SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
Commission file number 0-19879
BIOSPECIFICS TECHNOLOGIES CORP.
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(Exact name of small business in its charter)
Delaware 11-3054851
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
35 Wilbur Street, Lynbrook, New York 11563
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (516) 593-7000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
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Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [_]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
Issuer's revenues for its most recent fiscal year were
$5,825,000. The aggregate market value of common voting stock held by
non-affiliates of the Issuer was approximately $12,535,000 computed by reference
to the last sale price at which the stock was sold on April 21, 1998 as reported
by Nasdaq. As of April 21, 1998, 4,886,096 shares of common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Part III by Items 9, 10, 11, and 12
is incorporated by reference to the Registrant's proxy statement in connection
with the annual meeting of shareholders to be held on July 15, 1998, which will
be filed by the Registrant within 120 days after the close of its fiscal year.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
The Company* is engaged in the business of producing and
licensing for sale by others a fermentation derived enzyme named Collagenase ABC
which is approved by the U.S. Food and Drug Administration ("FDA"), and
researching and developing additional products derived from this enzyme for
potential use as pharmaceuticals. The Company currently derives substantially
all of its revenues through a license agreement with a major pharmaceutical
company in the United States, Knoll Pharmaceutical Company ("KPC"). The Company
also has license agreements with foreign companies which are marketing or will
attempt to market Collagenase ABC or products in development in licensed
territories when permitted by local governmental authorities. The Company
believes it has special expertise in the production of collagenase. Since 1972,
the Company has sold Collagenase ABC, its only commercial product to date,
principally in the United States through KPC.
Description of Product
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Collagenase ABC
The Company's principal drug product, Collagenase ABC, is an
enzyme that digests collagen, the body's principal connective tissue. The drug
is approved by the FDA and is indicated for topical enzymatic debridement of
dermal ulcers (i.e. wounds), such as pressure ulcers (a.k.a. "bed sores") and
second and third degree burns.
In general, necrotic (i.e. dead or devitalized) tissue must be
debrided (i.e. removed) from a dermal ulcer either surgically, or by enzyme, or
by autolysis (the much slower natural process) before proper healing can take
place. Necrotic tissue is anchored to dermal ulcers by collagen. The ability of
collagenase to digest that collagen and thereby effect the debridement of
necrotic tissue in a wound is an important part of the healing process
associated with dermal ulcers and helps provide a healthy base for the growth of
new tissue.
Agreements for the Distribution of Collagenase ABC
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Collagenase ABC is the active ingredient of a topical ointment.
The Company does not directly market Collagenase ABC (the "product") to end
users. It currently supplies the product in powder form to other pharmaceutical
companies that compound it into ointment and market the ointment to end users.
Pursuant to the agreement with KPC, the Company supplies KPC with the product
and controls the production of an ointment. KPC has been marketing this ointment
under its registered trademark, Collagenase Santyl(R) in the United States since
1972, and in Canada since 1994.
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* As used in this Report on Form 10-KSB, the terms "Company" and
"Registrant" are used interchangeably and denote BioSpecifics Technologies
Corp., a holding company for three related entities, Advance Biofactures
Corp. ("ABC-NY"), Advance Biofactures of Curacao, N.V. ("ABC- Curacao"),
and Biospecifics Pharma GmbH ("Bio Pharma"). The Company owns approximately
97.2% of the capital stock of each of ABC-NY and ABC-Curacao, and 100% of
Bio Pharma. Unless the context indicates otherwise, references to the
Company and the Registrant includes these entities.
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The Company entered into an agreement with KPC ("KPC Agreement")
which runs through 2003 and automatically renews for an additional 10 year
period unless KPC notifies the Company of its intention to terminate at least 6
months prior to the renewal date. The KPC Agreement provides that KPC is the
Company's exclusive licensee to sell Collagenase ABC in the United States and
Canada so long as KPC shows a reasonable annual increase in sales and uses its
best efforts to increase sales. If sales for any year are level or fall below
that of the previous year's sales and if for the following 12 month period sales
levels are not reasonably increased, the Company may change the license granted
to KPC from an exclusive license to a non-exclusive license. KPC pays the
Company an annual royalty based upon KPC's net sales of Collagenase Santyl(R) in
increasing percentages as annual net sales reach certain amounts. Royalties for
fiscal 1998 and 1997 totaled approximately $2,436,000 and $2,069,000,
respectively. KPC pays the Company for the active Collagenase ABC ingredient
that the Company supplies, at a price that is subject to adjustment based upon
increases in the Company's actual manufacturing costs, not to exceed increases
in the consumer price index for certain items. As part of the KPC Agreement, KPC
and its U.S. affiliates have agreed not to seek or become a party to any license
or other agreement for the production or purchase of collagenase powder or
collagenase ointment from any source other than the Company, will make no
efforts to achieve registration with the FDA for collagenase powder manufactured
by parties other than the Company, and will not collaborate with any third party
attempting to achieve such registration.
In February 1998, KPC and Ortho-McNeil Pharmaceuticals, Inc. (a
Johnson & Johnson Company) entered into an agreement whereby the two companies
have agreed to co-promote in the United States the Company's Collagenase
Santyl(R) ointment and Ortho-McNeil's Regranex(R) Gel which was approved by FDA
in December 1997 to help heal lower extremity diabetic neuropathic ulcers that
extend into the subcutaneous tissue. KPC will promote Regranex(R) Gel to
long-term care facilities and Ortho-McNeil will promote Collagenase Santyl(R) to
office-based physicians. Diabetic foot ulcers, which are open sores which remain
after the destruction of surface tissue, are a serious complication of diabetes,
and affect approximately 2 million diabetics in the United States during their
lifetime. Diabetic ulcers result in approximately 67,000 amputations each year
in the United States, and the annual cost of diabetic foot disease in the United
States is estimated at more than $1 billion. The Company believes this agreement
could significantly expand the market for Collagenase Santyl(R), although there
can be no assurances as to when or to what extent such an arrangement could
impact the Company's operations.
KPC, which distributes Collagenase Santyl(R) in the United States
and Canada, accounted for approximately $5,388,000 and $5,480,000 in sales and
royalties of the Company for the fiscal years ended January 31, 1998 and 1997,
respectively. These amounts were approximately 92% and 93% of the Company's
revenues during the respective fiscal years. As of January 31, 1998, the Company
had approximately $1.5 million of firm booked orders with KPC, compared to
approximately $1 million of firm booked orders with KPC as of January 31, 1997.
The Company's product is approved in two other countries and sold to commercial
customers in those countries (which are not covered by the agreement with KPC).
In addition, the product and purified collagenase are also sold for
non-sponsored research purposes.
In July 1996, the Company entered into an agreement to license
the product for sale as an ointment in Germany to the German subsidiary of an
international pharmaceutical company. During fiscal 1997, the Company recognized
$20,000 in license fees and deferred revenue of $40,000 from this agreement. The
Company's German subsidiary (see "Marketing") has submitted collagenase ointment
to the German health authority for marketing approval, which decision is
pending. The agreement calls for an initial payment on signing and further
payments if and when marketing approval of Collagenase ABC ointment is granted
by the German health authority.
In June 1994, the Company entered into a multi-year license with
an Italian pharmaceutical company which has agreed to market an ointment
containing the product in Italy subject to the receipt of requisite Italian
governmental approval. The licensee has agreed to purchase the product in agreed
minimum amounts increasing in each of the three years following such approval.
For the fiscal years ended January 31, 1998 and 1997, the Company recognized no
revenues from this contract.
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In July 1994, the Company entered into a license and supply
agreement with a Swiss pharmaceutical company to market an ointment containing
the product in several Middle Eastern and two European countries. The agreement
runs for ten years from first market introduction of the product in each
country. The Company recognized no revenue from this agreement in fiscal years
ended January 31, 1998 or 1997.
The Company entered into a license agreement with a company in
India that began marketing collagenase ointment in India in 1995. The licensee
purchased immaterial amounts of the product during the fiscal years ended
January 31, 1998 and 1997.
The Company completed preliminary clinical trials of Collagenase
ABC in Great Britain and is seeking a licensee for that country. The Company
continues to seek new licensees to market the product in parts of the world not
yet licensed, where business conditions warrant.
Proposed Products and Uses for Products
Injectable Collagenase ABC and Nucleolysin(R)
The Company has developed a non-patented proprietary process to
further purify Collagenase ABC. The Company has investigated using this purified
form of collagenase as an injectable to remove collagen tissue which interferes
with normal bodily functioning or is unsightly. The Company is clinically
testing in the United States injectable collagenase for treatment of Peyronie's
disease, Dupuytren's disease, and keloids. See "Investigational New Drug
Applications ("IND's") for Injectable Collagenase ABC". The Company produces
purified collagenase for injection at its facilities in Curacao and New York.
The Company has clinically tested in the United States and Europe
the use of injectable Collagenase ABC for the non-surgical treatment of
herniated spinal discs, for which the Company has been granted the registered
trademark Nucleolysin(R). The Company distributes Nucleolysin(R) to physicians
in the Netherlands Antilles and sells purified collagenase for non-human
research in the United States and other countries. The Company has not received
approval to sell Nucleolysin(R) from the FDA or a similar agency in any country
other than the Netherlands Antilles.
The Company completed Phase 1 trials of Nucleolysin(R) in the
United States. Pending foreign approval, the Company is not planning further
clinical trials in the United States of Nucleolysin(R) for the treatment of
herniated spinal discs.
Agreements to Distribute Nucleolysin(R)
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In 1990, the Company entered into an agreement with an
unaffiliated Swiss company, pursuant to which that company had three years
(subject to a six month extension) to obtain the approval of the appropriate
agencies in Italy and Switzerland to market Nucleolysin(R) in such countries for
a period of 12 years from the date of its first commercial sale, subject to
automatic yearly renewals unless either party provides notice of non-renewal. In
May 1993, the Company and the licensee amended the agreement to provide for a
period of three years from their application to obtain the approvals for use of
Nucleolysin(R) for the treatment of herniated spinal discs. In addition to an
advance payment of $50,000 previously received, the Company will be paid a total
of $210,000 at certain milestone dates. To date, the licensee has paid $130,000
relating to the extension, which has been recorded as deferred revenue. The
advances are subject to certain credits and/or refund if the Italian approval is
not obtained, depending on the reasons therefor. The licensee completed the
equivalent of Phase 3 clinical trials in an unaffiliated foreign clinic. The
licensee submitted its application to obtain approval from the Italian and Swiss
governments in 1996.
In late 1994, the Company, through an agent, filed a new drug
application for final review and marketing approval of Nucleolysin(R) in
Germany. Comments from the German health authorities are pending.
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Investigational New Drug Applications ("INDs") for Injectable Collagenase ABC
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The Company and its affiliates have received INDs from the FDA
and is in the pre-clinical and clinical testing process for additional products
using injectable Collagenase ABC. The INDs permit the Company to test the drugs
on humans. None of these products has completed testing.
