 874,542
Loss on sale of investments .................................... -- -- 87,394
Common stock issued for consulting services .................... 14,375 -- 73,476
Provision for Compensation - consulting
stock options ............................................. -- -- 85,000
Assignment of intellectual property
used in research and development .............................. -- -- 200,000
Changes in operating assets and liabilities:
Accounts receivable ........................................... 140,318 76,454 (5,112)
Prepaid expenses and other assets ............................. (134,344) 42,302 (87,744)
Accounts payable .............................................. 274,662 34,235 275,377
Accrued expenses and other liabilities ........................ (14,585) (27,121) 103,347
Deferred revenue .............................................. 153,995 7,423 354,310
------------ ------------ ------------
Net cash used in operating activities ............................ (2,266,919) (3,426,510) (13,300,804)
INVESTING ACTIVITIES
Purchase of available-for-sale securities ...................... -- -- (4,517,181)
Proceeds from available-for-sale securities .................... 359,740 -- 4,416,283
Purchase of equipment and
leasehold improvements, net .............................. (204,822) (321,493) (1,837,250)
Expenditures for patents ....................................... (253,708) (70,567) (1,512,145)
Other .......................................................... -- (14,719) (26,982)
------------ ------------ ------------
Net cash used in investing activities ............................ (98,790) (406,779) (3,477,275)
FINANCING ACTIVITIES
Net proceeds from issuance of stock ........................... 9,643,509 -- 21,711,736
Principal pymts. of capital lease obligations .................. (12,531) (5,100) (83,884)
Advances from shareholder ...................................... -- -- 330,000
Payments to shareholder ........................................ -- -- (330,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities .............. 9,630,978 (5,100) 21,627,852
Net increase (decrease) in cash and cash equivalents ............. 7,265,269 (3,838,389) 4,849,773
Cash and cash equivalents at beginning of period ................. 3,547,036 8,688,162 --
------------ ------------ ------------
Cash and cash equivalents at end of period ....................... $ 10,812,305 $ 4,849,773 $ 4,849,773
============ ============ ============
Supplemental disclosure of cash flows info.-
Cash paid for interest.................................... $ 1,634 $ 1,852
Supplemental disclosure of non-cash transact.
Common stock issued for consulting svcs................... $ 14,375 $ --
</TABLE>
NOTE A: Period from Inception [November 11, 1989] to Date June 30, 1999
See accompanying notes to condensed financial statements.
5
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OPHIDIAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the Ophidian Pharmaceuticals, Inc.'s
("Company's") annual report filed on Form 10-K, containing audited financial
statements for the fiscal year ended September 30, 1998. In the opinion of
management, all adjustments (consisting only of adjustments of a normal and
recurring nature) considered necessary for a fair presentation of the results of
operations have been included. Operating results for any interim periods are not
necessarily indicative of the results that might be expected for the full year.
NOTE 2. RECLASSIFICATIONS
Certain reclassifications have been made to the September 30, 1998, financial
statements to conform to the June 30, 1999, presentation.
NOTE 3. SIGNIFICANT EVENTS IN THE QUARTER
On June 7, 1999, the Company disclosed that it is moving ahead with its plans to
begin Phase II clinical testing of its lead drug, OPHD-001, for Clostridium
difficile-associated disease. This trial is planned to begin this summer. The
Company also disclosed its plan to submit an Investigational New Drug to the
Food & Drug Administration by the end of the first quarter of 2000 for approval
to begin clinical trials for a second gastrointestinal product, OPHD-002.
OPHD-002 is an oral anti-cytokine antibody formulation designed for the
treatment of inflammatory bowel disease ("IBD"). Douglas Stafford, Ophidian's
President and Chief Executive Officer, made these statements at the 11th Annual
International Life Sciences Partnering Conference hosted in San Francisco. This
conference is an international forum to promote strategic partnerships among
biotechnology and pharmaceutical firms for the development and commercialization
of new drug products.
On June 7, 1999, the Company announced it had executed an agreement securing
$2.0 million in new senior note financing from Rex J. Bates, a Director, and
Davis U. Merwin, a stockholder. The funds are to be provided under ten-year,
10%, senior notes with warrants. The assets of the Company secure the notes.
Interest on the notes for the first three years is payable in common shares of
the Company at the then current market value and thereafter in cash. One million
five-year warrants, exercisable at $2.00 per share for the Company's Common
Stock (the "Common Stock $2.00 Purchase Warrants") were issued separately. In
valuing the warrants using the Black-Scholes Model, $400,000 was booked as a
deferred finance cost to be amortized over the life of the loan and a like
amount to additional paid-in capital. The notes can be applied to the exercise
of the warrants. The notes also carry certain subordination features. The
Company's existing Common Stock ($7.32) Purchase Warrants carry an anti-dilutive
provision which increases from 1 to 1.05746 the number of shares of Common Stock
purchasable for $7.32 as a result of the issuance of the Common Stock ($2.00)
Purchase Warrants.
On June 10, 1999, the Company announced it entered into a five year lease for a
facility to house its pilot manufacturing plant. The current cumulative minimum
lease obligation for the next five years is $564,000. This amount will increase
as other occupants vacate the premises and the Company picks up the vacated
space. Ophidian expects to move approximately $1 million of currently owned
equipment into this facility after completing approximately $.4 million in
leasehold improvements. Approximately $1.4 million of additional production
equipment will be purchased for this new facility. The facility would provide
drug materials for basic research and clinical development needs.
On June 11, 1999, the Company announced that Terrence Barrett, M.D. has joined
its Scientific Advisory Board. Dr. Barrett, a gastroenterologist specializing in
the treatment of inflammatory bowel disease, is on the faculty of Northwestern
University Medical School. In addition to his clinical practice, he is carrying
out an extensive basic research program in intestinal immunology.
6
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NOTE 4. SUBSEQUENT EVENTS
A special meeting of Stockholders was held on July 23, 1999, where the Directors
of the Company were granted the authority to execute a 1 for 8 reverse stock
split if in their opinion it is in the best interests of the stockholders.
At a Board of Director's meeting held on July 29, 1999, the Board directed
management to proceed with the reverse split. The effective date was chosen as
September 20, 1999.
NOTE 5. LICENSES OF INTELLECTUAL PROPERTY
As disclosed previously effective January 29, 1999, the Company entered into a
license agreement with Carepoint Diagnostics, Inc., a Minnesota company
("Carepoint"). The future events referred to in the last quarterly report have
not occurred and Carepoint has indicated it wishes to unwind the agreement.
Effective June 29, 1999, the Company entered into a non-exclusive license
agreement for research reagent applications employing non-strategic elements of
the Company's technology with Promega Corporation. Promega is a Wisconsin
company and a holder of 262,250 shares of the Company's Common Stock. The
Company leases its laboratory and executive office from Promega. The Chairman of
Promega, who was previously Chairman of the Company, Mr. William A. Linton, is
also a holder of 250,200 shares of the Company's Common Stock. Promega is
engaged in the development, manufacture and marketing of reagents, systems and
advanced technologies for use by laboratories. Promega's sales under the license
are nominal. The agreement was negotiated on an arms length basis.
NOTE 5. NET LOSS PER SHARE
The following table sets forth the number of basic weighted-average shares used
in the per share calculations for the period. Dilutive earnings per share are
not shown, as the impact is antidilutive.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 31, JUNE 31,
-------- --------
1998 1999 1998 1999
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 7,290,434 9,233,018 7,288,875 9,233,018
Options and warrants that could potentially
dilute basic earnings per share in the
future that are not included in the
computation of diluted earnings per share
as their impact is antidilutive (treasury
stock method) 398,292 249,968 398,292 249,968
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the financial statements and the
related notes thereto included in this document. This document contains certain
forward-looking statements that involve risks and uncertainties. These
forward-looking statements are made in reliance upon the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company cautions
readers that the Company's actual results may differ significantly from the
results anticipated in these forward-looking statements as a result of various
factors. Such factors include, but are not limited to, those in the section
titled "Risk Factors" (pages 7-18) of the Company's Prospectus, which is part of
the Company's Registration Statement, filed on Form S-1, as amended, effective
May 7, 1998, and summarized in its Annual Report for Fiscal 1998 filed on Form
10-K, effective December 24, 1998. The Company undertakes no obligation to
revise such forward-looking statements to reflect events or circumstances
occurring after the date hereof.
7
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OVERVIEW
Ophidian is a development stage corporation focused on the research, development
and commercialization of therapeutic products for human and animal use. The
Company's business has been directed to numerous areas of disease but has
focused principally on products for infectious disease prevention and treatment.
The Company has not received any revenues from the sale of Food and Drug
Administration ("FDA") licensed products to date and does not expect to receive
any such revenues during the next two fiscal years. Except for the fiscal year
ended September 30, 1993, the Company has been unprofitable every year since
inception. The Company expects to incur additional losses over the next several
years. At June 30, 1999, the Company had an accumulated deficit of $15,261,394
and for the three months ended June 30, 1999, incurred a net loss of $1,412,360.
The Company intends to continue investing in the further research and
development of its technologies and products in infectious disease and other
therapeutic areas specifically including, as announced in June, the IBD product
known as OPHD-002. Depending on a variety of factors, including collaborative
arrangements, availability of personnel and financial resources, the Company
will engage in the development of its products and establish capabilities to
support regulatory submissions. The Company will need to make additional capital
investments in research and development laboratories and, as announced in June,
pilot manufacturing facilities as well as the construction of facilities for
large-scale production of avian antibodies and supporting testing laboratories.
Investments in manufacturing and associated capabilities would be required to be
made before any regulatory agency would grant approval to market products,
however, there can be no assurance that such approval will be granted. It is
expected that the Company will need to hire additional personnel to support
increased research and development, manufacturing, quality systems, and general
business requirements.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999, Compared to Three Months Ended June 30, 1998
Revenues. Revenues were $8,760 for the three months ended June 30, 1999, as
compared to $51,686 for the three months ended June 30, 1998, a decline of
$42,926 due to the completion of a National Institutes of Health grant and a
Department of Defense grant.
Research and Development Expense. Research and development expenses increased
$164,650 to $985,858 for the three months ended June 30, 1999, as compared to
$821,208 for the three months ended June 30, 1998. The increase in expenses in
the three months ended June 30, 1999, resulted primarily from additional
personnel expenses and costs associated with preclinical development of OPHD-002
and clinical development of the Clostridium difficile-associated disease
therapeutic antitoxin known as OPHD-001. These expenses were offset in part by a
decline in expenses related to the development of certain technologies
(transforming growth factor beta ["TGF-beta"]).
General and Administrative Expenses. General and administrative expenses
increased $83,598 to $483,511 for the three months ended June 30, 1999, as
compared to $399,913 for the three months ended June 30, 1998. The increase in
expenses in the three months ended June 30, 1999, resulted primarily from
increased salary expenses and other expenses to support business development,
including independent studies of the market dynamics of the Company's two lead
product candidates, and financial functions.
Investment Income and Expenses. Investment income decreased a nominal $3,921 to
$45,488 for the three months ended June 30, 1999, as compared to $49,409 for the
three months ended June 30, 1998. The decrease in interest income in the three
months ended June 30, 1999, resulted from lower average cash deposits offset in
part by higher average rates. Interest expense for the two periods was
negligible.
Net Loss. Net losses increased $291,846 to $1,412,360 for the three months ended
June 30, 1999, as compared to $1,120,514 for the three months ended June 30,
1998. The increased loss in the three months ended June 30, 1999, resulted
primarily from increased research and development and general and administrative
expenses plus the decline in revenue.