Dupuytren's Disease
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Dupuytren's disease is a deforming condition of the hand in which
one or more fingers, usually the ring and little fingers, contract toward the
palm, often resulting in functional disability. The Company was granted a United
States patent for the use of its collagenase enzyme to treat this condition in
February 1997. The use of collagenase for the treatment of Dupuytren's disease
has received "orphan drug" designation from the FDA. The Company is
collaborating with investigators at State University at Stony Brook School of
Medicine in conducting Phase 1 and 2 trials for this indication. Encouraging
Phase 1 clinical results were presented at the 44th annual meeting of the
Orthopaedic Research Society in March 1998 in a paper entitled Enzyme Injection
as a Non-Operative Treatment for Dupuytren's Disease: A Clinical Trial of
Injectable Clostridial Collagenase. The investigators at Stony Brook received a
grant from the FDA to conduct expanded clinical trials to determine safety and
efficacy of collagenase for this use. This investigation also resulted in a
research grant from the New York State Center for Advanced Technology in Medical
Biotechnology. The Center provides co-funding for collaborative R&D projects
between faculty and New York state companies that show significant economic
potential.
Peyronie's Disease
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The Company is developing a product for the treatment of
Peyronie's disease, a condition in which collagen plaques form on the shaft of
the penis and interfere with erection and sexual intercourse. Initial tests on
approximately 200 men have shown favorable results in dissolving the plaques by
injecting purified collagenase directly into such plaques. The Company has been
assigned a United States patent for this use and received "orphan drug"
designation from the FDA in March 1996. The favorable findings of a Phase 2
double-blind clinical investigation appeared in the January 1993 Journal of
Urology of the American Urological Association and its use was also reported on
favorably at The International Conference on Peyronie's disease held in March
1993 at the National Institutes of Health in Bethesda, Maryland. The Company
believes that no other effective pharmaceutical treatment for this condition
currently exists. The Company is sponsoring a multi-center Phase 2 trial which
began in early 1996.
Keloids
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In another use, high doses of purified collagenase have been
injected directly into keloids and hypertrophic scars. A keloid is a sharply
elevated, irregularly shaped, and progressively enlarging scar due to the
formation of excessive amounts of collagen during connective tissue repair.
Approximately 40 persons have been treated for this condition, with encouraging
results. The Company has been assigned a United States patent for this
application of purified collagenase. The Company is currently sponsoring a Phase
1 trial for keloids at the University Hospital of the Albert Einstein School of
Medicine. In February 1997, positive preliminary results from the ongoing Phase
1 study were reported at the annual International Burn Foundation Conference on
advances in wound healing, burn care, and infection control. In initial trials
for both keloids and Peyronie's disease, the Company has used very high doses of
injectable purified Collagenase ABC, at levels up to 100 times the
Nucleolysin(R) dosage used for herniated spinal discs. The Company is not aware
of any significant side effects or allergic reactions to these higher dosages,
even when the doses were administered over a period of several months.
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Other Proposed Products and Uses for Products
Treatment of Burns
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Collagenase Santyl(R) has received FDA approval for the treatment
of burns. A pilot study was conducted which compared the efficacy of Collagenase
Santyl(R) to standard treatment for deep second degree burns. The positive
results of this study were published in the Journal of the American Burn
Association (January/February 1994 issue). Based on the successful results, a
multi-center study was conducted in which eight medical centers specializing in
the treatment of burns participated. The study, which involved 79 patients,
showed collagenase treatment resulted in faster cleaning and healing than deep
second degree burn wounds receiving the standard treatment. The study was
reported in the May/June 1995 issue of the Journal of the American Burn
Association and in the November/December 1995 issue of Wounds. A number of
favorable presentations were made on the effectiveness of Collagenase Santyl(R)
for burn treatment during the March 1996 annual meeting of the American Burn
Association in Nashville, TN. The February 1997 meeting of the International
Burn Foundation included positive presentations made by physicians who use
Collagenase Santyl(R) ointment for burns and ulcers.
Collagenase for Wound Healing
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In vitro studies conducted at Tufts University Medical School
showed that collagenase treatment of skin cells significantly enhances cell
growth and migration after injury. An article relating to this development was
published in the March/April 1996 issue of Wounds. Clinical and laboratory
investigations further profiling the potential role of collagenase and its
pharmacological activity in wound healing are being pursued.
Glaucoma and Treatment of Other Eye Disorders
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The Company and Bausch & Lomb collaborated in a clinical
investigation to confirm previous studies on the use of the Company's
collagenase to treat glaucoma. The results of the clinical investigation will be
presented at the annual Association for Research in Vision and Opthamology
(ARVO) meeting in May 1998.
The Company is exploring the possible use of purified injectable
Collagenase ABC for the treatment of opaque scar tissue in the vitreous humor of
the eye. The Company believes that such use will dissolve or loosen the scar
tissue in a short time. Accordingly, its use may assist in the surgical removal
of scar tissue without tearing the retina to which the tissue is attached. If
effective, this use will be beneficial in the treatment of blindness resulting
from diabetes and certain other causes. To date, approximately 20 persons have
been treated with this product on an experimental basis. The Company has been
assigned a United States patent for this application.
Product Liability
The sale of the product, as well as the marketing of any
additional products of the Company, exposes the Company to potential product
liability claims both directly from patients using the product as well as from
the Company's agreement to indemnify certain distributors of the products for
claims made against such distributors. The Company has product liability
insurance for the use of Collagenase Santyl(R) and clinical experiments in the
United States for its additional product candidates. To date, no product
liability claims have been made against the Company.
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Competition
The pharmaceutical industry is characterized by rapidly evolving
technology and intense competition. Many companies of all sizes, including major
pharmaceutical companies and specialized biotechnology companies, are engaged in
activities similar to those of the Company. Many of the Company's competitors
have substantially greater financial and other resources, larger research and
development staffs, and significantly greater experience in regulatory approval
procedures. The Company does not have comparable resources and does not intend
to compete with major pharmaceutical companies in drug marketing except in
possible niche marketing for one or more of the products, if feasible.
The Company's debriding ointment product, Collagenase Santyl(R),
competes primarily with other available enzymatic debridement products in the
United States. Those currently available are manufactured by the Parke-Davis
division of the Warner-Lambert Company, the Dow B. Hickam division of Marion
Labs, Healthpoint Medical, and Rystan. A potential debridement agent is known to
be under development by Genzyme Tissue Repair Division, and other large drug
companies may also have debridement products under development. Debriding
products also compete with surgical debridement and mechanical debridement using
hydrotherapy. Surgical and mechanical debridement procedures are painful, labor
intensive and remove viable tissue along with necrotic tissue.
In December 1994, the Federal Agency for Health Care Policy and
Research ("AHCPR") issued Clinical Practice Guideline Number 15 entitled
"Treatment of Pressure Ulcers". Collagenase is the only product suggested for
enzymatic treatment of pressure ulcers by the guideline. Unlike the other
available enzymatic debriding products, the Company's is collagen specific.
Approximately 75% of skin is collagen, making this enzyme particularly
appropriate for the debridement of necrotic tissue.
The Company had an agreement with Knoll AG ("KAG"), a German
company affiliated with KPC, whereby the Company supplied the product to KAG,
which sold ointment containing the product in countries other than the United
States under KAG's trademarked name, "Iruxol(R)." The contract expired on
December 31, 1992, although the Company continued to sell the product to KAG
through fiscal 1994. KAG now manufactures its own form of collagenase ointment
which it markets under its trademark outside the United States, since it is not
FDA approved for sale in the United States. The Company, through its foreign
licensees for topical collagenase, will compete with KAG in Europe if and when
the licensees receive marketing and pricing approval from their respective
health agencies. (See "Collagenase ABC - Agreements for the Distribution of
Collagenase ABC"). KAG currently markets a non-collagenase enzyme, chymopapain
for the treatment of herniated disks, through its acquisition of The Boots
Company (USA). This drug will compete with Nucleolysin(R)(if and when
Nucleolysin(R)is approved for sale).
Colleges, universities, governmental agencies and other public
and private research organizations continue to conduct research and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for use of technology that they have developed, some of which may be
directly competitive with that of the Company. The Company expects competition
to intensify as technological advances occur in the area of the development of
pharmaceutical products of biologic origin.
The Company believes that it can compete effectively through its
licensing agreements for Collagenase ABC. The Company believes that licensing is
a more effective strategy than directly marketing the product.
Marketing
The Company does not have its own sales staff and instead relies
upon its licensees who have recognition and acceptance in the marketplace. By
licensing those companies which already have a strong marketing and sales force
dedicated to specialties, the Company has a very limited cost of selling, while
the licensee enhances the efficacy of its sales and marketing staff by adding
additional products. In the United States, the Company is gaining recognition as
the manufacturer of Collagenase Santyl(R) as the Company's name and that of its
U.S. subsidiary are required to appear on the end-use package sold by KPC.
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The European Union ("EU") is now the largest pharmaceutical
market in the world. The Company is actively seeking approval to enter this
market through its European licensees. The Company believes that its contacts
and licenses with a number of European companies will be of substantial
assistance to it in this regard, although there is no assurance that the Company
can make any substantial penetration, or that its licensees will be successful
in obtaining product approvals.
In November 1995, the Company established a German subsidiary,
Biospecifics Pharma GmbH. Its purpose is to identify additional licensees,
assist the Company in achieving the clinical and scientific data necessary to
obtain product approvals in the EU, and assist licensees in registration of
products. See "Employees".
The Company may decide to market certain products under
development, particularly if the market is well defined and the number of
specialists who address the targeted indication is small.
Research and Development
Since inception (1957 and 1976 for the New York and Curacao
subsidiaries, respectively), the Company has expended over $18.5 million in
research on collagenase and other products, and it is continuing to conduct
testing on such products. The Company incurred approximately $1,905,000 and
$1,583,000 in research and development activities during its fiscal years ended
January 31, 1998 and 1997, respectively.
Government Regulation
Regulation in the United States
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All pharmaceutical manufacturers in the U.S. are subject to
extensive regulation by the federal government, principally the FDA, and, to a
lesser extent, by state governments. The Federal Food, Drug, and Cosmetic Act,
the Public Health Service Act, and other federal statutes and regulations govern
or influence the testing, approval, manufacture, safety, labeling, storage,
record keeping, advertising, promotion, sale and distribution of products.
Non-compliance with applicable requirements can result in fines, recall or
seizure of products, total or partial suspension of production and/or
distribution, refusal of the government to enter into supply contracts or to
approve new drug applications, and criminal prosecution. The FDA also has the
authority to revoke drug approvals previously granted.
The Company's products in development will require regulatory
clearance prior to commercialization. The nature and extent of regulation may
differ with respect to different products. In order to test, produce and market
certain therapeutic products in the United States, mandatory procedures and
safety standards, approval processes, and manufacturing and marketing practices
established by the FDA must be satisfied. Obtaining FDA approval has
historically been a costly and time-consuming process.
The Company is also licensed by, registered with, and subject to
periodic inspection and regulation by, the U.S. Department of Agriculture, the
New York State Department of Health and the New York State Board of Pharmacy,
pursuant to federal and state legislation relating to drugs and narcotics.
The Company's manufacturing facilities in New York and Curacao
are registered with, and licensed by, the FDA.
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Foreign Regulation of Pharmaceutical Products
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The marketing of pharmaceutical products outside the United
States is subject to the regulatory requirements of the country in which the
product is marketed. Although these requirements may vary widely from country to
country, the international trend toward "harmonization" of regulations may
expedite local health agency approvals. Approval in foreign countries is
required regardless of whether FDA approval has been obtained in the United
States. Nevertheless, the time required to obtain such approval may be longer or
shorter than required to obtain FDA approval, and there can be no guarantees
that such approvals will be granted.
ABC-Curacao produces the pharmaceutical substance "Collagenase
ABC (Sterile)" for incorporation into ointment. As this product is not a
pharmaceutical end product, it need not be officially registered with the Bureau
of Pharmaceutical Affairs of the Netherlands Antilles (the "Pharmaceutical
Bureau"). However, the manufacturing plant in which the product is produced and
the manufacturing process are subject to inspection by the Pharmaceutical Bureau
under the laws and regulations of the Netherlands Antilles.
The manufacturing plant of the Company's Curacao subsidiary
producing Nucleolysin(R) and the manufacturing process of Nucleolysin(R) are
subject to inspection by the Pharmaceutical Bureau. According to a certificate
of the Director of the Bureau dated March 7, 1991, such subsidiary conforms to
requirements for good practices in the manufacture and quality control in
accordance with the pharmaceutical laws and regulations of the Netherlands
Antilles and as recommended by the World Health Organization, with respect to
products to be sold or distributed within the country of origin or to be
exported, and Nucleolysin(R) may be placed on the market for use in the
Netherlands Antilles. Further, such subsidiary has a license for the preparation
of medicine and the wholesale supply of medicine it prepares. This license was
issued by the Minister of Public Health and Environmental Hygiene in 1983 and
remains in effect until canceled or unless not used for an uninterrupted period
of 24 months.
Patent and Trademark Protection
Patents
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The Company is the assignee or licensee of twelve U.S. patents.
The patents expire 17 years from the date of grant. The Company is not able to
ascertain whether these patents will provide it with any value either prior to
their expirations or at any time thereafter. The Company is the assignee of
additional U.S. patent rights that have expired as well as certain foreign
patent rights corresponding to certain of the foregoing patents. The Company has
other patents under active preparation for filing. There can be no assurances
when, if ever, such patents will be issued, or that such patents, if issued,
will be of any value to the Company. The Company is obligated to engage in
research and development of certain products or uses underlying the patent
rights licensed or assigned to it.
Trademarks
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The Company has registered the name, Nucleolysin(R), as a
trademark in the United States and in other countries. The trademark
registration extends until 2001 in the United States. The Company has also
registered the name Salutyl(R) for its collagenase ointment in a number of
countries other than the United States. Trademarks for other countries are
protected for varying periods of time.
Employees
The Company has 38 full-time employees, of which 9 are located in
Curacao, 1 in Germany, and 8 part-time employees. None of such employees is
represented by a union. The Company considers its relationship with its
employees to be excellent.
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The Company has entered into confidentiality agreements with most
of its employees, other than its executive officers. Pursuant to such
agreements, each employee in New York agrees to keep all of the Company's
proprietary and other information secret and confidential and to return the same
to the Company upon termination. These employees further agree not to divulge
any trade secrets during their respective terms of employment and thereafter
without the Company's prior written consent and further to assign to the Company
all inventions, discoveries, and improvements which they make during the term of
employment, within one year thereafter, or utilizing any of the Company's trade
secrets. The agreement executed by Curacao employees provides that they will not
divulge any data connected with the production process in Curacao. There can be
no assurance that any particular court would enforce any or all of the terms of
any of such agreements.
The Company's subsidiary in Germany, Bio Pharma, is managed by
Rainer Friedel, MD., Ph.D. Dr. Friedel is a member of the Company's board of
directors. Dr. Friedel and the Company have executed an employment agreement, as
mandated by German law.
Consulting Agreement
The Company entered into a one year consulting agreement with
Stephen A. Vogel (the "consultant") effective October 10, 1997. The agreement
provides that the consultant provide the Company with such advice, service,
consultation, and assistance as the Company will seek with respect to the
Company's financial matters and provide such other services as the Board of
Directors requests. The agreement provides for a consulting fee of $10,000 per
month and an option to purchase 100,000 shares of the Company's common stock at
$5.00 per share, which options shall not be exercisable until the one year
anniversary of the agreement and will only be exercisable for a 3 month period
after the one year anniversary, except as otherwise provided therein. The
agreement also provides for the consultant to receive fees if certain events
occur as a result of the consultant's actions or recommendations. The Company
will reimburse the Consultant for out of pocket and other expenses incurred in
connection with rendering services. During the fiscal year ended January 31,
1998, the Company recorded selling, general and administrative expenses of
$56,275 relating to this agreement. Mr. Vogel is a son of a member of the
Company's board of directors.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases two facilities, one in Lynbrook, New York and
one in Curacao, Netherlands Antilles. The New York facility, also the Company's
administrative headquarters, contains 1,500 square feet of office space and
6,500 square feet of laboratory, production, and storage facilities. The Company
leases this facility from the Wilbur Street Corporation ("WSC"), which is owned
by The S.J. Wegman Company, the principal stockholder of the Company and an
affiliate of Edwin H. Wegman, President of the Company. The lease ran month to
month at an annual rate of $78,000 during the fiscal years ended January 31,
1998 and 1997. On January 30, 1998, WSC and the Company entered into a triple
net lease agreement which provides for an annual rent starting at $125,000,
which can increase annually by the amount of annual increase in the Consumer
Price Index for the greater New York metropolitan region. The lease term is 7
years, expiring January 31, 2005. The Company believes that the terms of this
lease are reasonable and the rent charged is no greater than that which would be
charged by an unaffiliated landlord for comparable facilities, based on
appraisals of the property. The Company continues to sublease a portion of the
space subject to this lease, to an unaffiliated entity for $24,000 per year,
pursuant to a verbal lease agreement.
The Company also leases from a company wholly-owned by the
Insular Territory of Curacao a building in Brievengat, Curacao, Netherlands
Antilles. This building is the Company's principal manufacturing facility, and
is licensed by the FDA to produce Collagenase ABC. The facility has
approximately 15,750 square feet of usable space. The lease, which was
originally entered into with the Insular Territory of Curacao on January 1,
1977, is automatically renewable upon the same terms every five years, unless
either party gives notice of termination three months prior to the expiration of
the five-year period. The lessor is entitled to revalue the rent for each
successive five-year period, and the lease has been automatically renewed
through March 1, 2001. The current rent is approximately $30,000 per year.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock trades on the Nasdaq National Market
tier of the Nasdaq Stock Market ("Nasdaq") under the Symbol "BSTC". The
Company's Common Stock commenced trading on November 14, 1991. On April 21,
1998, the closing price for the Company's Common Stock was $5.375. The table
below sets forth the high and low sale prices for the Company's Common Stock for
the period April 30, 1996 through January 31, 1998, as reported by Nasdaq.
Quarter Ended High Low
- ------------- ---- ---
April 30, 1996 $5-7/8 $3
July 31, 1996 $6-1/8 $3-1/8
October 31, 1996 $5-1/8 $3-3/4
January 31, 1997 $5-1/4 $3-1/4
April 30, 1997 $4-5/8 $3-1/8
July 31, 1997 $6-3/4 $3-7/8
October 31, 1997 $6-5/8 $4-1/4
January 31, 1998 $5-3/8 $4-1/4
On April 21, 1998, there were 130 stockholders of record of the
Company's Common Stock. The Company believes it has approximately 1,000
beneficial owners of its Common Stock.
It is the Company's current policy to retain earnings to finance
the growth and development of its business. Any payment of cash dividends in the
future will depend upon the financial condition, capital requirements and
earnings of the Company as well as such other factors as the Board of Directors
may deem relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Information provided by the Company or statements contained in
this report or made by its employees, if not historical, is forward looking
information which involve uncertainties and risk. The Company cautions readers
that important factors may affect the Company's actual results and could cause
such results to differ materially from forward-looking statements made by or on
behalf of the Company. Such factors include, but are not limited to, changing
market conditions, the impact of competitive products and pricing, the timely
development and approval by the FDA and foreign health authorities of potential
products, market acceptance of the Company's potential products, and other risks
detailed herein and in other filings the Company makes with the Securities and
Exchange Commission. Further, any forward looking statement or statements speak
only as of the date on which such statements were made, and the Company
undertakes no obligation to update any forward looking statement or statements
to reflect events or circumstances after the date on which such statement or
statements were made.
11
<PAGE>
Results of Operations
- ---------------------
Net sales were $3,389,315 and $3,786,429 for the fiscal years
ended January 31, 1998 and 1997, respectively, a decrease of $397,114 or 11%,
due to lower sales of the product, Collagenase ABC, to KPC. The Company expects
higher sales to KPC in fiscal 1999, given the higher backlog of orders at
January 31, 1998 versus 1997, and due to the sales potential of the KPC/Ortho
McNeil agreement reached in February 1998 (See "Agreements for the Distribution
of Collagenase ABC"), although there can be no assurances as to when or to what
extent such an arrangement could impact its operations.
Royalties earned on Collagenase Santyl(R) ointment sales by KPC
were $2,435,518 and $2,068,560 for the fiscal years ended January 31, 1998 and
1997, respectively, representing an increase of $366,958 or 18%. The increase in
Collagenase Santyl(R) sales in the United States continues to be the result of
the emerging awareness of the problem of pressure ulcers in the health care
industry, and of the efficacy of collagenase in their treatment. As a result,
hospitals and skilled nursing facilities give more immediate recognition and
treatment to pressure ulcers (See "Competition"). The KPC/Ortho-McNeil agreement
was reached after January 31, 1998 and had no effect on Santyl(R) sales in the
fiscal year then ended.
The Company did not earn license fees in the fiscal year ended
January 31, 1998, compared to $20,000 for the fiscal year ended January 31,
1997. There were no agreements reached in fiscal 1998. See "Collagenase ABC -
Agreements for the Distribution of Collagenase ABC".
Cost of sales was $1,665,202 and $1,699,677, respectively, in
fiscal 1998 and 1997, a decrease of $34,475 or 2% due to the decrease in net
sales of the product.
Selling, general and administrative expenses ("SG&A") were
$1,526,534 and $1,512,246, respectively, in fiscal 1998 and 1997, an increase of
$14,288, or 1%. SG&A costs remained fairly constant in both fiscal years.