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Net Operating Loss. The Company generated net operating loss carry-forwards for
federal and state income tax purposes for the three months ended June 30, 1999.
The Company has recorded a full valuation allowance against any deferred tax
assets established for the carry-forwards.
Nine Months Ended June 30, 1999, Compared to Nine Months Ended June 30, 1998
Revenues. Revenues decreased $267,075 to $15,365 for the nine months ended June
30, 1999, as compared to $282,440 for the nine months ended June 30, 1998.
Revenues in the nine months ended June 30, 1998, were greater due primarily to a
National Institutes of Health grant and a Department of Defense grant.
Research and Development Expenses. Research and development expenses increased
$526,017 to $2,667,469 for the nine months ended June 30, 1999, as compared to
$2,141,452 for the nine months ended June 30, 1998. The increase in expenses in
the nine months ended June 30, 1999, resulted primarily from additional
personnel expenses and costs associated with preclinical development of OPHD-002
and clinical development of OPHD-001. These expenses were offset in part by a
decline in expenses in the second and third quarter related to the development
of certain technologies (TGF-beta.) The TGF-beta program was tied to the
discovery of new drug targets.
General and Administrative Expenses. General and administrative expenses
increased $263,154 to $1,349,860 for the nine months ended June 30, 1999, as
compared to $1,086,706 for the six months ended June 30, 1998. The increase in
expenses in the nine months ended June 30, 1999, resulted primarily from
increased salary expenses and other expenses to support business development and
financial functions, including those costs releated to being a public
corporation.
Investment Income and Expenses. Investment income increased $54,275 to $194,703
for the nine months ended June 30, 1999, as compared to $140,428 for the nine
months ended June 30, 1998. The increase in investment income in the nine months
ended June 30, 1999, resulted from higher average cash deposits offset in part
by lower average rates. The variance in interest expense between the two periods
was negligible.
Net Operating Loss. The Company generated net operating loss carry-forwards for
federal and state income tax purposes for the nine months ended June 30, 1999.
The Company has recorded a full valuation allowance against any deferred tax
assets established for the carry-forwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through the
sale of equity and revenues consisting of payments received under collaborative
agreements and federal research grants. As of June 30, 1999, the Company had
received $21,711,736 in net cash proceeds from the sale of equity. The Company's
principal sales of equity have occurred through its Initial Public Offering
("IPO"), private placement stock offering activities and sales of equity to Eli
Lilly & Co. On June 7, 1999, the Company entered into an agreement with
Director, Rex J. Bates, and stockholder, Davis U. Merwin, providing for $2
million in new financing in the form of ten-year, 10% senior notes with
warrants. It is expected that the cash will be taken down in the first fiscal
quarter of 2000.
Net cash used in operating activities was $3,426,510 for the nine months ended
June 30, 1999, as compared with net cash used in operating activities of
$2,266,919 for the nine months ended June 30, 1998. The increase in cash used in
operating activities is primarily attributable to increased research and
development funding activities, the decrease in revenues, increased general and
administrative expenses, and an increase in cash consumed by operating assets
and liabilities offset in part by an increase in depreciation and amortization.
Net cash used in investing activities was $406,778 for the nine months ended
June 30, 1999, as compared to $98,790 for the equivalent period a year earlier.
The increase is principally attributable to a decrease in net proceeds received
from available-for-sale investment activities and increases in purchases of
equipment offset in part by a decrease in expenditures for patents. Net cash
used in financing activities (principal payments) was $5,100 for the nine months
ended June 30, 1999, as compared with cash provided by issuance of common stock
net of principal payments of $9,630,978 for the equivalent period a year
earlier. The change is attributable to the IPO in May of 1998.
The Company believes that with its existing capital resources (cash of
$4,849,773 as of June 30, 1999, and the new $2 million of financing) and
interest income will be sufficient to satisfy its funding requirements for at
least the nine
9
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months following the date of this document. For the nine month period, these
requirements include completion of a Phase II clinical trial for OPHD-001
(previously estimated on an all inclusive basis to be $1.8 million) and
completion of the small scale pilot facilities in Madison, WI (also estimated to
be $1.8 million).
Furthermore, the Company anticipates that certain material changes could occur
in the next twelve months. The Company is actively seeking partnerships with
other commercial entities to gain access to operating capital, product
development capabilities and marketing resources. However, there can be no
assurance that the Company will be successful in establishing such partnerships.
Progress in partner discussions and or the availability of additional capital
may affect decisions by the Company on the amount and timing of funds allocated
to future product development. Accordingly, the timing of future development
milestones may be impacted by these events. The Company anticipates that its
expenses incurred in manufacturing will increase and will contribute to future
increases in net operating losses. These future increases in operating losses
will result from the hiring of additional manufacturing and quality control
personnel and the operation of the facility.
NET OPERATING LOSSES
The Company has not generated taxable income to date. At June 30, 1999, the net
operating losses available to offset future taxable income for federal income
tax purposes were approximately $15,238,000. These carry-forwards expire
beginning in 2007 if not utilized. At June 30, 1999, the Company has research
and other federal tax credit carry-forwards of approximately $810,000 and
Wisconsin carry-forwards of approximately $317,000. The Company has recorded a
full valuation allowance against any deferred tax assets established for the
carry-forwards.
Utilization of the net operating losses and credits may be subject to annual
limitations due to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. The annual limitations may result in
the expiration of net operating losses and credits before utilization.
YEAR 2000 IMPACT
The Company anticipates a complete conversion of its computer hardware, software
operating systems and application systems concurrent with the planned
commencement of manufacturing operations to meet the more sophisticated
requirements of a biopharmaceutical manufacturer. This conversion is not a
requirement, however, to become year 2000 compliant. Nor is any material impact
on operations envisioned in the absence of such conversion. The Company has
inventoried and evaluated the software application systems presently employed.
The Company has been informed that its business systems, as they presently
exist, are year 2000 compliant. There may be stand-alone scientific systems that
are not compliant. The Company does not believe remediation and testing will
entail any significant costs. The Company does not have the resources, nor has
it attempted, to survey its suppliers as to the adequacy of their year 2000
preparations. Nonetheless, the Company, in its present state as a "development
stage company," believes there are sufficient alternative sources of suppliers
and vendors to meet its limited demand for materials and services. Thus, the
risk of a total lack of supply for an extended period of time is viewed as de
minimis.
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STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in cumulative total
shareholder return on the Company's Common Stock with the cumulative return on
the NASDAQ (Composite) Stock Market (Broad Market) and the NASDAQ Biotechnology
Stock (Peer) during the period beginning June 12, 1998, (the date on which the
Company's Common Stock began trading separately from the warrants on the NASDAQ
Small Cap System) through June 30, 1999. The comparison assumes $100 was
invested on June 12, 1998, in the Company's Common Stock and in the foregoing
indices and assumes the reinvestment of dividends.
[OPHIDIAN STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
12-Jun-98 30-Sep-98 31-Dec-98 31-Mar-99 30-Jun-99
<S> <C> <C> <C> <C>
100 44.59 37.84 18.92 25.68 - Ophidian
100 97.07 125.65 141.05 153.92 - NASDAQ Stock Market Index
100 101.51 139.39 158.82 161.67 - NASDAQ Biotech Stock Index
</TABLE>
11
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The Company's securities were first listed on May 7, 1998, the date of the
Company's initial public offering. The securities first traded as Units
consisting of one share of Common Stock and one Common Stock Purchase Warrant.
On June 12, 1998, the Company and its Underwriters agreed to separate the Units
into their individual components. The range of high and low bid quotations on a
quarterly basis from May 7, 1998, as supplied by NASDAQ(1) is as follows:
<TABLE>
<CAPTION>
QUARTER UNITS COMMON STOCK WARRANTS
------- ----- ------------ --------
HIGH BID LOW BID HIGH BID LOW BID HIGH BID LOW BID
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
04/01/98 06/30/98 $6.6250 $4.8750 $4.7500 $3.2500 $1.8750 $1.0000
07/01/98 09/30/98 N/A N/A $3.8125 $1.0000 $1.5000 $0.2500
10/01/98 12/31/98 N/A N/A $3.0625 $1.0000 $0.6250 $0.1875
01/01/99 03/31/99 N/A N/A $1.7500 $0.8125 $0.3750 $0.1250
04/01/99 06/30/99 N/A N/A $1.7500 $0.6250 $0.2500 $0.1250
</TABLE>
(1) Prices are interdealer quotations, without retail markups, markdowns or
commissions, and may not represent actual transactions.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) None
(d) Use of Proceeds
The information in this paragraph 2(d) relates to the
Registrant's Registration Statement on Form S-1, as amended,
effective May 7, 1998, Registration No. 333-33219 (the
Registration Statement). The managing underwriters for the
offering of the securities sold pursuant to the Registration
Statement (the Offering) were Dirks & Company, Inc. and
Security Capital Trading, Inc. (the Underwriters). The
Offering commenced on May 7, 1998, and was completed on June
23, 1998, following the Underwriters' exercise of their
options to purchase additional units to cover over allotments
(the Over-Allotment Option). The following chart sets forth
the securities registered pursuant to the Offering, the
offering price, the amount sold, and the aggregate-offering
price of the amount sold.
<TABLE>
<CAPTION>
AMOUNT OFFERING PRICE AGGREGATE OFFERING
SECURITY REGISTERED PER UNIT AMOUNT SOLD PRICE OF AMOUNT SOLD
-------- ---------- -------- ----------- --------------------
<S> <C> <C> <C> <C>
Unit consisting of one 2,012,500(1) $ 6.10 1,933,088(2) $11,791,855
share of Common Stock,
par value $.0025 per
share (Common Stock) and
one redeemable Common
Stock Purchase Warrant
(Warrant)
</TABLE>
(1)Includes 262,500 additional Units registered pursuant to
the Over-Allotment Option granted to the Underwriters.
Excludes (i) additional shares of Common Stock issuable
upon exercise of the Warrants, (ii) additional shares of
Common Stock issuable upon exercise of certain
Representatives' Warrants, as defined in the Registration
Statement, and (iii) additional shares of Common Stock
issuable upon exercise of Warrants issuable upon exercise
of the Representatives' Warrant.
(2)Includes 183,088 additional Units purchased by the
Underwriters on June 23, 1998, when they partially
exercised their Over-Allotment Option by purchasing 183,088
Units of the 262,500 Units originally granted in the
option.
<TABLE>
<S> <C>
Total underwriting discounts and commissions: $1,061,265
Other expenses: 1,373,365
----------
Total expenses: $2,434,630
All such expenses were direct or indirect payments to others.
</TABLE>
The net offering proceeds to the Company, after deducting
the total expenses above, were $9,357,225. From May 7, 1998,
to December 31, 1998, the Company has placed the net
proceeds in temporary investments. The Company expects to
use the net proceeds in direct or indirect payments to
others as follows:
<TABLE>
<CAPTION>
PER OFFERING
DESCRIPTION OF USE OF PROCEEDS(3) MEMORANDUM REVISED
<S> <C> <C>
Construction of plant, building and facilities $1,100,000 -
Purchase and installation of machinery and equipment $1,750,000 $1,900,000
Purchase of real estate - -
Acquisition of other business (es) - -
Repayment of indebtedness - -
Research & development and business operations $5,500,000 $7,300,000(4)
Working capital $1,016,000 $ 157,000
Temporary investments - -
</TABLE>
(3) Each of the foregoing amounts is a reasonable estimate
based on the Company's focus on development of the
OPHD-001 product. This use of proceeds does not represent
a material change in OPHD-001 development focus described
in the Prospectus of the Registration Statement.
(4) This figure includes expenditures for the initial Phase II
clinical testing of the OPHD-001 product.