Research and development expenses ("R&D") were $1,904,808 and
$1,582,935, respectively, in fiscal 1998 and 1997, an increase of $321,873 or
20%. The increase was primarily a result of additional expenditures in the
United States for Dupuytren's Disease, which entered Phase 2 in fiscal 1998, and
Peyronie's Disease (see "Proposed Products and Uses for Products"). The Company
also incurred development expenses in Europe relating to its ointment product.
In addition, there was a two person increase in R&D staff in fiscal 1998. The
Company believes fiscal 1999 R&D expense may exceed that of fiscal 1998, as
these and other clinical trials are ongoing and planned.
Other income, net was $505,678 and $383,721, respectively, in
fiscal 1998 and 1997, an increase of $121,957. The higher amount in fiscal 1998
was due primarily to a profit of $96,683 realized on the sale of non-production
related real estate in Curacao, and higher levels of cash available for
investment.
The Company's provision for income taxes was $363,820 and
$300,350, respectively, in fiscal 1998 and 1997. The principal reason for the
difference between the United States Federal statutory tax rate of 34% and the
Company's effective tax rate is due to a 2% tax rate applicable to pre-tax
earnings from operations of the Company's subsidiary in Curacao. The higher
effective rate in fiscal 1998 was due to the higher level of Investment and
other income generated in Curacao which is taxed at higher rates.
12
<PAGE>
Liquidity, Capital Resources and Changes in Financial Condition
- ---------------------------------------------------------------
The Company's primary source of working capital is from
operations, which includes sales of product, royalties, and periodic license
fees. At January 31, 1998, the Company had working capital of approximately $8.5
million which includes cash and cash equivalents, and marketable securities of
approximately $6.7 million. The principal source of cash in fiscal 1998 was
approximately $1.1 million from operating activities. At January 31, 1998 the
Company had commitments for capital expenditures of approximately $150,000.
In view of the Company's working capital position and anticipated
future profitable operations, although there can be no assurance, management
believes that the Company has sufficient liquidity and capital resources to meet
its immediate operating needs. The Company believes that cash on hand and cash
provided by operations will be sufficient to meet its cash needs on an ongoing
basis.
New Reporting Pronouncements
The Company will implement in 1998 the provisions of SFAS No.
130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", and SFAS No. 132, "Employers'
Disclosures about Pensions and other Post-retirement Benefits", which require
the Company to report and display certain information related to comprehensive
income, operating segments, and employee benefits plans, respectively. Adoption
of these statements will not impact the Company's financial position or results
of operations.
Year 2000 Compliance
The Company anticipates no substantial risk to its operations or
capital pertaining to the "Year 2000" issue. This issue is the result of
computer programs which use two digits (rather than four) to identify a given
year. Management continues to monitor the adequacy of the Company's preparations
in this matter.
ITEM 7. FINANCIAL STATEMENTS
Page
Independent Auditors' Report................................................F-1
Consolidated Balance Sheet as of January 31, 1998...........................F-2
Consolidated Statements of Income for Years ended January 31, 1998 and 1997.F-3
Consolidated Statements of Cash Flows for Years ended January 31, 1998
and 1997 ...................................................................F-4
Consolidated Statements of Stockholders' Equity for Years ended
January 31, 1998 and 1997...................................................F-5
Notes to Consolidated Financial Statements..................................F-6
13
<PAGE>
Independent Auditors' Report
----------------------------
The Stockholders and Board of Directors
BioSpecifics Technologies Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of BioSpecifics
Technologies Corp. and subsidiaries as of January 31, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the two-year period ended January 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BioSpecifics
Technologies Corp. and subsidiaries at January 31, 1998 and the results of their
operations and their cash flows for each of the years in the two-year period
ended January 31, 1998 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Jericho, New York
April 22, 1998
F-1
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Balance Sheet
January 31, 1998
Assets
------
Current assets:
Cash and cash equivalents $ 4,431,055
Marketable securities 2,343,801
Accounts receivable 1,312,997
Inventories 1,482,720
Deferred tax assets - net 179,000
Prepaid expenses and other current assets 269,016
----------
Total current assets 10,018,589
Property, plant and equipment, net 873,600
Other assets 306,451
$ 11,198,640
----------
----------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses 1,309,972
Notes payable to related parties 12,010
Income taxes payable 61,840
Deferred revenue 175,000
---------
Total current liabilities 1,558,822
Minority interest in subsidiaries 220,349
Stockholders' equity:
Series A Preferred stock, $.50 par value, 700,000 shares -
authorized; none outstanding Common stock, $.001 par value;
10,000,000 shares authorized; 4,886,096 shares
outstanding 4,886
Additional paid-in capital 3,617,005
Retained earnings 6,427,433
Cumulative translation adjustment (3,354)
---------
10,045,970
Less: treasury stock, 96,800 shares at cost (626,501)
Total stockholders' equity 9,419,469
---------
Commitments and contingencies
$ 11,198,640
----------
----------
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended January 31, 1998 and 1997
1998 1997
---- ----
Revenues:
Net sales $ 3,389,315 3,786,429
Royalties 2,435,518 2,068,560
License fees -- 20,000
---------- ----------
5,824,833 5,874,989
Costs and expenses:
Cost of sales 1,665,202 1,699,677
Selling, general and administrative 1,526,534 1,512,246
Research and development 1,904,808 1,582,935
---------- ----------
5,096,544 4,794,858
Income from operations 728,289 1,080,131
Other income (expense):
Investment and other income 513,291 388,133
Interest expense (7,613) (4,412)
---------- ----------
505,678 383,721
---------- ----------
Income before provision for income taxes
and minority interest 1,233,967 1,463,852
Provision for income taxes 363,820 300,350
---------- ----------
Income before minority interest 870,147 1,163,502
Minority interest in earnings of subsidiaries 34,305 37,585
---------- ----------
Net income 835,842 1,125,917
---------- ----------
---------- ----------
Basic net income per share $.17 .23
---------- ----------
---------- ----------
Weighted-average common shares outstanding 4,839,408 4,873,396
---------- ----------
---------- ----------
Diluted net income per common share $.17 .23
---------- ----------
---------- ----------
Weighted-average common and dilutive
potential common shares outstanding 4,914,268 4,945,378
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended January 31, 1998 and 1997
1998 1997
---- ----
Cash flows from operating activities:
Net income $835,842 1,125,917
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 186,876 169,792
Costs associated with issuance of
common stock grants 20,000 30,000
Gain on sales of marketable securities, net (40,476) (25,267)
Gain on sale of property (96,683) -
Minority interest in earnings of subsidiaries 34,305 37,585
Changes in operating assets and liabilities:
Accounts receivable (412,041) 285,570
Inventories (143,639) 96,686
Prepaid expenses and other current assets 44,555 27,045
Deferred tax assets, net (89,000) (90,000)
Other assets 436,732 (104,137)
Marketable securities, net (490,351) 607,827
Accounts payable and accrued expenses 769,073 (452,679)
Deferred revenue - 45,000
Due to related parties 500 940
Income taxes payable 51,490 (129,740)
Cumulative translation adjustment 14,261 (17,615)
--------- --------
Net cash provided by operating
activitie 1,121,444 1,606,924
--------- --------
Cash flows from investing activities:
Proceeds from sale of property 156,534 -
Expenditures for property, plant and equipment (207,374) (101,658)
--------- --------
Net cash used in investing activities (50,840) (101,658)
--------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 10,860 -
Treasury stock purchases (443,991) -
--------- --------
Net cash used in financing activities (433,131)
--------- --------
Increase in cash and cash equivalents 637,473 1,505,266
Cash and cash equivalents at beginning of year 3,793,582 2,288,316
--------- --------
Cash and cash equivalents at end of year 4,431,055 3,793,582
--------- --------
--------- --------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest 7,616 4,412
--------- --------
--------- --------
Income taxes 242,820 421,000
--------- --------
--------- --------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended January 31, 1998 and 1997
Common stock Additional Cumulative
------------ paid-in Retained translation
Shares Amount capital earnings adjustment
------ ------ ---------- -------- -----------
<S> <C> <C> <C> <C>
Balance at January 31, 1996 4,883,396 $4,883 $3,556,145 $4,465,674 $ -
Options granted to consultants - - 30,000 - -
Cumulative translation adjustment - - - - (17,615)
Net income - - - 1,125,917 -
--------- ----- ---------- ---------- -----------
Balance at January 31, 1997 4,883,396 4,883 3,586,145 5,591,591 (17,615)
Options exercised 2,700 3 10,860 - -
Options granted to consultant - - 20,000 - -
Treasury stock purchases - - - - -
Cumulative translation adjustment - - - - 14,261
Net income - - - 835,842 -
--------- ----- ---------- ---------- -----------
Balance at January 31, 1998 4,886,096 $4,886 $3,617,005 $6,427,433 $(3,354)
--------- ----- ---------- ---------- -----------
--------- ----- ---------- ---------- -----------
See accompanying notes to consolidated financial statements.
F-5a
</TABLE>
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended January 31, 1998 and 1997
(CONTINUED)
Treasury
stock Total
-------- -----
$(182,510) $7,844,192
- 30,000
- (17,615)
- 1,125,917
--------- ----------
(182,510) 8,982,494
- 10,863
- 20,000
(443,991) (443,991)
- 14,261
- 835,842
--------- ----------
$(626,501) $9,419,469
--------- ----------
--------- ----------
F-5b
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1998 and 1997
(1) Description of Business and Basis of Presentation
-------------------------------------------------
BioSpecifics Technologies Corp. (the "Company") serves as a holding company
for Advance Biofactures Corporation ("ABC-New York"), Advance
Biofactures of Curacao, N.V. and subsidiaries ("ABC- Curacao"), and
Biospecifics Pharma GmbH ("Bio Pharma"), Germany.
The Company, through its subsidiaries, is engaged in the business of
producing and licensing for sale by others a fermentation derived
enzyme named Collagenase ABC (the "product") which is approved by the
U.S. Food and Drug Administration ("FDA"), and researching and
developing additional products derived from this enzyme for potential
use as pharmaceuticals. In general, the Company currently derives
revenues through a license agreement with a major pharmaceutical
company (notes 10 (b) and 11). Sales in fiscal 1998 and 1997 of the
product have been principally to that pharmaceutical company in the
United States. The license with this United States customer expires in
2003. The non renewal at expiration of the license agreement by the
United States customer could have a material adverse impact on the
financial condition of the Company unless the Company is successful in
its active effort to secure other licensees. The Company also has
licensing agreements with a number of foreign companies, some of which
are marketing the product and others of which will attempt to market
the product or products in development in licensed territories when
permitted by local governmental authorities.
(2) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries, ABC-New York and
ABC-Curacao, and its wholly owned subsidiary, Bio Pharma. All
significant inter company transactions and balances have been
eliminated in consolidation.
Marketable Securities
---------------------
Marketable securities include investments in stocks and bonds. The Company
classifies its debt and marketable equity securities as trading
securities. Trading securities are bought and held principally for the
purpose of selling them in the near term and are recorded at fair
value. Unrealized holding gains and losses on trading securities are
included in Investment and other income.
Inventories
-----------
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
F-6
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Long-Lived Assets
Property, plant and equipment are carried at cost. Depreciation and
amortization of property, plant and equipment is computed by the
straight-line method over the following estimated useful lives:
Machinery, equipment, furniture and fixtures 5 to 10 years
Automobiles 5 to 10 years
Leasehold improvements lesser of the anticipated useful life of
the leasehold improvement or the term of the lease
The Company reviews its long-lived assets for impairment whenever events
or circumstances indicate the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and
without interest, is less than the carrying amount of the asset, an
impairment loss is recognized as the amount by which the carrying
amount of the asset exceeds its fair value.
Other Assets
------------
Otherassets include the costs of patents filed and applied for. These costs
are amortized on a straight line basis over 4 to 6 years. Patent
application costs are expensed when a patent is denied or abandoned.
Income Taxes
------------
The Company accounts for income taxes using the asset and liability method
whereby deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Cash Equivalents
----------------
For purposes of the statement of cash flows, the Company considers all
temporary investments and time deposits with original maturities of
three months or less to be cash equivalents.
Cumulative translation adjustment
---------------------------------
Assets and liabilities of ABC-Curacao and Bio Pharma are translated into
the U.S. dollar at year-end exchange rates and income and expense
items are translated at average exchange rates for the period. Gains
and losses resulting from translation are included in stockholders'
equity.
Royalties and License Fee Income
--------------------------------
F-7
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company enters into licensing agreements with pharmaceutical companies
regarding the sale of the Company's approved product and potential
products. Royalties on the approved product are recognized as income
in the year earned.
License fees for potential products are recognized as income in the year
applicable agreements are entered into if related license fees are
non-refundable and the Company is not responsible for obtaining of
government approvals for the sale of such products. License fees
attributable to agreements which contain refund provisions or require
significant participation by the Company in the obtaining of
government approvals for product sales are deferred until all
provisions of the agreements are fulfilled.
Research and Development
------------------------
The Company conducts various research and development activities for
potential products. Research and development costs are charged to
expense when incurred. These costs amounted to $1,904,808 and
$1,582,935 in 1998 and 1997, respectively.
Net Income Per Share
--------------------
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share" , which supersedes APB No. 15, "Earnings per Share". This
statement requires companies to replace the presentation of primary
earnings per share ("EPS") and fully diluted EPS with basic EPS and
diluted EPS. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS
reflects the dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the Company. The implementation of SFAS No.
128 did not have a material effect on the Company's consolidated
financial statements for the periods presented. Dilutive common stock
options and warrants are included in the diluted EPS calculation using
the treasury stock method.
Stock Based Compensation
------------------------
The Company adopted the provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" in fiscal 1997, which gives companies the
choice to adopt the fair value method for expense recognition of
employee stock options or continue to account for stock options and
stock based awards using the intrinsic value method as outlined under
Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25") and to make pro forma disclosure of
net income and net income per share as if the fair value method had
been applied. The Company has elected to continue to apply APB 25 for
future stock options and stock based awards and has disclosed pro
forma net earnings and net earnings per share for the years ended
January 31, 1998 and 1997 as if the fair value method had been
applied.
F-8
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Use of estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Fair value of Financial Instruments
-----------------------------------
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The carrying amounts of cash, accounts receivable, prepaid
assets, other assets, accounts payable, and accrued expenses
approximate fair value because of the short maturity of those
instruments. The fair value of notes receivable from officers and
notes payable to related parties approximates the carrying value as
their stated interest rate is similar to other rates currently offered
by local institutions for similar term loans.
Year 2000 Compliance
--------------------
The Company anticipates no substantial risk to its operations or capital
pertaining to the "Year 2000" issue. This issue is the result of
computer programs which use two digits (rather than four) to identify
a given year. Management continues to monitor the adequacy of the
Company's preparations in this matter.
New Reporting Pronouncements
----------------------------
The Company will implement in 1998 the provisions of SFAS No. 130,
"Reporting Comprehensive Income", SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", and SFAS No. 132,
"Employers' Disclosures about Pensions and other Post-retirement
Benefits", which require the Company to report and display certain
information related to comprehensive income, operating segments, and
employee benefits plans, respectively. Adoption of these statements
will not impact the Company's financial position or results of
operations.
(3) Marketable Securities
---------------------
Marketable securities at January 31, 1998 consist of trading securities.
Fair values are based upon quoted market prices. The gross unrealized
holding gain (loss) and fair value of trading securities by major
types at January 31, 1998 were as follows:
Gross unrealized
holding gain (loss) Fair Value
-------------------- -----------
U.S. Government obligations $ 248,277 $1,604,165
Common and preferred stocks (5,489) 266,751
Corporate bonds (6,778) 472,885
----------- ----------
$236,010 $2,343,801
F-9
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Maturities of investment securities as of January 31, 1998 were as follows:
Due in less than 1 year $ 702,296
Due after one year through five years 478,457
Due after five years through fifteen years 871,199
After 15 years 31,350
----------
$2,083,302
(4) Inventories
-----------
Inventories at January 31, 1998 consist of:
Raw materials $ 65,439
Work-in-process 977,276
Finished goods 440,005
---------
$ 1,482,720
---------
---------
(5) Property, Plant and Equipment, net
----------------------------------
Property, plant and equipment at January 31, 1998 consist of:
Machinery and equipment $ 2,036,493
Furniture and fixtures 273,771
Leasehold improvements 523,456
Automobiles 118,105
-------
2,951,825
Less accumulated depreciation
and amortization (2,078,225)
-----------
$ 873,600
-------
-------
Depreciation and amortization expense amounted to $186,876 and $169,792 for
fiscal years ending January 31, 1998 and 1997, respectively.
(6) Accounts Payable and Accrued Expenses
-------------------------------------
Accounts payable and accrued expenses at January 31, 1998 consist of:
Accounts payable and accrued expenses $1,074,730
Accrued legal and professional fees 95,370
Accrued payroll and related costs 139,872
----------
$1,309,972
(7) Income Taxes
------------
The provision for income taxes consists of the following:
1998 1997
---- ----
Current:
Federal $334,000 $151,000
State 65,000 18,000
Foreign 53,820 10,350
-------- --------
452,820 179,350
-------- --------
F-10
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Deferred:
Federal (80,000) 110,000
State (9,000) 11,000
-------- --------
(89,000) 121,000
-------- --------
$363,820 $300,350
-------- --------
-------- --------
The effective income tax rate of the Company differs from the federal
statutory tax rate of 34% in 1998 and 1997 as a result of the effect
of the following items:
1998 1997
---- ----
Computed tax provision at statutory rate $419,549 $497,710
Tax effect of foreign sourced income,
net of foreign taxes (168,186) (201,295)
State income taxes, net of federal benefit 37,339 19,140
Non-deductible expenses 17,000 -
Minority interest in subsidiaries 12,000 10,200
Other, net 46,118 (25,405)
-------- ---------
$363,820 $300,350
-------- ---------
-------- ---------
The Company intends to reinvest the undistributed earnings of its foreign
subsidiaries and does not currently plan to repatriate such
undistributed earnings (approximately $5,035,000 as of January 31,
1998) to the Company.
The provision (benefit) for deferred taxes of $(89,000) and $121,000 in
1998 and 1997, respectively resulted principally from the
capitalization of certain inventory costs and certain expenses that
are currently non-deductible for tax purposes. The Company has not
recorded a valuation allowance against these deferred tax assets as
the Company believes that it is more likely than not that such amounts
will be recovered.
(8) Line of Credit
--------------
The Company, through its subsidiary ABC-Curacao, maintains a line of
credit with a Netherlands Antilles bank under which the bank will lend
up to $110,000 (NAf 200,000) to ABC-Curacao, with interest, at the
bank's prime lending rate (12% at January 31, 1998). Drawings under
the line of credit would be secured by substantially all of the assets
of ABC of Curacao, payable on demand, and guaranteed by ABC-New York.
There were no borrowings under such line of credit at January 31,
1998.
F-11
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Stockholders' Equity
--------------------
Stock Option Plans
------------------
In April 1991, the Company established a stock option plan (the "1991
plan") for eligible key employees, directors, independent agents, and
consultants who make a significant contribution toward the Company's
success and development and to attract and retain qualified employees.
Under the 1991 plan, qualified incentive stock options and
non-qualified stock options may be granted to purchase up to an
aggregate of 220,000 shares of the Company's common stock, subject to
certain anti-dilution provisions. The option price per common share
may not be less than 100% (110% for qualified incentive stock options
granted to stockholders owning at least 10% of common shares) of the
fair market value of common shares on the date of grant. In general,
the options will vest and become exercisable in four equal annual
installments following the date of grant, although the Board of
Directors, at its discretion, may provide for different vesting
schedules, and expire ten years (five years for qualified incentive
stock options granted to stockholders owning at least 10% of common
shares) after such date.
In July 1994, stockholders approved a stock option plan (the "1993 plan")
with terms identical to the 1991 plan. The 1993 plan authorizes the
granting of awards of up to an aggregate of 200,000 shares of the
Company's common stock, subject to certain anti-dilution provisions.
In July 1997, stockholders approved a stock option plan (the "1997 plan")
with terms identical to the 1993 plan. The 1997 plan authorizes the
granting of awards of up to an aggregate of 500,000 shares of the
Company's common stock, subject to certain anti-dilution provisions.
The Company applies APB 25 and related interpretations in accounting for
its stock option plans. Had compensation cost been recognized
consistent with SFAS 123, the Company's consolidated net earnings in
fiscal 1998 would have been reduced to $685,714 and consolidated net
earnings in fiscal 1997 would have been reduced to $1,064,752.
Earnings per share in fiscal 1998 and 1997 would have been reduced to
$.14 per share, and $.22 per share, respectively.
The per share weighted average fair value of stock options issued by the
Company during fiscal 1998 and 1997 was $2.82 and $2.37, respectively,
on the date of grant. In fiscal 1998 and 1997, the assumptions of no
dividends, expected volatility of approximately 60%, and an average
expected life of 5 years were used by the Company in determining the
fair value of the stock options granted using the Black Scholes option
pricing model. In addition, the calculations assumed a risk free
interest rate of 6.25% in fiscal 1998 and fiscal 1997.
The summary of the stock options activity is as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------- -----------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 207,475 $6.20 256,300 $5.44
Options granted 231,850 5.23 38,525 5.18
Options exercised (2,700) 4.21 - -
Options canceled or expired (13,725) 8.13 (87,350) 3.46
-------- --------
Outstanding at end of year 422,900 5.62 207,475 6.20
Options exercisable at year end 242,900 5.73 202,475 6.26
Shares available for future grant 418,950 - 137,075 -
</TABLE>
F-12
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
During fiscal 1998, the Company granted a total of 100,000 options to a
consultant at an exercise price of $5.00 per share. These options are
exercisable beginning one year from the date of grant and are only
exercisable for a three month period one year from the date of grant.