13
<PAGE> 14
<TABLE>
<S><C>
ITEM 3. Defaults upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits (see exhibit list)
(b) Reports on Form 8-K - Date of Report:
June 7, 1999 - Special Meeting of Stockholders 1 for 8 Reverse Stock Split
June 28, 1999 - $2 Million Financing
Expanding Cinical Development
Manufacturing Facility
Expands Program for Inflammatory Bowel Disease
ITEM 6(a) EXHIBIT LIST
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Articles of Incorporation of the Registrant,
filed as Exhibit 3.1 to the Registration Statement, and hereby
incorporated by reference.
3.2 Amended and Restated Bylaws of the Registrant, filed as Exhibit
3.2 to the Registration Statement, and hereby incorporated by
reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.1 to the
Registration Statement, and hereby incorporated by reference.
4.2 Specimen Warrant Certificate, filed as Exhibit 4.2 to the
Registration Statement, and hereby incorporated by reference.
4.3 Form of Representatives' Warrant Agreement, including Specimen
Representatives' Warrant, filed as Exhibit 4.3 to the Registration
Statement, and hereby incorporated by reference.
4.4 Form of Warrant Agreement, filed as Exhibit 4.4 to the
Registration Statement and hereby incorporated by reference.
4.5 Specimen Unit Certificate, filed as Exhibit 4.5 to the
Registration Statement, and hereby incorporated by reference.
10.1 Lease dated February 12, 1994, between the Company and Promega
Corporation, filed as Exhibit 10.1 to the Registration Statement,
and hereby incorporated by reference.
10.2 1998 Incentive Stock Option Plan, filed as Exhibit 10.2 to the
Company's 10-Q for the period ended December 31, 1998, and hereby
incorporated by reference.
10.3 1990 Incentive Stock Option Plan, filed as Exhibit 10.3 to the
Registration Statement, and hereby incorporated by reference.
10.4 1992 Employee Stock Option Plan, filed as Exhibit 10.4 to the
Registration Statement, and hereby incorporated by reference.
10.5 Agreement dated June 3, 1996, between the Company and Eli Lilly
and Company, filed as Exhibit 10.5 to the Registration Statement,
and hereby incorporated by reference.
10.6 Employment Agreement dated June 1, 1997, between the Company and
Douglas C. Stafford, filed as Exhibit 10.6 to the Registration
Statement, and hereby incorporated by reference.
10.7 Employment Agreement dated June 1, 1997, between the Company and
Joseph Firca, filed as Exhibit 10.7 to the Registration Statement,
and hereby incorporated by reference.
10.9 Employment Agreement dated November 6, 1997, between the Company
and Donald L. Nevins, filed as Exhibit 10.9 to the Registration
Statement, and hereby incorporated by reference.
10.10 Employment Agreements dated December 1, 1998, between the Company
and F. Michael Hoffmann, filed as Exhibit 10.10 to the Company's
Form 10-K for the period ended September 30, 1998, and hereby
incorporated by reference.
10.11 Lease for 2617 Progress Road, Madison, WI, dated June 9, 1999,
between the Company and Progress Holdings, LLC, filed as Exhibit
10.11 to the Company's 10-Q for the period ended June 30, 1999.
10.12 Promissory Note and Loan Agreement dated June 7, 1999, between the
Company and Rex J. Bates and Davis U. Merwin, filed as Exhibit
10.12 to the Company's 10-Q for the period ended June 30, 1999.
27.0 Financial Data Schedule.
</TABLE>
14
<PAGE> 15
SIGNATURES
Pursuant to the requirement 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.
Ophidian Pharmaceuticals, Inc.
(Registrant)
August 3, 1999 By: /s/ Douglas C. Stafford
--------------------------------------------------------
Douglas C. Stafford
President and Chief Executive Officer
August 3, 1999 By: /s/ Donald L. Nevins
--------------------------------------------------------
Donald L. Nevins
Chief Financial Officer
August 3, 1999 By: /s/ Susan Maynard
--------------------------------------------------------
Susan Maynard
Secretary
15
<PAGE> 1
ITEM 6 - #10.11
LEASE
This Lease is made and entered into as of June 9, 1999, by and between PROGRESS
HOLDINGS, LLC, a Wisconsin limited liability company, 4277 Blackstone Court,
Middleton, WI 53562 ("Landlord") and OPHIDIAN PHARMACEUTICALS, INC., a Delaware
corporation, 5445 East Cheryl Parkway, Madison, WI 53711 ("Tenant").
RECITALS
A. Landlord is the owner of a building (the "Building") and surrounding
land located at 2617 Progress Road, Madison, Dane County, Wisconsin as more
fully described on the attached Exhibit A (collectively the Building and
surrounding land are referred to as the "Property"), which is currently
partially vacant and in use by various tenants.
B. Landlord desires to lease the space set forth below to Tenant and to
permit Tenant to make substantial improvements thereto also as set forth below.
C. Tenant desires to lease the space set forth below from Landlord and
to make the substantial improvements set forth below.
NOW, THEREFORE, in consideration of the above premises and for other
good and valuable consideration the receipt of which is hereby acknowledged by
the parties, Landlord and Tenant agree as follows:
1. GRANT AND TERM
1.1 OFFICE SPACE. Landlord leases to Tenant and Tenant leases from
Landlord all of the office space, approximately 4,870 square feet of space, in
the Building (the "Office Space") the location of which is set forth on the
floor plan attached as Exhibit 1.1
1.2 PRODUCTION SPACE. Landlord also leases to Tenant 19,559 square feet
of production space in the Building (the "Production Space") the location of
which is set forth on the floor plan attached as Exhibit 1.2. The term
Production Space shall also include the additional space described in Section
13.1(a). The term "Leased Premises" as used herein shall refer collectively to
the Office Space and Production Space.
1.3 TERM. The initial term of this Lease (the "Initial Lease Term")
shall commence on July 1, 1999 and shall end on June 30, 2004, unless sooner
terminated as provided in this Lease. The period from July 1 of each year to
June 30 of the succeeding year shall be known as a "Lease Year."
2. OPTION TO EXTEND
2.1 EXTENDED LEASE TERM. Provided Tenant is not then in default under
this Lease, Tenant shall have the option to extend this Lease for an additional
five (5) year period from July 1, 2004 through June 30, 2009 upon the same terms
and conditions set forth herein. If Tenant exercises its option to extend this
Lease under this Section 2.1, the extended term of this Lease is referred to as
the "Extended Lease Term."
2.2 EXERCISE OF EXTENSION OPTION. Tenant's option to extend this Lease
shall be exercised by giving written notice of such exercise to Landlord at
least one hundred eighty (180) days prior to the end of the Initial Lease Term.
2.3 FAILURE TO EXTEND LEASE TERM. If Tenant fails to timely exercise
Tenant's option to extend the Lease Term as provided herein, this Lease shall
terminate at the end of the Initial Lease Term and Tenant's rights to extend the
Lease Term shall be of no further force or effect.
17
<PAGE> 2
3. RENT
3.1 RENT DURING INITIAL LEASE TERM. The rent rate for the Office Space
and Production Space during the Initial Lease Term shall be as set forth in the
following table except for any additional rent resulting from an expansion of
the Production Space as set forth in Section 13.1:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
$ $ Total $
Lease Annual Rent Annual Rent Annual Total
Year Office Space $/Square Ft. Production Space $/Square Ft. Rent $ Monthly Rent
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 33,116 6.80000 66,501 3.40000 99,617 8,301
- -------------------------------------------------------------------------------------------------------------------------------
2 34,090 7.00400 68,456 3.50200 102,546 8,546
- -------------------------------------------------------------------------------------------------------------------------------
3 38,960 8.00000 78,236 4.00000 117,196 9,766
- -------------------------------------------------------------------------------------------------------------------------------
4 40,129 8.24000 80,583 4.12000 120,712 10,059
- -------------------------------------------------------------------------------------------------------------------------------
5 41,346 8.48720 82,930 4.24360 124,276 10,356
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Tenant shall pay Landlord the Total Annual Rent during the Initial
Lease Year in equal monthly installments in the amounts set forth under "Total
Monthly Rent" above, in advance, on the first day of each and every month during
the Initial Lease Term. The first monthly rent payment shall be made on July 1,
1999.
3.2 RENT DURING EXTENDED LEASE TERM. The rent rate for the Office Space
and Production Space during the Extended Lease Term shall be as set forth in the
following table; except for any additional rent resulting from an expansion of
the Production Space as set forth in Section 13.1:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
$ $ Total $
Lease Annual Rent Annual Rent Annual Total
Year Office Space ($/Square Ft.) Production Space $/Square Ft. Rent $ Monthly Rent
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 42,564 8.74182 85,473 4.37091 128,037 10,670
- -------------------------------------------------------------------------------------------------------------------------------
7 43,830 9.00407 88,016 4.50204 131,846 10,987
- -------------------------------------------------------------------------------------------------------------------------------
8 45,145 9.27419 90,753 4.63710 135,899 11,325
- -------------------------------------------------------------------------------------------------------------------------------
9 46,509 9.55242 93,492 4.77621 140,001 11,667
- -------------------------------------------------------------------------------------------------------------------------------
10 47,921 9.83899 96,230 4.91950 144,151 12,013
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Tenant shall pay Landlord the Total Annual Rent during the Extended
Lease Term in equal monthly installments in the amounts set forth under "Total
Monthly Rent" above, in advance, on the first day of each and every month during
the Extended Lease Term.
3.3 If any monthly rent payment becomes delinquent for more than five
(5) days after its due date, then in addition to any other rights and remedies
available to Landlord, Tenant shall pay Landlord a late charge equal to 2.5% of
the amount due. The payment of any late charge shall not excuse or cure any
default by Tenant. For purposes of this Section 3.3 only payment shall be deemed
made on the date personally delivered or postmarked to Tenant.
18
<PAGE> 3
4. IMPROVEMENTS
4.1 BUILDING IMPROVEMENTS AND ALTERATIONS. Tenant has the right, at
Tenant's expense, to make the substantial leasehold improvements to the Leased
Premises including, but not limited to, improvements to heating, ventilation,
cooling, electrical, plumbing and sewer systems, in accordance with the plans
and specifications set forth in Exhibit 4.1 of this Lease. Tenant, under the
terms set forth in Exhibit 4.4, also shall have the right to make the
improvements set forth in Exhibit 4.4. Landlord hereby approves those
improvements set forth on Exhibits 4.1 and 4.4. Any additional alterations or
improvements made by Tenant shall be at Tenant's sole expense and shall be
subject to Landlord's prior approval, which approval shall not be unreasonably
withheld or delayed. All improvements made to the Office Space shall be made in
a good workmanlike manner and all improvements made to the Production Space will
be made in a manner consistent with other biopharmaceutical production
facilities. All improvements which are structural alterations to the Building
shall become part of the Leased Premises and shall remain for the benefit of the
Building upon termination of this Lease. Tenant shall neither have the right nor
the obligation to remove any such improvements, except that to the extent Tenant
removes the concrete planks in the space now occupied by EDS, Tenant agrees to
restore said planks upon termination of this Lease at the request of Landlord.
4.2 EQUIPMENT. Tenant may, at Tenant's expense, install equipment in
the Leased Premises as it deems necessary and appropriate to carry on its
business. A list of the equipment Tenant anticipates installing on the Leased
Premises has been provided for Landlord's review and approval prior to the
execution of this Lease. Such equipment shall remain the personal property of
Tenant and shall be removed by Tenant at the expiration or termination of this
Lease in a workmanlike manner without material damage to the Building or its
improvements. Landlord hereby agrees that any such equipment shall not be deemed
to be a fixture and hereby acknowledges that Tenant may grant a security
interest in any such equipment and that Landlord will not disturb the right of
any secured party to exercise its rights in the equipment. If requested by a
secured party, Landlord agrees to execute such documents as the secured party
deems necessary to protect and perfect the secured party's first lien interest
in such equipment.