In connection with these options, the Company recorded an expense of
approximately $20,000 representing the estimated value of the options
during the period they were outstanding. During fiscal 1997, the
Company granted a total of 15,000 options to the former co-medical
directors of the Company at prices ranging from $3.75 to $9.125 per
share. The former medical directors' options are all exercisable one
year from the date of grant. In connection with the options granted to
the former medical directors, the Company recorded an expense of
$30,000 representing the estimated value of the options vested in
fiscal 1997. During fiscal 1998 and 1997, the Company granted 131,850
and 23,525 options, respectively, to employees of the Company at
prices ranging from $3.875 to $6.05.
Options for 242,900 shares are currently exercisable with a weighted
average exercise price of $5.73 and a weighted average remaining
contractual life of 7 years. The remaining 180,000 options outstanding
have a weighted average exercise price of $5.46 and a remaining
weighted average contractual life of 3 years.
Warrants
--------
The Company has underwriter's warrants outstanding to purchase up to
120,000 shares of common stock at an exercise price of $3.75 per
share, which are exercisable until November 21, 1999.
(10) Commitments and Contingencies
-----------------------------
(a) Lease Agreements
----------------
The Company's operations are principally conducted in leased premises.
Future minimum annual rental payments required under a noncancellable
operating lease are as follows:
Year ending January 31,
1999 155,167
2000 155,167
2001 155,167
2002 155,167
2003 155,167
Rent expense under all operating leases amounted to approximately $119,000
and $108,000 for the years ended January 31, 1998 and 1997,
respectively. The S.J. Wegman Company, which is owned by the Company's
President and certain relatives, is the 100% shareholder of the Wilbur
Street Corporation ("WSC"), which owns and leases a facility to
ABC-New York. On January 30, 1998, WSC and the Company entered into a
triple net lease agreement which provides for an annual rent starting
at $125,000, which can increase annually by the amount of the annual
increase in the CPI for the greater New York metropolitan region. The
lease term is 7 years, expiring January 31, 2005. The Company paid
$90,000 and $78,000 in rent to WSC in fiscal 1998 and 1997,
respectively.
F-13
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
ABC-Curacao leases a building in Brievengat, Curacao, Netherlands Antilles
from a company wholly owned by the Insular Territory of Curacao. The
lease term, which originally commenced on January 1, 1977 is
automatically renewed upon the same terms every five years, unless
either party gives three months notice prior to the expiration of the
five-year period. The lessor is entitled to revalue the rent for each
successive five-year period. The lease has been renewed through March
1, 2001. Rent expense amounted to $30,167 for each of the years ended
January 31, 1998 and 1997.
(b) Royalty and License Agreements
------------------------------
The Company's major royalty and license agreements are for its FDA
approved product, Collagenase ABC, and for Nucleolysin(R), a product
in development.
The Company's principal Collagenase ABC agreement, with a United States
licensee, was renewed in 1993 on terms similar to the prior agreement.
It extends for ten years with automatic renewal for a like period
unless the licensee notifies the Company of its intention to terminate
6 months prior to renewal date. The agreement provides that the
license is exclusive in the United States and Canada provided there
are reasonable annual increases in Collagenase Santyl(R) sales and
best efforts are made to increase sales. The licensee pays the Company
for the product and an annual royalty calculated as a percent of net
sales of Collagenase Santyl(R) ointment. The minimum annual royalty is
$60,000 per year.
In fiscal 1997, the Company entered into an agreement to license
Collagenase ABC for sale in Germany to the German subsidiary of an
international pharmaceutical company. The agreement calls for an
initial payment on signing and further payments if and when marketing
approval of Collagenase ABC ointment is granted by the German health
authority. During fiscal 1997, the Company recognized $20,000 in
non-refundable license fees and recorded deferred revenue of $40,000
from this agreement. The deferred revenue is refundable if approval in
Germany is not obtained.
The Company has a distribution agreement with another unaffiliated Swiss
company pursuant to which that company will attempt to obtain approval
from the appropriate agencies in certain countries to sell
Nucleolysin(R)The agreement provides for exclusive rights within the
countries. To date, the licensee has paid $130,000, which has been
recorded as deferred revenue. The advance payments are subject to
certain credits and/or refund if approval in Italy is not obtained,
depending on the reasons therefor. The agreement with the Swiss
company is multi-year, subject to automatic yearly renewals unless
either party provides notice of non-renewal.
Royalties and license fee income with respect to all agreements in effect
follows:
January 31, 1998 January 31, 1997
---------------- ----------------
Royalty for existing product $2,435,518 $2,068,560
License fees for potential products - 20,000
---------- ----------
$2,435,518 $2,088,560
---------- ----------
---------- ----------
F-14
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(c) Scientific Advisory Board
-------------------------
The Company has a eight member Scientific Advisory Board ("the Board")
that provides research and consultation services for the Company. For
the years ended January 31, 1998 and 1997, the Company has recorded
$22,500 and $40,000, respectively, representing payments to Board
members under these agreements. Effective January 1, 1997, the Company
has oral agreements with three of the eight members of the Board
providing for honoraria of approximately $6,000 each, terminable at
the option of the Company.
(d) Potential Product Liability
---------------------------
The sale of Collagenase ABC, as well as the development and marketing of
any potential products of the Company, expose the Company to potential
product liability claims both directly from patients using the product
or products in development, as well as from the Company's agreement to
indemnify certain distributors of the product for claims made by
others. The Company has product liability insurance which covers the
use of the licensed product, Collagenase Santyl(R) in the United
States, and clinical experiments of potential products. No known
claims are pending against the Company at the current time.
(e) Employment Agreement
--------------------
The Company has an employment agreement with the managing director of its
German subsidiary, Bio Pharma. The contract can be terminated by the
Company or the managing director upon one year's written notice. The
agreement provides for an annual salary of $175,000 and a like
severance payment if the agreement is terminated by the Company
without cause.
(11) Segment Information
-------------------
(a) Major Customer
--------------
Substantially all of the Company's revenues were earned from one
pharmaceutical manufacturer and distributor in the United States for
the years ended January 31, 1998 and 1997, respectively.
(b) Operations by Geographic Area
-----------------------------
The Company is engaged in one industry, specifically research,
development, production and distribution of pharmaceutical products.
Operations in this business segment are summarized below by geographic
area. All unaffiliated revenues from South America are made by
ABC-Curacao and primarily represent export sales made to South America
and India.
F-15
<PAGE>
<TABLE>
<CAPTION>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
South
America
North and
Year ended January 31, 1998: America Europe Eliminations Consolidated
- ---------------------------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated
customers $5,387,819 $437,014 - $5,824,833
Intercompany revenue between
geographic regions 854,070 (854,070) -
Income from operations 339,427 903,012 (514,150) 728,289
Identifiable assets 6,850,140 4,938,410 (589,910) 11,198,640
Capital expenditures 133,677 73,697 - 207,374
Depreciation and amortization 91,276 95,600 - 186,876
</TABLE>
<TABLE>
<CAPTION>
South
America
North and
Year ended January 31, 1998: America Europe Eliminations Consolidated
- ---------------------------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Year ended January 31, 1997:
Revenues from unaffiliated
customers $5,479,609 $395,380 - $5,874,989
Intercompany revenue between
geographic regions - 1,093,940 (1,093,940) -
Income from operations 838,226 710,601 (468,696) 1,080,131
Identifiable assets 6,258,121 3,972,821 (324,646) 9,906,296
Capital expenditures 67,460 34,198 - 101,658
Depreciation and amortization 75,618 94,174 - 169,792
</TABLE>
The information presented above may not be indicative of results if the
geographic areas were independent organizations. Intercompany
transactions are made at transfer prices which are believed to be
equivalent to those made at arms-length. Revenue from foreign
operations were less than 10% of consolidated revenues in 1998 and
1997. In fiscal 1998 and 1997, approximately 92% of the Company's
revenues were from one licensee.
(12) Related Party Transactions
--------------------------
Included in "prepaid expenses and other current assets" at January 31, 1998
is a promissory note from the Company's president for $56,820, payable
to ABC-New York. The note is payable upon demand and bears interest at
9% per annum. Also included in "other assets" at January 31, 1998 is a
9% non- amortizing mortgage from Wilbur Street Corporation (note 10)
in the amount of $82,606.
In fiscal 1998, the Company's president repaid the Company a total of
$493,000 representing $424,817 of principal borrowings and $68,183 of
interest, which is included in Investment and other income. In fiscal
1997, the Company recorded approximately $89,000 of interest from
these loans, which is included in Investment and other income.
F-16
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
ABC-New York has notes payable to a director of the Company and to a
partner of the S.J. Wegman Company, an affiliate, amounting to $12,010
at January 31, 1998. The notes, which bear interest at 9% per annum,
are payable on demand.
The Company entered into a one year consulting agreement with Stephen A.
Vogel (the "consultant") effective October 10, 1997. The agreement
provides that the consultant provide the Company with such advice,
service, consultation, and assistance as the Company will seek with
respect to the Company's financial matters and provide such other
services as the Board of Directors requests. The agreement provides
for a consulting fee of $10,000 per month and an option to purchase
100,000 shares of the Company's common stock at $5.00 per share, which
options shall not be exercisable until the one year anniversary of the
agreement and will only be exercisable for a 3 month period after the
one year anniversary, except as otherwise provided therein. The
agreement also provides for the consultant to receive fees if certain
events occur as a result of the consultant's actions or
recommendations. The Company will reimburse the consultant for out of
pocket and other expenses incurred in connection with rendering
services. During the fiscal year ended January 31, 1998, the Company
recorded selling, general and administrative expenses of $56,275
relating to this agreement. Mr. Vogel is a son of a member of the
Company's Board of Directors.
(13) Employee Benefit Plan
---------------------
ABC - New York has a 401(k) Profit Sharing Plan for employees who meet
minimum age and service requirements. Contributions to the plan by ABC
- New York are discretionary and subject to certain vesting
provisions. The Company made no contributions to this plan for the
years ended January 31, 1998 and 1997.
F-17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item 9 as to directors is
incorporated by reference to the information captioned "Election of Directors"
included in the Registrant's definitive proxy statement in connection with the
meeting of shareholders to be held on July 15, 1998. The information regarding
compliance with Section 16 of the Securities and Exchange Act of 1934 and the
Rules promulgated thereunder is incorporated by reference therein to the
Company's definitive proxy statement in connection with the meeting of
shareholders to be held on July 15,1998.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item 10 is incorporated by
reference to the information captioned "Remuneration and Other Transactions with
Management" included in the Registrant's definitive proxy statement in
connection with the meeting of shareholders to be held on July 15,1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 11 is incorporated by
reference to the information captioned "Voting Securities" included in the
Registrant's definitive proxy statement in connection with the meeting of
shareholders to be held on July 15,1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 12 is incorporated by
reference to the information captioned "Remuneration and Other Transactions with
Management" included in the Registrant's definitive proxy statement in
connection with the meeting of shareholders to be held on July 15,1998.