4.3. RESTRICTIONS AGAINST LIENS. Tenant shall pay and settle all
expenses and liabilities arising from the improvements made to the Leased
Premises by Tenant and shall keep the Leased Premises free and clear from all
construction and other liens.
4.4 ADDITIONAL REPAIRS AND IMPROVEMENTS. Landlord, at Landlord's
expense, shall make the repairs and improvements set forth on Exhibit 4.4, as
set forth therein. Tenant, at Landlord's expense, also shall make those certain
repairs and improvements set forth on Exhibit 4.4.
5. MAINTENANCE AND REPAIRS
5.1 PARKING AREAS. Tenant shall be responsible for the maintenance of
the parking areas and sidewalks serving the Building and grounds adjoining the
Building including without limitation snow removal and lawn mowing. Landlord
shall reimburse Tenant for the pro rata share (which shall be equal to the
square footage of the Building not occupied by Tenant divided by 42,458; which
as of the date of this Lease would be 18,029/42,458 =.4246) (the "Lessees' Pro
Rata Share") of the expenses incurred by Tenant under this Section 5.1 that are
attributable to other lessees (the "Lessees") occupancy of space within the
Building.
5.2 JANITORIAL SERVICES. Tenant shall provide, at Tenant's own cost and
expense, all janitorial services for the Leased Premises and shall at all times
keep and maintain the Leased Premises in a clean and orderly condition. Tenant
shall be responsible for the cost of its own trash removal attributable to its
use of the Leased Premises.
19
<PAGE> 4
5.3 STRUCTURAL MAINTENANCE.
(a) Landlord, at Landlord's sole cost, shall keep and maintain as
necessary, the roof, exterior walls, structural or concrete flooring and
structural portions of the Building in good condition and repair, ordinary wear
and tear excepted, provided, that Tenant shall promptly repair any damage caused
to the Building or the Leased Premises as a result of Tenant's acts or
negligence or the acts or negligence of Tenant's employees, agents or visitors.
(b) Tenant, at Tenant's sole cost, shall keep and maintain as
necessary, all of the interior of the Leased Premises not maintained by Landlord
under Paragraph 5.3(a), including the heating, ventilation, and cooling systems
serving the Leased Premises, in good condition and repair, ordinary wear and
tear excepted, provided that Landlord shall promptly repair any damage caused to
the Leased Premises as a result of Landlord's acts or negligence or the acts or
negligence of Landlord's employees, agents or visitors.
5.4 LANDLORD'S RIGHT OF ENTRY. Landlord may enter the Leased Premises
with at least forty-eight (48) hours prior notice to Tenant, Monday through
Friday from 9:00 a.m. - 5:00 p.m. for the purpose of examining or inspecting the
condition thereof and to exercise any right or power reserved to Landlord under
the terms and provisions of this Lease; provided, however, that Landlord's
access to any part of the Leased Premises in production or research use shall be
delayed until such time as the production or research run has ended.
5.5 ACCESS. Tenant shall have access to the Leased Premises and the
common areas of the Building twenty-four (24) hours per day, seven (7) days per
week with keys issued by Landlord. Landlord understands that Tenant must secure
the Leased Premises to protect the integrity of Tenant's production processes
and Landlord hereby consents to Tenant changing the locks on the Leased Premises
in order to do so.
6. UTILITIES AND TAXES
6.1 UTILITIES. Tenant shall pay all charges for utilities used in the
Leased Premises. Any utility rate reductions negotiated by Tenant that apply to
use by Lessees shall be for the benefit of Tenant and not for Landlord or
Lessees. Landlord shall pay Tenant annually $.50 per square foot occupied by
Lessees to reimburse Tenant for Lessee's utility use. Landlord further
represents and warrants to Tenant that it will reimburse Tenant at a greater
level should Lessee usage be greater than $.50 per square foot. Landlord shall
pass any such savings that otherwise would accrue to Landlord and Lessees to
Tenant in the form of a reduction in the rent that otherwise would be payable
hereunder.
6.2 REAL ESTATE TAXES AND ASSESSMENTS. (a) Landlord and Tenant shall
share responsibility for the payment of real estate taxes attributable to the
Leased Premises. Landlord's portion of the real estate taxes shall be an amount
equal to the Building's 1999 assessed value of $1,265,000 multiplied by the mill
rate then in effect. Tenant shall be responsible for the remaining portion of
the real estate taxes.
(b) Anything herein to the contrary notwithstanding, to the extent
Tenant successfully negotiates a reduction in the real estate taxes attributable
to the entire Building, Tenant shall receive the benefit of the reduction
attributable to the Building that is not occupied by Tenant by receiving a
credit from Landlord against the pro rata share of tax owed by Tenant under
Section 6.2(a) by the amount of tax that otherwise would have been attributable
to the Building which is not occupied by Tenant, without considering the
reduction negotiated by Tenant, less the reduced tax to be paid. For example, if
the tax attributable to the Building not occupied by Tenant is $25,000 as of the
date of this Lease and Tenant negotiates a reduction in the tax attributable to
the Building not occupied by Tenant to $15,000, Tenant shall receive a credit
each year against the amount it owes under 6.2(a) of $10,000.
6.3 PERSONAL PROPERTY TAXES. Tenant shall pay and discharge, as they
become due, promptly and before delinquency, all taxes and assessments levied,
assessed, charged or imposed on or against Tenant's own leasehold interest,
including any tax on rentals or personal property of any kind owned or placed in
the Leased Premises by Tenant. Tenant shall have the right to contest such taxes
and assessments levied against the personal property located on the Leased
Premises during the Lease Term. Landlord agrees to provide reasonable efforts to
20
<PAGE> 5
cooperate with Tenant, to the extent Tenant deems such cooperation necessary or
desirable, in any such assessment proceedings. The entire cost of any such
contest shall be paid by Tenant.
7. CONDUCT OF BUSINESS
7.1 PERMITTED USE. Tenant shall use the Leased Premises in its
biopharmaceutical production business which includes but is not limited to
research, development, pilot scales production and commercial production of
products for human and animal use employing fermentation, protein extraction,
solvent based chemistry and other similar production facets of the
biopharmaceutical industry. No other use shall be permitted without Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed.
7.2 CARE OF THE LEASED PREMISES. Tenant shall at all times during the
Lease Term keep the Leased Premises in a clean and safe condition and shall
permit no waste or injury to the Leased Premises to occur except for ordinary
wear and tear. All damage caused by Tenant's negligence or the negligence of
Tenant's employees, agents or visitors, shall be repaired promptly by Tenant at
Tenant's sole cost and expense.
7.3 COMPLIANCE WITH LAWS. Tenant shall observe and comply with all
rules, regulations and laws now in effect, or which may be enacted during the
Lease Term by any municipal, county, state or federal authorities having
jurisdiction over the Leased Premises.
8. INSURANCE AND INDEMNITIES
8.1 GENERAL PROPERTY-LANDLORD. Landlord shall, at Landlord's expense,
at all times during the Lease Term, keep the Building insured against loss or
damage by fire, wind and other extended coverage hazards in an amount equal to
the full replacement cost of the Building. Landlord shall be responsible for
payment of the insurance premiums for the casualty insurance policy, but Tenant
shall promptly reimburse Landlord for that portion of the insurance premiums
attributable to the improvements made by Tenant under this Lease. Any such
policy shall have Tenant as an additional insured to the extent of the
improvements made by Tenant pursuant to the terms of this Lease. Landlord shall
not be required to carry insurance of any kind on Tenant's personal property,
fixtures, or equipment.
8.2 PERSONAL PROPERTY-TENANT. Tenant shall, at Tenant's expense, carry
insurance on Tenant's personal property located in the Leased Premises during
the entire Lease Term.
8.3 LANDLORD NOT LIABLE. Except to the extent any damage is caused by
the negligence or willful misconduct of the Landlord or Landlord's employees or
agents, Landlord shall not be liable for any damage to or the loss of property
of Tenant or others located in the Leased Premises. Except to the extent any
damage is caused by the negligence or willful misconduct of Landlord or its
employees or agents, Landlord shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, steam, gas, electricity,
water, rain, snow, or leaks from any part of the Leased Premises, or from pipes,
appliances, or plumbing works, or from any other place, or by dampness, or by
any other similar cause.
8.4 GENERAL LIABILITY-TENANT. Tenant shall, at Tenant's expense, obtain
and keep in force during the Lease Term comprehensive general liability
insurance naming Landlord as an additional insured in a form and written by a
reliable insurance company in an amount not less than one million dollars
($1,000,000) per occurrence for bodily injury and property damage combined.
8.5 CERTIFICATES OF INSURANCE. Tenant shall upon request provide
Landlord with certificates of insurance evidencing the coverages required to be
maintained by Tenant under the Lease.
8.6 MUTUAL WAIVER OF SUBROGATION. Landlord and Tenant do hereby waive,
to the extent no insurance coverage is invalidated thereby, any and all right of
recovery, claim, action, or cause of action against the other, their respective
agents and employees, for any loss or damage that may occur to the Leased
Premises or any additions or improvements thereto, or any contents therein, by
reason of fire, the elements, or any other cause which could be insured against,
under the terms of a standard fire, vandalism, malicious mischief, and extended
coverage insurance policy or policies, building contents, and business
interruption insurance policies, or for which Landlord
21
<PAGE> 6
or Tenant may be reimbursed as a result of insurance coverage affecting any loss
suffered by either party hereto, regardless of cause or origin, including the
negligence of Landlord or Tenant or their respective agents and employees. All
insurance policies carried by either party covering the Leased Premises,
including, but not limited to, contents, fire, and casualty insurance, shall
expressly waive any right on the part of the insurer against the other party for
damage to or destruction of the Leased Premises resulting from the acts or
omissions of the other party. Any additional charge by the insurance company for
such waiver shall be paid by Tenant.
8.7 TENANT'S GENERAL HOLD HARMLESS. Tenant will save harmless and
indemnify Landlord from any and all claims arising out of, or from, any
accidents or other occurrences, on or about the Leased Premises, the Building or
the parking lot adjacent to the Building causing injury to any person or
persons, or property and due directly or indirectly to the negligent use of the
Leased Premises, parking areas or Building by Tenant, Tenant's employees, agents
or visitors.
8.8 NOTICE OF CANCELLATION. Each insurance policy maintained by Tenant
in accordance with this Lease shall require that Landlord be given written
notice at least thirty (30) days prior to cancellation, expiration or other
termination of such insurance coverage.
8.9 HOLD HARMLESS AS TO ENVIRONMENTAL MATTERS. Tenant shall not at any
time cause or permit any hazardous substance or material to be used, consumed or
stored in the Leased Premises, except in accordance with applicable
environmental laws. If Tenant causes or permits the presence of any hazardous
substances or material on the Leased Premises, Tenant shall indemnify and hold
harmless Landlord from any and all claims, liabilities, and losses, including
attorneys' fees, arising directly or indirectly, as a result of such hazardous
substance or material. The representations, warranties, covenants and
indemnities of Tenant under this Section 8.9 shall survive the termination of
this Lease. As used herein, "hazardous substance or material" means any
substance, material or waste as defined by any provision of local, state or
federal law.
9. DAMAGE BY FIRE OR OTHER CASUALTY
9.1 PARTIAL DESTRUCTION. In the event the Leased Premises are damaged
by fire, the elements, or other casualty and are rendered untenantable in part,
Landlord, if so requested by Tenant in writing, shall repair immediately the
damage and during such repair Tenant's monthly rent obligation, as set forth in
Section 3, shall be reduced by the proportion of the Leased Premises rendered
untenantable. If Tenant does not make such a request, this Lease shall
terminate.
9.2 TOTAL DESTRUCTION. If the Leased Premises are rendered wholly
untenantable by the causes described in Section 9.1, at the written request of
Tenant, Landlord shall repair such damage, and the rent shall abate for the
Leased Premises which have been rendered untenantable. If Tenant fails to make
such a written request this Lease shall terminate and Landlord shall have no
obligation to restore the Leased Premises.
10. DEFAULT
10.1 EVENTS OF DEFAULT TO TENANT. Tenant shall not be deemed to be in
default unless Landlord shall first give Tenant written notice of such default,
and Tenant shall fail to cure such default within ten (10) days of the date of
such notice in the case of default in the payment of the rent or any other
charges due from Tenant to Landlord, or within thirty (30) days of the date of
such notice in the case of a default of any other term, covenant, or condition
of this Lease; provided that if such non-payment default cannot reasonably be
cured within such thirty (30) day period, Tenant shall not be in default so long
as Tenant commences and diligently pursues such cure within such thirty-day
period.
10.2 LANDLORD'S RIGHTS ON TENANT'S DEFAULT .
(a) In the event Tenant defaults with respect to any of the
terms, covenants or conditions of this Lease, and Tenant fails to cure such
default in the time allowed by Section 10.1, Landlord may, in addition to all
other rights or remedies it may have, upon written notice to Tenant: (i)
terminate this Lease or (ii) terminate Tenant's
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<PAGE> 7
right to possession of the Leased Premises without terminating this Lease. Upon
termination of this Lease or Tenant's right to possession, Landlord shall have,
the right to remove all persons and property from the Leased Premises and such
property may be removed and stored in a public warehouse or elsewhere at the
cost of, and for the account of, Tenant. Should Landlord elect to re-enter or
should Landlord take possession of the Leased Premises pursuant to legal
proceedings or pursuant to any notice provided for by law, Landlord may re-let
the Leased Premises, or any part thereof, for such term or terms, and at such
rental or rentals, and on such other terms and conditions as Landlord, in
Landlord's sole discretion, may deem advisable, and with the right to make
reasonable alterations and repairs to the Leased Premises. On each such
re-letting:
(1) Tenant shall be immediately liable to pay to Landlord, in
addition to any indebtedness other than the rent due hereunder, the expenses of
such re-letting and of such reasonable alterations and repairs incurred by
Landlord, and the amount, if any, by which the rent reserved in this Lease for
the period of such re-letting (up to, but not beyond, the Lease Term) exceeds
the amount to be paid as rent for the Leased Premises for such period of
re-letting; or
(2) At the option of Landlord, rents received by Landlord from
such re-letting, shall be applied first, to the payment of any indebtedness,
other than rent due hereunder from Tenant to Landlord; second, to the payment of
any expenses of such re-letting and of such reasonable alterations and repairs;
third, to the payment of rent due and unpaid hereunder, and the residue, if any,
shall be held by Landlord and applied in payment of future rent as the same may
become due and payable hereunder.
(b) If Tenant has been credited with any rent to be received by such
re-letting under Section 10.2(a)(2) hereof, and such rent shall not be promptly
paid to Landlord by the new tenant, or if such rentals received from such
re-letting under Section 10.2(a)(2) during any month is less than that to be
paid during that month by Tenant, Tenant shall immediately pay any such
deficiency to Landlord. Such deficiency shall be calculated and paid monthly.
(c) No such re-entry or taking possession of the Leased Premises by
Landlord shall be construed as an election on the part of Landlord to terminate
this Lease unless a written notice of such intention is given to Tenant or
unless the termination is decreed by a court of competent jurisdiction.
Notwithstanding any such re-letting without termination, Landlord may, at any
time thereafter, elect to terminate this Lease for such previous breach.
(d) In addition to any other remedy it may have, if Landlord at any
time terminates this Lease for any default of Tenant, Landlord may recover from
Tenant all damages incurred by reason of such breach, including Landlord's
actual cost of recovering the Leased Premises, and the worth at the time of such
termination of the excess, if any, of the amount of rent and charges equivalent
to rent reserved in this Lease for the remainder of the stated Lease Term over
the then reasonable rental value of the Leased Premises for the remainder of the
stated Lease Term, all of which amounts shall be immediately due and payable
from Tenant to Landlord.
10.3 LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. Tenant agrees that
if Tenant at any time fails to pay any amount then required to be paid by Tenant
under this Lease, or if Tenant fails to perform any other covenant or agreement
on Tenant's part required to be performed, then after thirty (30) days' written
notice to and demand upon Tenant which is not complied with during such 30-day
period, Landlord may (but shall not be obligated to do so), without waiving or
releasing Tenant from any of the obligations of Tenant under this Lease, pay any
such imposition or other sum or perform or pay others to perform such other
covenant or agreement, provided that Landlord shall have no such rights to pay
or perform Tenant's obligations under this Section 10.3 if Tenant's failure
cannot reasonably be cured within such thirty (30) day period and if Tenant is
diligently attempting to cure same, and provided that Landlord shall not be
required to give prior written notice to Tenant in the case of repairs to the
Leased Premises which must be made immediately to prevent or limit damage to the
Leased Premises and which Tenant does not make upon demand by Landlord. All sums
so paid by Landlord shall be deemed additional rent
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<PAGE> 8
hereunder and shall be payable to Landlord on demand, or at the option of
Landlord may be added to any rent then due or thereafter becoming due under this
Lease.
10.4 TENANT'S RIGHT TO PERFORM LANDLORD'S COVENANTS. Landlord agrees
that if Landlord at any time fails to pay any amount then required to be paid by
Landlord under this Lease, or if Landlord fails to perform any other covenant or
agreement on Landlord's part required to be performed, then after thirty (30)
days' written notice to and demand upon Landlord which is not complied with
during such 30-day period, Tenant may (but shall not be obligated to do so),
without waiving or releasing Landlord from any of the obligations of Landlord
under this Lease, pay any such imposition or other sum or perform or pay others
to perform such other covenant or agreement, provided that Tenant shall have no
such rights to pay or perform Landlord's obligations under this Section 10.4 if
Landlord's failure cannot reasonably be cured within such thirty (30) day period
and if Landlord is diligently attempting to cure same, and provided that Tenant
shall not be required to give prior written notice to Landlord in the case of
repairs to the Leased Premises which must be made immediately to prevent or
limit damage to the Leased Premises or to Tenant's business operations and which
Landlord does not make upon demand by Tenant. All sums so paid by Tenant may, at
the option of Tenant, be offset against any rent then due or becoming due under
this Lease.
11. ASSIGNMENT AND SUBLETTING
11.1 LIMITATION ON TENANT'S ASSIGNMENT. Tenant shall not assign or
sublet all or any part of Tenant's interest in the Leased Premises without in
each case Landlord's prior written consent, except that Landlord hereby consents
to the sublease of part of the Leased Premises to EDS, should Tenant ever
exercise its rights under Section 13.1. In the event Tenant assigns or sublets
all or any part of Tenant's interest in this Lease, Tenant guarantees payment of
any rent due under this Lease. Landlord's consent to a particular assignment or
sublet, shall not be construed as the waiver of the aforesaid restriction, which
shall remain in full force and effect, and no further assignment or subletting
shall be made by Tenant without Landlord's prior written consent. If Tenant's
interest in this Lease is assigned or sublet, and Tenant is not expressly
released from further liability under this Lease, Landlord may after default in
performance of this Lease, collect rent from the assignee or subtenant and apply
the net amount collected to the rent due from Tenant. No such collection shall
be deemed a waiver of the covenant contained herein or a release of Tenant from
the Tenant's obligation under this Lease. In the event of such default, Tenant
hereby assigns the rent due from the assignee or subtenant to the Landlord.
11.2 LANDLORD'S ASSIGNMENT. Landlord shall have the right to assign or
transfer Landlord's interest in this Lease at any time, provided that the
assignee or transferee assumes and agrees to be bound by the terms of this Lease
and further provided that Landlord notifies Tenant of such assignment and
provides Tenant with an executed copy of the transfer instrument.
12. SUBORDINATION AND ESTOPPEL CERTIFICATE
12.1 SUBORDINATION. This Lease is subject and subordinate to any
mortgage now or hereafter placed upon the Building, provided that Tenant's
rights under this Lease including Tenant's right of quiet enjoyment shall not be
disturbed unless Tenant has defaulted and the required notice has been given and
any cure period has expired. If such mortgage is foreclosed, then upon the
request of the mortgagee, Tenant will attorn the purchaser at any foreclosure
sale and will execute such instruments as may be necessary or appropriate to
evidence such attornment so long as Tenant's obligations or liabilities are not
thereby increased. Tenant agrees to execute and deliver to Landlord upon demand
such instruments subordinating this Lease to the lien of any such mortgage as
requested by Landlord or any mortgagee or proposed mortgagee provided, however,
that any instrument subordinating this Lease to the lien of any such mortgage
shall, as a condition thereof, provide that this Lease shall continue in full
force and effect, and neither such mortgagee nor the receiver in the event of
foreclosure shall have the right to cancel or terminate this Lease, as long as
Tenant is not in default under any of the terms hereof. Landlord shall
immediately notify Tenant of any such subordination of this Lease and shall at
all times keep Tenant advised of the name and address of any mortgagee.
12.2 ESTOPPEL CERTIFICATE. Each party shall deliver to the other or to
the other party's mortgagees, auditors or prospective purchasers, when
requested, a certificate stating that this Lease is in full force and effect and
that the requesting party is not in default or stating specifically any
exception thereto. Failure to give such a
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<PAGE> 9
certificate within twenty (20) days after a written request shall be conclusive
evidence that this Lease is in full force and effect and that the requesting
party is not in default and the party from whom the certificate was requested
shall be estopped from asserting any defaults known to it at that time.
13. EXPANSION AND OPTION TO PURCHASE
13.1 EXPANSION.
(a) At any time during the Initial Lease Term and as Lessee's
leases expire or are terminated, Tenant shall lease the additional 18,029 square
feet of production space in the Building as set forth on the floor plan attached
as Exhibit 13.1 (the "Additional Space"), including the space currently occupied
by EDS. The rent for the Additional Space shall be at annual rent of $3.50 per
square foot rented through the Initial Lease Term and at $3.60500 per square
foot in Lease Year 6, $3.71315 per square foot in Lease Year 7, $3.82454 per
square foot in Lease Year 8, $3.93928 per square foot in Lease Year 9 and
$4.05746 per square foot in Lease Year 10.
(b) Landlord represents and warrants to Tenant that the EDS
sublease expires on April 30, 2001.
13.2 OPTION TO PURCHASE. Landlord grants to Tenant the right and option
(herein called the "Option") to purchase the Property upon the terms and
conditions as hereinafter set forth.
(a) This Option may be exercised by Tenant by written notice
thereof delivered to Landlord at least 180 days prior to the end of the Initial
or Extended Lease Term, as applicable.