31
<PAGE>
PART IV
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits Filed
Exhibit 3.1 Certificate of Amendment of Certificate of Incorporation of
Registrant, as amended. (Previously filed with Registrant's
Registration Statement on Form S-18 ["Registration Statement"]
and incorporated herein by reference.)
Exhibit 3.2 Registrant's by-laws as amended. (Previously filed as Exhibit 3.2
and 3.2(a) to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 4.1 Copy of Promissory Note executed by Edwin H. Wegman in favor of
Advance Biofactures Corporation. (Previously filed as Exhibit
28.1 to Registrant's Registration Statement and incorporated
herein by reference.)
Exhibit 4.2 Copy of Promissory Note executed by Edwin H. Wegman in favor of
Sherman C. Vogel and Clarification of Loan executed by Edwin H.
Wegman, Sherman C. Vogel, and Advance Biofactures Corporation.
(Previously filed as Exhibit 28.2 to Registrant's Registration
Statement and incorporated herein by reference.)
Exhibit 4.3 Copy of Promissory Note executed by Advance Biofactures
Corporation in favor of Myron E. Wegman. (Previously filed as
Exhibit 28.3 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.1 Form of 1991 Stock Option Plan of the Registrant. (Previously
filed as Exhibit 10.1 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.2 Form of 1993 Stock Option Plan of Registrant. (Previously filed
on the Registrant's Form S- 8 Registration No. 33-95116 dated
July 27, 1995 and incorporated herein by reference.)
Exhibit 10.3 Copy of Agreement between Advance Biofactures Corporation and
Knoll Pharmaceutical Company, without exhibits. (Previously filed
as exhibit 10.3 to Registrant's 10-KSB for the year ended January
31, 1995 and incorporated herein by reference.)
Exhibit 10.4 Copy of Lease between Advance Biofactures Corporation and the
Wilbur Street Corporation.*
Exhibit 10.5 Copy of Lease between the Curacao Industrial and International
Trade Development Company (Curinde) N.V. and Advance Biofactures
Corporation of Curacao, N.V. (English translation). (Previously
filed as Exhibit 10.5 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.6 Copy of Agreement between Advance Biofactures of Curacao, N.V.
and a Swiss company regarding a license for Nucleolysin(R) for
Switzerland and Italy, without exhibits. (Previously filed as
Exhibit 10.7 to Registrant's Registration Statement and
incorporated herein by reference.)
32
<PAGE>
Exhibit 10.7 Copy of Agreement between Advance Biofactures Corporation and
Bernard J. Sussman, as amended. (Previously filed as Exhibit 10.8
to Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.8 Copy of Agreement between Advance Biofactures of Curacao, N.V.
and physician regarding testing of Nucleolysin(R). (Previously
filed as Exhibit 10.9 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.9 Form of Financial Consulting Agreement between the Company and
S.D. Cohn & Co., Inc. (Previously filed as Exhibit 10.10 to
Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.10 Copy of Employment Agreement dated March 7, 1977 between Advance
Biofactures of Curacao, N.V. and Edward Bakhuis. (Previously
filed as Exhibit 10.11 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.11 Copy of Agreement dated July 14, 1989 between Advance Biofactures
Corporation and Arnold Brossi regarding colchicine. (Previously
filed as Exhibit 10.12 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.12 Copy of Agreement dated November 4, 1985 between Advance
Biofactures Corporation and Arnold Brossi regarding Scientific
Advisory Board. (Previously filed as Exhibit 10.14 to
Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.13 Copy of License Agreement between Advance Biofactures Corporation
and The Regents of the University of California. (Previously
filed as Exhibit 10.15 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.14 Copy of Agreement between Advance Biofactures of Curacao, N.V.
and Lou Ann Cope Moorhead, MD., as amended. (Previously filed as
Exhibit 10.16 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.15 Copy of Agreement between Bio-Specifics N.V. (a wholly-owned
subsidiary of Advance Biofactures of Curacao, N.V.) and Sheldon
R. Pinnell, MD. (Previously filed as Exhibit 10.17 to
Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.16 Copy of Agreement between Advance Biofactures Corporation and
Karel Wiesner. (Previously filed as Exhibit 10.18 to Registrant's
Registration Statement and incorporated herein by reference.)
Exhibit 10.17 Copy of License Agreement between Advance Biofactures Corporation
and National Technical Information Service. (Previously filed as
Exhibit 10.19 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.18 Copy of Employment agreement with Dr. Rainer Friedel (English
summary attached)
33
<PAGE>
Exhibit 10.19 Copy of agreement to extend expiration of Underwriter's warrants
and Assignee of Warrants among Registrant, S.D. Cohn & Co., and
John C. Dello- Iacono.
Exhibit 10.20 Copy of Collagenase ABC license agreement between Advance
Biofactures of Curacao, N.V. and an Italian company, without
exhibits. (Previously filed as exhibit 29.1 to Registrant's 10-
KSB for the year ended January 31, 1995 and incorporated herein
by reference.)
Exhibit 10.21 Copy of Collagenase ABC license agreement between Advance
Biofactures of Curacao, N.V. and a Swiss company, without
exhibits. (Previously filed as exhibit 29.2 to Registrant's 10-
KSB for the year ended January 31, 1995 and incorporated herein
by reference.)
Exhibit 10.22 Copy of Promissory Note executed by Edwin H. Wegman in favor of
Advance Biofactures Corp. (Previously filed as exhibit 29.3 to
Registrant's 10-KSB for the year ended January 31, 1995 and
incorporated herein by reference.)
Exhibit 10.23 Copy of Consulting Agreement between BioSpecifics Technologies
Corp. and Stephen A. Vogel.*
Exhibit 10.24 Form of 1997 Stock Option Plan of Registrant. (Previously filed
on the Registrant's Form S- 8 Registration No. 333-36485 dated
September 26, 1997 and incorporated herein by reference.)
Exhibit 22 Subsidiaries of the Registrant.
Exhibit 23.1 Consent of KPMG Peat Marwick LLP.*
Exhibit 27.1 Financial Data Schedule*
(b) Reports on Form 8-K
None.
-----------------------------
* Filed herewith
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BIOSPECIFICS TECHNOLOGIES CORP.
-------------------------------------
(Registrant)
Date: May 6, 1998 By: Edwin H. Wegman
---------------------------------------
Edwin H. Wegman, Chairman and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Edwin H. Wegman Chairman of the Board, President and May 6, 1998
- -------------------
Edwin H. Wegman Director (Principal Executive Officer)
Albert Horcher Secretary, Treasurer , Principal May 6, 1998
- -------------------
Albert Horcher Financial and Chief Accounting Officer
Thomas L. Wegman Executive Vice President and Director May 6, 1998
- -------------------
Thomas L. Wegman
Paul A. Gitman, MD. Director May 6, 1998
- -------------------
Paul A. Gitman, MD.
Henry Morgan Director May 6, 1998
- -------------------
Henry Morgan
Sherman C. Vogel Director May 6, 1998
- -------------------
Sherman C. Vogel
Rainer Friedel Director May 6, 1998
- -------------------
Rainer Friedel
35
<PAGE>
EXHIBIT INDEX
Exhibit Page
--------- ------
Exhibit 10.14 Lease Agreement between Advance Biofactures 37
Corp. and Wilbur St. Corp.
Exhibit 10.23 Consulting Agreement between BioSpecifics 58
Technologies Corp. and Stephen A. Vogel.
Exhibit 23.1 Consent of KPMG Peat Marwick LLP 66
Exhibit 27.1 Financial Data Schedule 67
36
COMMERCIAL LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 30th day of
January, 1998, by and between Wilbur St. Corp. (hereinafter referred to as
-----------------
"Landlord"), and Advance Biofactures Corp. (hereinafter referred to as
---------------------------
"Tenant").
ARTICLES I - GRANT OF LEASE
----------------------------
Landlord, in consideration of the rents to be paid and the covenants
and agreements to be performed and observed by the Tenant, does hereby lease to
the Tenant and the Tenant does hereby lease and take from the landlord the
premises known as 35 Wilbur Street, Lynbrook, NY 11563 (the "Leased Premises"),
together with, as part of the parcel, all improvements located thereon.
ARTICLE II - LEASE TERM
-----------------------
Section 1. Total Term of Lease. The term of this Lease shall begin on the
-------------------
commencement date, as defined in Section 2 of this Article II, and shall
terminate on January 31, 2005.
Section 2. Commencement Date. The "Commencement Date" shall mean February 1,
-----------------
1998.
ARTICLE III - EXTENSIONS
------------------------
The parties hereto may elect to extend this Agreement upon such terms
and conditions as may be agreed upon in writing and signed by the parties at the
time of any such extension.
ARTICLE IV - DETERMINATION OF RENT
----------------------------------
The Tenant agrees to pay the Landlord or its assigns and the Landlord
agrees to accept, during the term hereof, at such place as the Landlord shall
from time to time direct by notice to the Tenant, rent at the following rates
and times:
Section 1. Annual Rent. Annual rent for the term of the Lease shall be One
------------
Hundred Twenty Five Thousand Dollars ($125,000).
Section 2. Payment of Yearly Rent. The annual rent shall be payable in
------------------------
advance in equally monthly installments of one twelfth (1/12th) of the total
yearly rent, which shall be Ten Thousand Four Hundred Sixteen Dollars and sixty
Seven cents ($10,416.67), on the first day of each and every calendar month
during the term hereof, and pro rata for the fractional portion of any month.
Reference to yearly rent hereunder shall not be implied or construed to the
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effect that this Lease or the obligation to pay rent hereunder is from year to
year, or for any term shorter than the existing Lease term, plus any extensions
as may be agreed upon. A late fee in the amount of Five Hundred Dollars ($500)
shall be assessed if payment is not postmarked or received by Landlord on or
before the tenth day of each month.
Section 3. Annual Increase. The annual rent shall be increases by the amount
---------------
of annual increase in the CPI for the Greater New York Metropolitan region.
ARTICLE V - SECURITY DEPOSIT
----------------------------
OMITTED
ARTICLE VI - TAXES
------------------
Section 1. Personal Property Taxes. The Tenant shall be liable for all taxes
-----------------------
levied against any leasehold interest of the Tenant or personal property and
trade fixtures owned or placed by the Tenant in the Leased Premises.
Section 2. Real estate Taxes. During the continuance of this lease Landlord
-----------------
shall deliver to Tenant copy of any real estate taxes and assessments against
the Leased Property. From and after the Commencement Date, the Tenant shall pay
the Landlord or taxing authority not later than ten (10) days before the day on
which the same may become initially due, all real estate taxes and assessments
applicable to the Leased Premises, together with any interest and penalties
lawfully imposed thereon as a result of Tenant's late payment thereof, which
shall be levied upon the Leased Premises during the term of this Lease.