(b) The purchase price for the Property shall be, if the Option is
exercised during the Initial Lease Term, One Million Three Hundred Ninety-Five
Thousand Dollars ($1,395,000.00). If the Option is exercised during the Extended
Lease Term, purchase price shall be as follows:
<TABLE>
<S> <C>
Year 6 $1,436,850
Year 7 $1,479,956
Year 8 $1,524,355
Year 9 $1,570,086
Year 10 $1,617,189
</TABLE>
(c) In the event that Tenant shall exercise the Option hereunder,
the closing of its purchase of the Property from Landlord shall be held within
one hundred twenty (120) days after notice of exercise of the Option by Tenant.
(d) Within ninety (90) days of receipt of Tenant's written notice
of election to purchase, Landlord shall, at its own expense, furnish to Tenant
an owner's policy of title insurance in an amount equal to the purchase price,
issued by a title insurance company licensed to do business in the State of
Wisconsin, naming Tenant as the insured and guaranteeing Landlord's title to be
free from all encumbrances whatever, excepting municipal and zoning ordinances,
recorded easements, restrictions, liens and encumbrances set forth on Exhibit
13.2(d), the lien of the Lease, taxes and other liens or charges which Tenant
is, pursuant to this Lease, obligated to pay or satisfy and such mortgage and
other encumbrances, if any, as Tenant or anyone claiming by, through or under
Tenant may have placed upon the Property. Upon receipt of the commitment of such
a title company to issue such a title policy upon the recording of proper
documents, Tenant shall be allowed twenty (20) days in which to examine such
evidence of title and if the same does not show Landlord's title to be free from
all encumbrances excepting those above enumerated and those to be paid out of
the proceeds from the closing, Landlord shall, within a reasonable time, cure
such defects and clear the title. In the event the evidence of title furnished
by Landlord discloses any defects in Landlord's title which cannot be cured, and
the curing of which Tenant is unwilling to waive, Tenant may withdraw its
election to purchase, and its performance of the contract formed by such
exercise shall thereby be terminated. Furthermore, to the extent the defect
cannot be cured and is caused by Landlord or any other tenant, sub-tenant, or
anyone else with whom Landlord has contracted, Landlord shall be obligated to
25
<PAGE> 10
reimburse Tenant for the original cost of all improvements made by Tenant under
this Lease less the amount by which such improvements have depreciated, based on
a twenty (20) year amortization schedule.
(e) Landlord shall by warranty deed convey fee title to the
Property free and clear of all liens and encumbrances excepting those set forth
in Section 13.2(d) above. Upon delivery of the warranty deed, Tenant agrees to
pay in cash the purchase price determined as set forth herein. Tenant agrees to
cooperate with Landlord in effecting any exchange under Section 1031 of the
Internal Revenue Code as amended.
(f) In the event that the Property shall be damaged by fire or
elements after exercise of the Option but prior to closing, except for any
damage caused by the negligence or acts of Tenant or Tenant's employees, agents,
or visitors, this Option may be cancelled, at Tenant's option, and Tenant shall
have no further obligation thereunder and shall not be entitled to any portion
of the insurance proceeds resulting from such damage. Should Tenant elect to
carry out the Option despite such damage, Tenant shall be entitled to the
insurance proceeds resulting from such damage, not exceeding, however, the
purchase price.
(g) In the event that any part of the Property shall be taken in
eminent domain after exercise of the Option but prior to Closing, and such
taking shall not materially affect the function of the Property as it existed
prior to such taking, Tenant shall be obligated to carry out the Option despite
such taking but shall be entitled to the award resulting from such taking not
exceeding the purchase price. In the event that such taking materially affects
the function of the Property as aforesaid, the Option shall be cancelled and
Tenant shall have o further obligation thereunder and shall not share in any
portion of such award.
(h) If Tenant does not give written notice of its election to
purchase the Property as aforesaid, the Option shall terminate and be of no
further force and effect.
14. GENERAL
14.1 QUIET ENJOYMENT. Landlord agrees that so long as Tenant pays the
rent and performs Tenant's obligations under the Lease, Tenant shall quietly
hold the Leased Premises for the Lease Term.
14.2 SIGNS. Tenant may, subject to the approval of Landlord which
approval will not be unreasonably withheld, to erect and maintain signs on the
Leased Premises and Building. Tenant shall have the right to remove such signs
upon vacating the Leased Premises.
14.3 PARKING. Landlord shall provide adequate parking spaces for
Tenant's business in the parking lot adjacent to the Building and said parking
lot shall be repaired and improved by Landlord as set forth in Exhibit 4.4.
14.4 HOLDING OVER. In the event Tenant shall continue to occupy the
Leased Premises after expiration of the Lease Term without the prior written
consent of Landlord, such holding over shall not operate to renew or extend this
Lease, but shall instead create a tenancy from month to month on the same terms
and conditions stated herein except that Tenant shall pay a use and occupancy
charge equal to 150% of the rent immediately prior thereto, compiled on a daily
basis, and Tenant shall not have the option to purchase the Property under
Section 13.2 during any such holding over.
14.5 ENTIRE AGREEMENT. This Lease contains the entire agreement between
the parties concerning its subject matter and may only be amended only in a
writing signed by both parties.
14.6 FORCE MAJEURE. In the event that either Landlord or Tenant is
delayed or hindered in the performance of any act required under this Lease by
reason of strike, lockout, labor dispute, inability to produce materials,
failure of power, restrictive governmental laws or regulations, or similar
reason not attributable to the negligence or fault of the party who is delayed
then the performance of such acts shall be excused for the period of the
unavoidable delay, provided this provision shall not excuse Tenant from the
timely payment of rent.
14.7 NO PARTNERSHIP. Landlord does not in any way become a partner,
joint venturer, or member of a joint enterprise with the Tenant by virtue of
this Lease.
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<PAGE> 11
14.8 WAIVER. Failure by either party to enforce any of its rights under
this Lease shall not be deemed a waiver of any right which that party has under
this Lease. The acceptance of rent by Landlord shall not be deemed a waiver of
any preceding breach by Tenant of any covenant herein, other than the failure of
Tenant to pay the rent so accepted. No covenant, term, or condition of this
Lease shall be waived by Landlord or Tenant, unless the waiver is in writing.
14.9 NOTICES. Any notice or consent required to be given by or on
behalf of either party upon the other shall be in writing and shall be given by
personal delivery or by mailing such notice or consent by registered or
certified mail, return receipt requested, addressed as follows:
To Landlord:
Progress Holdings, LLC
4277 Blackstone Court
Middleton, WI 53562
With a copy to:
Peter J. Faust
O'Neil, Cannon & Hollman, S.C.
111 East Wisconsin Avenue, Suite 1400
Milwaukee, WI 53202
To Tenant:
Ophidian Pharmaceuticals, Inc.
5445 East Cheryl Parkway
Madison, WI 53711
Attn: Donald L. Nevins
Vice President and CFO
With a copy to:
Brett A. Thompson
LaFollette Sinykin, LLP
One East Main Street, Suite 500
P.O. Box 2719
Madison, WI 53701-2719
or such other address as may be specified from time to time in writing delivered
by the other party. A notice or consent shall be deemed effective when
personally delivered, one (1) day after being sent by overnight delivery, and
two (2) days after being sent by registered or certified mail.
14.10 PARTIAL INVALIDITY. If any provision of this Lease or any
specific application thereof shall be invalid or unenforceable, the remainder of
this Lease, or the application of the provision in other circumstances, shall
not be affected, and each provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
14.11 REMEDIES CUMULATIVE. All remedies conferred on Landlord and
Tenant by this Lease shall be deemed cumulative and no one exclusive of the
other or of any other remedy conferred by law.
14.12 BINDING EFFECT. The covenants and agreements contained in this
Lease shall bind and inure to the benefit of the respective successors, heirs,
and legal representatives of the parties hereto.
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<PAGE> 12
14.13 ACCORD AND SATISFACTION. No payment received by Landlord of a
lesser amount than the rent or other charges shall be deemed to be other than on
account of the earliest stipulated rent or other charges, nor shall any
statement on a check or any letter accompanying a payment of rent or other
charges be deemed an accord and satisfaction. Landlord may accept payment
without prejudice to the Landlord's right to recover the balance of rent or
other charges or pursue any remedy in this Lease.
14.14 GOVERNING LAWS. This Lease shall be governed by and construed in
accordance with the internal laws of the State of Wisconsin. Landlord and Tenant
agree that the state courts of Wisconsin and the courts of the United States
located within Wisconsin shall have personal jurisdiction over them; with
respect to any action relating to or arising under this Lease. Any such action
shall be commenced exclusively in such Wisconsin state or federal court in Dane
County.
14.15 MEMORANDUM OF LEASE. A memorandum or short form of this Lease
shall be entered into in substantially the same form as the attached Exhibit B,
provided, however, that nothing therein contained shall alter or vary the terms
of this Lease.
14.16 SALE OF PREMISES. In the event of any sale or other transfer of
the Property by Landlord, Landlord shall be entirely relieved of all obligations
hereunder from and after the date of the transfer; provided, however, that the
transferee shall assume all such obligations.
14.17 SUBMISSION OF LEASE. The submission of this Lease for examination
does not constitute a reservation of or option for the Leased Premises, and this
Lease shall become effective as a Lease only upon execution and delivery thereof
by Landlord and Tenant.
The parties hereto have executed this Agreement as of the date first
written above.
LANDLORD: TENANT:
PROGRESS HOLDINGS, LLC OPHIDIAN PHARMACEUTICALS, INC.
/s/ Ben C. Scharpf By: /s/Douglas C. Stafford
- ------------------------------------ ------------------------------
Ben C. Scharpf Douglas C. Stafford
Managing Member President and CEO
Attest: /s/Donald L. Nevins
------------------------------
Donald L. Nevins
Vice President and CFO
28
<PAGE> 13
STATE OF WISCONSIN )
) ss
COUNTY OF DANE )
Personally came before me this day of , 1999, Ben
Scharpf, known to me to be the person who executed the foregoing instrument in
the capacity indicated.
-----------------------------------------
Notary Public, State of Wisconsin
[SEAL] My commission
STATE OF WISCONSIN )
) ss
COUNTY OF DANE )
Personally came before me this day of , 1999, Douglas
C. Stafford, President, known to me to be the person who executed the foregoing
instrument in the capacities indicated.
-----------------------------------------
Notary Public, State of Wisconsin
[SEAL] My commission
STATE OF WISCONSIN )
) ss
COUNTY OF DANE )
Personally came before me this day of , 1999, Donald L.
Nevins, Vice President, known to me to be the person who executed the foregoing
instrument in the capacities indicated.
-----------------------------------------
Notary Public, State of Wisconsin
[SEAL] My commission
===================================================
This instrument was drafted by:
Brett A. Thompson
LaFollette Sinykin, LLP
P.O. Box 2719
Madison, WI 53701-2719
(608) 257-3911
===================================================
29
<PAGE> 14
SCHEDULE OF EXHIBITS TO LEASE
Exhibit Description
- ------- -----------
Exhibit A Legal Description
Exhibit B Form of Memorandum of Lease
Exhibit 1.1 Office Space
Exhibit 1.2 Production Space
Exhibit 4.1 Tenant's Leasehold Improvements & Plans
Exhibit 4.4 Landlord's Additional Repairs & Improvements
Exhibit 13.1 Additional Space
Exhibit 13.2 Exceptions to Title
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<PAGE> 15
ITEM 6 - #10.12
PROMISSORY NOTE AND
LOAN AGREEMENT
THIS NOTE AND LOAN AGREEMENT (the "Note") is by and between OPHIDIAN
PHARMACEUTICALS, INC., a Delaware corporation ("Borrower") and REX J. BATES
("Lender") and is dated this 7th day of June, 1999.
1. AGREEMENT TO ADVANCE FUNDS. As of the date of this Note, Lender has not
advanced the Principal Sum (as hereinafter defined). At any time
between October 1, 1999 and November 1, 1999 (the "Draw Period"),
Borrower shall make a written request of Lender to advance the
Principal Sum of this Note. To the extent Borrower makes such a
request, Borrower shall be obligated to repay said Principal Sum under
the terms and conditions set forth herein. If Borrower fails to request
the advance during the Draw Period, this Note and Lender's obligations
hereunder shall cease and be of no further force and effect.
2. NOTE TERMS.
(a) Upon Lender's advancement of the Principal Sum, Borrower,
promises to pay to the order of Lender at First Busey Trust
and Investment Co.; Attention: Gregg McElroy the principal sum
of One Million and no/100 Dollars ($1,000,000.00) (the
"Principal Sum") under the terms and conditions set forth
herein.
(b) The Principal Sum shall bear interest at the rate of ten
percent (10%) per annum.
(c) Borrower agrees to pay the interest due on the Principal Sum
in equal installments on the first day of each month beginning
on the first day of the month following the advance of the
Principal Sum by Lender. Borrower in lieu of paying interest
in cash shall make interest payments to Lender in the form of
a monthly book entry for common stock of the Borrower to be
issued annually for the first thirty-six months, based on the
average of the bid and asked price as reported by The NASDAQ
Small Cap Market ("NASDAQ") at the close of each day of the
preceding month. Any fractional shares owed to Lender will
carry over to the next month. Any residual fractional shares
owed to Lender on the Maturity Date as defined below will be
paid in cash.
By way of illustration of the foregoing only,
for the interest payment due on December 1,
1999, the average of the bid and asked price
at closing as quoted by NASDAQ for each
trading day in November 1999 will be added
and that sum will be divided by the number of
trading days in November 1999 (the "monthly
average price"). If we assume that the
monthly average price for November 1999 will
be $2.50 per share, then the number of shares
of Borrower's common stock that would be paid
to Lender would be 3,333 shares calculated as
follows:
$1,000,000x10%/ $2.50/share = 3,333.33 shares.
--------------
12
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<PAGE> 16
In this illustration, 3,333 shares would be
entered on Borrower's books as common stock
owed to Lender and .33 shares would carry
over and be added to the shares to be entered
on the Borrower's books as payment of the
interest due on January 1, 2000.
(d) Provided Borrower is not otherwise in default hereunder,
beginning with the interest payment due thirty-seven months
from the advance of the Principal Sum and on each twelve month
anniversary thereafter until the tenth anniversary of the
advance of the Principal Sum hereunder or such earlier date on
which Borrower prepays this Note (the "Maturity Date"),
Borrower, may, with Lender's prior written agreement, elect to
pay the next twelve month's interest in common stock of
Borrower. If interest is owed hereunder in the form of common
stock of Borrower for the next twelve month period, monthly
book entries of common stock of Borrower, to be issued
annually, will be calculated in accordance with the
calculation set forth above in Paragraph 2(c) above. Otherwise
interest shall be paid in cash quarterly.
(e) Upon thirty (30) calendar days advance written notice from
Borrower to Lender, this Note may be prepaid in full or in
part at any time without premium or penalty.
(f) Without affecting the liability of Borrower, Lender may,
without notice, renew or extend the time for payment, accept
partial payments, release or impair any collateral security
for the payment of this Note, or agree not to sue any party
liable on it.
(g) The death or disability of Lender shall not relieve his estate
of the obligation to advance the Principal Sum.
3. SECURITY FOR THE NOTE. This Note is secured by the collateral set forth
in that certain General Business Security Agreement of even date
herewith (the "Security Agreement").
4. ADDITIONAL LOAN TERMS.
(a) Lender agrees to subordinate up to $375,000 in the aggregate
of its interest under the Security Agreement to the extent
Borrower enters into any incentive, low-cost financing with
any one or more of the following entities: the State of
Wisconsin, Dane County, City of Madison, or Madison Gas &
Electric (each is a "Superior Lender") to the extent any
Superior Lender requests such a subordination. Lender agrees
that upon the request of Borrower, Lender will execute any and
all documentation
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<PAGE> 17
requested by any Superior Lender to subordinate Lender's
interest, to the extent provided in this paragraph, under the
Security Agreement. The Lender further agrees to enter into
good faith negotiations with respect to subordination of any
additional amounts and to other sources of financing for
Borrower.
(b) In addition to any other consideration paid to Lender under
this Note, Borrower agrees to issue a stock warrant to Lender
in the form attached hereto as Exhibit A. The stock warrant is
severable and may be assigned or otherwise transferred, in
whole or in part, separately from this Note and the
indebtedness evidenced hereby. Exercise of the warrant, in
whole or in part, may be accomplished by delivery of this Note
marked "Paid" to the extent paid for such exercise.
BORROWER:
OPHIDIAN PHARMACEUTICALS, INC.
BY: /s/ Douglas C. Stafford
-----------------------------------
Douglas C. Stafford, President
Attest: /s/ Donald L. Nevins
-----------------------------------
Donald L. Nevins, Vice President
LENDER:
/s/ Rex J. Bates
--------------------------------------------
Rex J. Bates
33
<PAGE> 18
GENERAL BUSINESS SECURITY AGREEMENT
1. SECURITY INTEREST.
OPHIDIAN PHARMACEUTICALS, INC., A DELAWARE CORPORATION, ("DEBTOR" OR
"OPHIDIAN") GRANTS Rex J. Bates ("LENDER") A SECURITY INTEREST IN ALL EQUIPMENT,
FIXTURES, INVENTORY (INCLUDING ALL GOODS HELD FOR SALE, LEASE, OR DEMONSTRATION,
OR TO BE FURNISHED UNDER CONTRACTS OF SERVICE, GOODS LEASED TO OTHERS,
TRADE-INS, AND REPOSSESSIONS, RAW MATERIALS, WORK IN PROCESS, AND MATERIALS OR
SUPPLIES USED OR CONSUMED IN DEBTOR'S BUSINESS), DOCUMENTS RELATING TO
INVENTORY, GENERAL INTANGIBLES INCLUDING PATENTS, ACCOUNTS, CONTRACT RIGHTS,
CHATTEL PAPER, AND INSTRUMENTS, NOW OWNED OR HEREAFTER ACQUIRED BY DEBTOR, AND
ALL ADDITIONS TO AND ACCESSIONS TO, ALL SPARE AND REPAIR PARTS, SPECIAL TOOLS,
EQUIPMENT AND REPLACEMENTS FOR, ALL RETURNED OR REPOSSESSED GOODS THE SALE OF
WHICH GAVE RISE TO, AND ALL PROCEEDS AND PRODUCTS OF THE FOREGOING
("COLLATERAL") TO SECURE ALL DEBTS, OBLIGATIONS AND LIABILITIES OF DEBTOR TO
LENDER ARISING OUT OF CREDIT PREVIOUSLY GRANTED, CREDIT CONTEMPORANEOUSLY
GRANTED AND CREDIT GRANTED IN THE FUTURE BY LENDER TO DEBTOR ("OBLIGATIONS").
2. DEBTOR'S WARRANTIES
Debtor warrants that while any of the Obligations are unpaid:
(A) OWNERSHIP. Debtor owns the Collateral free of all encumbrances and
security interests (except Lender's security interest and that of Davis U.
Merwin pursuant to that certain General Business Security Agreement of even
date herewith). Chattel paper constituting Collateral evidences a perfected
security interest in the goods covered by it, free from all other
encumbrances and security interests, and no financing statement (other than
the Lender's and that of Davis U. Merwin pursuant to that certain General
Business Security Agreement of even date herewith) is on file covering the
Collateral or any of it. LENDER'S SECURITY INTEREST IN THE COLLATERAL AND
LENDER'S OTHER RIGHTS HEREUNDER SHALL AT THE REQUEST OF DEBTOR BECOME
SUBORDINATE TO THE SECURITY INTEREST IN THE COLLATERAL, TO THE EXTENT
SPECIFIED, AND SOLELY TO THE RIGHTS OF ANY SUPERIOR LENDER, BOTH AS
DESCRIBED AND MORE FULLY SET FORTH IN THAT CERTAIN PROMISSORY NOTE AND LOAN
AGREEMENT BETWEEN DEBTOR AND LENDER DATED THE SAME DATE AS THIS GENERAL
BUSINESS SECURITY AGREEMENT (THE "NOTE"). LENDER'S PRIOR WRITTEN AGREEMENT
SHALL BE REQUIRED FOR ANY SUBORDINATION IN EXCESS OF THE $375,000 AGGREGATE
LIMIT SPECIFIED IN THE NOTE.
(B) SALE OF GOODS OR SERVICES RENDERED. Each account and chattel paper
constituting Collateral as of this date arose from the performance of
services by Debtor or from a bona fide sale or lease of goods, which have
been delivered or shipped to the account debtor and for which Debtor has
genuine invoices, shipping documents, or receipts.
(C) ENFORCEABILITY. Each account, contract right, and chattel paper
constituting Collateral as of this date is genuine and enforceable against
the account debtor according to its terms. It and the transaction out of
which it arose comply with all applicable laws and regulations. The amount
represented by Debtor to Lender as owing by each account debtor is the
amount actually owing and is not subject to setoff, credit, allowance, or
adjustment, except discount for prompt payment, nor has any account debtor
returned the goods or disputed his liability.
(D) DUE DATE. There has been no default as of this date according to the
terms of any Collateral and no step has been taken to foreclose the
security interest it evidences or otherwise enforce its payment.
(E) FINANCIAL CONDITION OF ACCOUNT DEBTOR. As of this date, Debtor has no
notice or knowledge of anything that might impair the credit standing of
any account debtor.
(F) VALID ORGANIZATION. Ophidian is duly organized, validly existing, and
in good standing under the laws of the state of Delaware and is authorized
to do business in Wisconsin.
(G) OTHER AGREEMENTS. Debtor is not in default under any agreement for the
payment of money.
34
<PAGE> 19
(H) AUTHORITY TO CONTRACT. The execution and delivery of this Agreement and
any instruments evidencing Obligations will not violate or constitute a
breach of Ophidian's articles of incorporation, by-laws, or any other
agreement or restriction to which Ophidian is a party or is subject.
(I) ACCURACY OF INFORMATION. All information, certificates or statements
given to Lender pursuant to this Agreement shall be true and complete when
given.
(J) ADDRESSES. The address of Debtor's chief executive office, is shown
opposite Debtor's signature. The address where the Collateral will be kept,
if different from that appearing opposite Debtor's signature, is 2617
PROGRESS ROAD, MADISON, WI 53716.
(K) CHANGE OF NAME OR ADDRESS. Debtor shall immediately advise Lender in
writing of any change in any name or address.
(L) FIXTURES. If any of the Collateral is affixed to real estate, the legal
description of the real estate set forth in each UCC Financing Statement
signed by Debtor is true and correct.
3. SALE AND COLLECTIONS.
(A) SALE OF INVENTORY. So long as no default exists under any of the
Obligations or this Agreement, Debtor may (a) sell inventory in the
ordinary course of Debtor' business for cash or on terms customary in the
trade, at prices not less than any minimum sale price shown on instruments
evidencing Obligations and describing inventory, or (b) lease inventory on
terms customary in the trade.
(B) VERIFICATION AND NOTIFICATION. Lender may verify Collateral in any
manner, and Debtor shall assist Lender in so doing. Upon default, Lender
may at any time and Debtor shall, upon request of Lender, notify the
account debtors to make payment directly to Lender and Lender may enforce
collection of, settle, compromise, extend or renew the indebtedness of such
account debtor. Until account debtors are so notified, Debtor as agent of
Lender, shall make collections on the Collateral. Lender may at any time
notify the bailee of any Collateral of Lender's security interest.
(C) DEPOSIT WITH LENDER. At any time, Lender may require that all proceeds
of Collateral received by Debtor shall be held by Debtor upon an express
trust for Lender, shall not be commingled with any other funds or property
of Debtor and shall be turned over to Lender in precisely the form received
(but endorsed by Debtor if necessary for collection) not later than the
business day following the day of their receipt. All proceeds of Collateral
received by Lender directly or from Debtor shall be applied against the
Obligations in such order and at such times as Lender shall determine.
4. DEBTOR'S COVENANTS.
Debtor agrees:
(A) MAINTENANCE OF COLLATERAL. Debtor shall: maintain the Collateral in
good condition and repair and not permit its value to be impaired; keep it
free from all liens, encumbrances and security interests (other than
Lender's security interest, the security interest of Davis U. Merwin as
lender under that certain General Business Security Agreement of even date
herewith, and the security interest of any Superior Lender (as defined in
the Note) and only to the extent specified in the Note); defend it against
all claims and legal proceedings by persons other than Lender; pay and
discharge when due all taxes, license fees, levies and other charges upon
it; not sell, lease or otherwise dispose of it or permit it to become a
fixture or an accession to other goods, except for sales or leases of
inventory as provided in this Agreement, not permit it to be used in
violation of any applicable law, regulation or policy of insurance; and, as
to Collateral consisting of instruments and chattel paper, preserve rights
in it against prior parties. Loss of or damage to the Collateral shall not
release Debtor from any of the Obligations.
(B) INSURANCE. Debtor shall keep the Collateral and Lender's interest in it
insured under policies with such provisions, for such amounts and by such
insurers as shall be satisfactory to Lender from time to time, and shall
furnish evidence of such insurance satisfactory to Lender. Subject to
Lender's satisfaction, Debtor is free to select the insurance agent or
insurer through which the insurance is obtained. Debtor assigns (and
directs any insurer to pay) to Lender the proceeds of all such insurance
and any premium refund, and authorizes Lender to indorse in the name of
Debtor any instruments for such proceeds or refunds and, at the option of
Lender, to apply such proceeds and
35
<PAGE> 20
refunds to any unpaid balance of the Obligations, whether or not due,
and/or to restoration of the Collateral, returning any excess to Debtor.
Lender is authorized, in the name of Debtor or otherwise, to make, adjust
and/or settle claims under any credit insurance financed by Lender or any
insurance on the Collateral, or cancel the same after the occurrence of an
event of default.
(C) TAXES AND OTHER CHARGES. Pay and discharge all lawful taxes,
assessments and government charges upon Debtor or against its properties
prior to the date on which penalties attach, unless and to the extent only
that such taxes, assessments and charges are contested in good faith and by
appropriate proceedings by Debtor.
(D) INSPECTION OF COLLATERAL. At reasonable times, Lender may examine the
Collateral and Debtor' records pertaining to it, wherever located, and make
copies of records. Debtor shall assist Lender in so doing.
(E) CHATTEL PAPER. Lender may require that chattel paper constituting
Collateral shall be on forms approved by Lender. Debtor shall promptly mark
all chattel paper constituting Collateral, and all copies, to indicate
conspicuously Lender's interest and, upon request, deliver them to Lender.
(F) UNITED STATES CONTRACTS. If any accounts or contract rights
constituting Collateral arose out of contracts with the United States or
any of its departments, agencies or instrumentalities, Debtor will notify
Lender and execute writings required by Lender in order that all money due
or to become due under such contracts shall be assigned to Lender and
proper notice of the assignment given under the Federal Assignment of
Claims Act.
(G) MODIFICATIONS. Without the prior written consent of Lender, Debtor
shall not alter, modify, extend, renew, or cancel any accounts or chattel
paper constituting Collateral or any Collateral constituting part of the
Debtor's borrowing base.
(H) RETURNS AND REPOSSESSIONS. Debtor shall promptly notify Lender of the
return to or repossession by Debtor of goods underlying any Collateral and
Debtor shall hold and dispose of them only as Lender directs.
5. RIGHTS OF THE LENDERS.
(A) AUTHORITY TO PERFORM FOR DEBTOR. Upon the occurrence of an event of
default or if Debtor fails to perform any of Debtor's duties set forth in
this Agreement or in any evidence of or document relating to the
Obligations, Lender is authorized, in Debtor's name or otherwise, to take
any such action including without limitation signing Debtor's name or
paying any amount so required, and the cost shall be one of the Obligations
secured by this Agreement and shall be payable by Debtor upon demand with
interest from the date of payment by Lender at the highest rate stated in
any evidence of any Obligation but not in excess of the maximum rate
permitted by law.
6. DEFAULT.
Upon the occurrence of one or more of the following events of default:
NONPERFORMANCE. Debtor fails to pay when due any of the Obligations or to
perform, or rectify breach of, any warranty or other undertaking by Debtor
in this Agreement or in any evidence of or document relating to the
Obligations; or
INABILITY TO PERFORM. Debtor, or a surety for any of the Obligations dies,
ceases to exist, becomes insolvent or the subject of bankruptcy or
insolvency proceedings.
all of the Obligations shall, at the option of Lender and without notice or
demand, become immediately payable; and Lender shall have all rights and
remedies for default provided by the Wisconsin Uniform Commercial Code, as well
as any other applicable law and any evidence of or document relating to any
Obligation. With respect to such rights and remedies:
(A) REPOSSESSION. Lender may take possession of Collateral without notice
or hearing, which Debtor waives;
(B) ASSEMBLING COLLATERAL. Lender may require Debtor to assemble the
Collateral and to make it available to Lender at any convenient place
designated by Lender;
36
<PAGE> 21
(C) NOTICE OF DISPOSITION. Written notice, when required by law, sent to
any address of Debtor in this Agreement at least 10 calendar days (counting
the day of sending) before the date of a proposed disposition of the
Collateral is reasonable notice;
(D) EXPENSES AND APPLICATION OF PROCEEDS. Debtor shall reimburse Lender for
any expense incurred by Lender in protecting or enforcing its rights under
this Agreement before and after judgment, including, without limitation,
reasonable attorneys' fees and legal expenses of taking possession,
holding, preparing for disposition and disposing of Collateral. After
deduction of such expenses, Lender may apply the proceeds of disposition to
the Obligations in such order and amounts as it elects; and
(E) WAIVER. Lender may permit Debtor to remedy any default without waiving
the default so remedied, and Lender may waive any default without waiving
any other subsequent or prior default by Debtor.
7. INTERPRETATION.
The validity, construction and enforcement of this Agreement are
governed by the internal laws of Wisconsin. All terms not otherwise defined have
the meanings assigned to them by the Wisconsin Uniform Commercial Code.
Invalidity of any provision of this Agreement shall not affect the validity of
any other provision. This Agreement is intended by Debtor and Lender as a final
expression of this Agreement and as a complete and exclusive statement of its
terms, there being no conditions to the enforceability of this Agreement. This
Agreement many not be supplemented or modified except in writing.
8. OTHER PROVISIONS.
This Agreement is executed pursuant to and is subject to all applicable
provisions of that certain Promissory Note and Loan Agreement, dated as of June
7, 1999, between Ophidian and Lender. The security interest granted hereunder
secures Debtor's payment of the Promissory Note and Loan Agreement from Ophidian
as Debtor, to Lender, and is subject to the terms thereof.
9. PERSONS BOUND.
This Agreement benefits Lender, his heirs, personal representatives,
successors, and assigns, and binds Debtor and its successors and assigns.
Signed and sealed on June 7, 1999.
OPHIDIAN PHARMACEUTICALS, INC.
By: /s/Douglas C. Stafford Attest: /s/ Susan Maynard
---------------------------------- -------------------------
Douglas C. Stafford, President Susan Maynard, Secretary
Business Address: 5445 East Cheryl Parkway, Madison, WI 53711
--------------------------------------------
37
<PAGE> 22
VOID AFTER OCTOBER 31, 2004
REDEEMABLE WARRANT CERTIFICATE
TO PURCHASE ONE SHARE OF COMMON STOCK
OPHIDIAN PHARMACEUTICALS, INC.
WARRANTS
500,000
THIS CERTIFIES THAT, FOR VALUE RECEIVED
First Busey Trust & Investment Co., as Custodian for Rex J. Bates Trust # 8029
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate, one fully paid and nonassessable share of Common Stock, $0.025
par value of Ophidian Pharmaceuticals, Inc., a Delaware corporation (the
"Company") at any time between November 1, 1999, and October 31, 2004, upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of the
Company, accompanied by payment of $2.00 per share (the "Purchase Price") in
lawful money of the United States of America either in cash, by check made
payable to the Company, or by delivery, in whole or in part, of that certain
Promissory Note and Loan Agreement, dated as of June 7, 1999, marked "Paid", to
the extent paid by such purchase. Each warrant represented hereby is exercisable
at the option of the Registered Holder, but no fractional interests will be
issued. In the case of exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor for the balance of such Warrants. The Company shall
not be obligated to deliver any securities pursuant to the exercise of this
Warrant unless a registration under the Securities Act of 1933, as amended (the
"Act"), with respect to such securities is effective or an exemption thereunder
is available. The Company covenants and agrees that if at any time after the
date hereof, the Company proposes to register any offering of the Company's
Common Stock under the Act, the Company will give written notice to the
Registered Holder at least 30 days prior to the filing of a registration
statement, and the Registered Holder shall have the right to include in such
registration, at the Company's expense, all or a portion of the Common Stock
underlying the Warrants. The Warrant Certificate is exchangeable, upon the
surrender hereof by the Registered Holder to the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by the Registered Holder at the
time of surrender. Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided herein. Prior to
due presentation for registration of transfer hereof, the Company may deem and
treat the Registered Holder as the absolute owner hereof and of each Warrant
represented hereby (notwithstanding any notations of ownership or writing hereon
made by anyone other than a duly authorized officer of the Company) for all
purposes and shall not be affected by any notice to the contrary. This Warrant
Certificate shall be governed by and construed in accordance with the laws of
the State of Delaware without giving effect to conflicts of laws. This Warrant
Certificate is not valid unless signed by the officers designated below.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed by two of its officers thereunto duly authorized.
Dated: June 7, 1999 OPHIDIAN PHARMACEUTICALS, INC.
By: By:
------------------------------------ --------------------------------------
Susan P. Maynard Douglas C. Stafford
Secretary President and Chief Executive Officer
38
<PAGE> 23
DAVIS U. MERWIN
A second Promisary Note and Loan Agreement, General Business Security Agreement
and Redeemable Warrant Certificate were issued which are identical to the Rex J.
Bates documents in every respect except as to name, Davis U. Merwin.
39
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 4,849,773 10,812,305
<SECURITIES> 0 0
<RECEIVABLES> 5,112 74,670
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,942,629 11,080,294
<PP&E> 1,907,313 933,353
<DEPRECIATION> 783,639 511,869
<TOTAL-ASSETS> 7,954,660 12,951,210
<CURRENT-LIABILITIES> 381,033 620,844
<BONDS> 0 0
0 0
0 0
<COMMON> 23,058 23,058
<OTHER-SE> 7,185,660 11,948,961
<TOTAL-LIABILITY-AND-EQUITY> 7,954,660 12,951,210
<SALES> 0 0
<TOTAL-REVENUES> 15,365 282,440
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,634 1,852
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,808,895) (2,807,042)
<EPS-BASIC> (0.41) (0.37)
<EPS-DILUTED> (0.41) (0.37)
</TABLE>