Section 3. Contest of Taxes. The Tenant, at its own cost and expense, may,
----------------
if it shall in good faith so desire, contest by appropriate proceedings the
amount of any personal or real property tax. The Tenant may, if it shall so
desire, endeavor at any time or times, by appropriate proceedings, to obtain a
reduction in the assessed valuation of the Leased Premises for tax purposes. In
any such event, if the Landlord agrees, at the request of the Tenant, to join
with the Tenant at Tenant's expense in said proceedings and the Landlord agrees
to sign and deliver such papers and instruments as may be necessary to prosecute
such proceedings, the Tenant shall have the right to contest the amount of any
such tax and the Tenant shall have the right to withhold payment of any such
tax, if the statute under which the Tenant is contesting such tax so permits.
Section 4. Payment of Ordinary Assessments. The Tenant shall pay all
----------------------------------
assessments, ordinary and extraordinary, attributable to or against the Leased
Premises not later than ten (10) days before the day on which the same became
initially due. The Tenant may take the benefit of any law allowing assessments
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to be paid in installments and in such event the Tenant shall only be liable for
such installments of assessments due during the term hereof.
Section 5. Changes in Method of Taxation. Landlord and Tenant further agree
-----------------------------
that if at any time during the term of this Lease, the present method of
taxation or assessment of real estate shall be changed so that the whole or any
part of the real estate taxes, assessment or governmental impositions now
levied, assessed or imposed on the Leased Premises shall, in lieu thereof, be
assessed, levied, or imposed wholly or in part, as a capital levy or otherwise
upon the rents reserved herein or any part thereof, or as a tax, corporation
franchise tax, assessment, levy or charge, or any part thereof, measured by or
based, in whole or in part, upon the Leased Premises or on the rents derived
therefrom and imposed upon the Landlord, then the Tenant shall pay all such
taxes, assessments, levies, impositions, or charges. Nothing contained in this
Lease shall require the Tenant to pay an estate, inheritance, succession,
capital levy, corporate franchise, gross receipts, transfer or income tax of the
Landlord, nor shall any of the same be deemed real estate taxes as defined
herein unless the same be imposed in lieu of the real estate taxes.
ARTICLE VII - CONSTRUCTION AND COMPLETION
-----------------------------------------
Section 1. Improvements by TENANT. Tenant shall obtain all certificates,
-----------------------
permits, licenses and other authorizations of governmental bodies or authorities
which are necessary to permit the construction by it of improvements on the
demised premises and shall keep the same in full force and effect at Tenant's
cost.
Tenant shall negotiate, let and supervise all contracts for the
furnishing of services, labor, and materials for the construction of the
improvements on the demised premises at its cost. All such contracts shall
require the contracting party to guarantee performance and all workmanship and
materials installed by it for a period of one year following the date of
completion of construction. Tenant shall cause all contracts to be fully and
completely performed in a good and workmanlike manner, all to the effect that
the improvements shall be fully and completely constructed and installed in
accordance with good engineering and construction practice.
During the course of construction, Tenant shall, at its cost, keep in
full force and effect a policy of builder's risk and liability insurance in a
sum equal, from time to time, to three times the amount expended for
construction of the improvements. All risk of loss or damage to the improvements
during the course of construction shall be on Tenant with the proceeds from
insurance thereon payable to Landlord.
Upon completion of construction, Tenant shall, at its cost, obtain an
occupancy permit and all other permits or licenses necessary for the occupancy
of the improvements and the operation of the same as set out herein and shall
keep the same in force.
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Nothing herein shall alter the intent of the parties that Tenant shall
be fully and completely responsible for all aspects pertaining to the
construction of the improvements of the demised premises and for the payment of
all costs associated therewith. Landlord shall be under no duty to investigate
or verify Tenant's compliance with the provision herein. Moreover, neither
Tenant nor any third party may construe the permission granted Tenant hereunder
to create any responsibility on the part of the Landlord to pay for any
improvements, alterations or repairs occasioned by the Tenant. The Tenant shall
keep the property free and clear of all liens and, should the Tenant fail to do
so, or to have any liens removed from the property within fourteen (14) days of
notification to do so by the Landlord , in addition to all other remedies
available to the Landlord , the Tenant shall indemnify and hold the Landlord
harmless for all costs and expenses, including attorney's fees, occasioned by
the Landlord in having said lien removed from the property; and, such costs and
expenses shall be billed to the Tenant monthly and shall be payable by the
Tenant with that month's regular monthly rental as additional reimbursable
expenses to the Landlord by the Tenant.
Section 2. Utilities. Tenant shall pay for all water, sanitation, sewer,
---------
electricity, light, heat, gas, power, fuel, janitorial, and other services
incident to Tenant's use of the Leased Premises, whether or not the cost thereof
be a charge or imposition against the Leased Premises.
ARTICLE VIII - OBLIGATIONS FOR REPAIRS
--------------------------------------
Section 1. LANDLORD'S Repairs. Subject to any provisions herein to the
-------------------
contrary, and except for maintenance or replacement necessitated as the result
of the act or omission of subleases, licensees or contractors, the Landlord
shall be required to repair only defects, deficiencies, deviations or failures
of materials or workmanship in the building. The Landlord shall keep the Leased
Premises free of such defects, deficiencies, deviations or failures during the
first twelve (12) months of the term hereof.
Section 2. TENANT'S Repairs. The Tenant shall repair and maintain the Leased
----------------
Premises in good order and condition, except for reasonable wear and tear, the
repairs required of Landlord pursuant hereto, and maintenance or replacement
necessitated as the result of the act or omission or negligence of the Landlord,
its employees, agents, or contractors.
Section 3. Requirements of the Law. The Tenant agrees that if any federal,
------------------------
state or municipal government or any department or division thereof shall
condemn the Leased Premises or any part thereof as not in conformity with the
laws and regulations relating to the construction thereof as of the commencement
date with respect to conditions latent or otherwise which existed on the
Commencement Date, or, with respect to items which are the Landlord's duty to
repair pursuant to Section 1 and 3 of this Article; and such federal, state or
municipal government or any other department or division thereof, has ordered or
required, or shall hereafter order or require, any alterations or repairs
40
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thereof or installations and repairs as may be necessary to comply with such
laws, orders or requirements (the validity of which the Tenant shall be entitled
to contest); and if by reason of such laws, orders or the work done by the
Landlord in connection therewith, the Tenant is deprived of the use of the
Leased Premises, the rent shall be abated or adjusted, as the case may be, in
proportion to that time during which, and to that portion of the Leased Premises
of which, the Tenant shall be deprived as a result thereof, and the Landlord
shall be obligated to make such repairs, alterations or modifications at
Landlord's expense.
All such rebuilding, altering, installing and repairing shall be done
in accordance with Plans and Specifications approved by the Tenant, which
approval shall not be unreasonably withheld. If, however, such condemnation,
law, order or requirement, as in this Article set forth, shall be with respect
to an item which shall be the Tenant's obligation to repair pursuant to Section
2 of this Article VII or with respect to Tenant's own costs and expenses, no
abatement or adjustment of rent shall be granted; provided, however, that Tenant
shall also be entitled to contest the validity thereof.
Section 4. TENANT'S Alterations. The Tenant shall have the right, at its
---------------------
sole expense, from time to time, to redecorate the Leased Premises and to make
such non-structural alterations and changes in such parts thereof as the Tenant
shall deem expedient or necessary for its purposes; provided, however, that such
alterations and changes shall neither impair the structural soundness nor
diminish the value of the Leased Premises. The Tenant may make structural
alterations and additions to the Leased Premises provided that Tenant has first
obtained the consent thereto of the Landlord in writing. The Landlord agrees
that it shall not withhold such consent unreasonably. The Landlord shall execute
and deliver upon the request of the Tenant such instrument or instruments
embodying the approval of the Landlord which may be required by the public or
quasi public authority for the purpose of obtaining any licenses or permits for
the making of such alterations, changes and/or installations in, to or upon the
Leased Premises and the Tenant agrees to pay for such licenses or permits.
Section 5. Permits and Expenses. Each party agrees that it will procure all
--------------------
necessary permits for making any repairs, alterations, or other improvements for
installations, when applicable. Each Party hereto shall give written notice to
the other party of any repairs required of the other pursuant to the provisions
of this Article and the party responsible for said repairs agrees promptly to
commence such repairs and to prosecute the same to completion diligently,
subject, however, to the delays occasioned by events beyond the control of such
party.
Each party agrees to pay promptly when due the entire cost of any work
done by it upon the Leased Premises so that the Leased Premises at all times
shall be free of liens for labor and materials. Each party further agrees to
hold harmless and indemnify the other party from and against any and all injury,
loss, claims or damage to any person or property occasioned by or arising out of
the doing of any such work by such party or its employees, agents or
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contractors. Each party further agrees that in doing such work that it will
employ materials of good quality and comply with all governmental requirements,
and perform such work in a good and workmanlike manner.
ARTICLE IX - TENANT'S COVENANTS
-------------------------------
Section 1. TENANT's Covenants. Tenant covenants and agrees as follows:
------------------
a. To procure any licenses and permits required for any use made of the
Leased Premises by Tenant, and upon the expiration or termination of this Lease,
to remove its goods and effects and those of all persons claiming under it, and
to yield up peaceably to Landlord the Leased Premises in good order, repair and
condition in all respects; excepting only damage by fire and casualty covered by
Tenant's insurance coverage, structural repairs (unless Tenant is obligated to
make such repairs hereunder) and reasonable wear and tear;
b. To permit Landlord and its agents to examine the Leased Premises at
reasonable times and to show the Leased Premises to prospective purchasers of
the Building and to provide Landlord, if not already available, with a set of
keys for the purpose of said examination, provided that Landlord shall not
thereby unreasonably interfere with the conduct of Tenant's business;
c. To permit Landlord to enter the Leased Premises to inspect such
repairs, improvements, alterations or additions thereto as may be required under
the provisions of this Lease. If, as a result of such repairs, improvements,
alterations, or additions, Tenant is deprived of the use of the Leased Premises,
the rent shall be abated or adjusted, as the case may be, in proportion to that
time during which, and to that portion of the Leased Premises of which, Tenant
shall be deprived as a result thereof.
ARTICLE X - INDEMNITY BY TENANT
-------------------------------
Section l. Indemnity and Public Liability. The Tenant shall save Landlord
--------------------------------
harmless and indemnify Landlord from all injury, loss, claims or damage to any
person or property while on the Leased Premises, unless caused by the willful
acts or omissions or gross negligence of Landlord, its employees, agents,
licensees or contractors. Tenant shall maintain, with respect to the Leased
Premises, public liability insurance with limits of not less than one million
dollars for injury or death from one accident and $250,000.00 property damage
insurance, insuring Landlord and Tenant against injury to persons or damage to
property on or about the Leased Premises. A copy of the policy or a certificate
of insurance shall be delivered to Landlord on or before the commencement date
and no such policy shall be cancelable without ten (10) days prior written
notice to Landlord.
ARTICLE XI - USE OF PROPERTY BY TENANT
--------------------------------------
OMITTED
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ARTICLE XII - SIGNAGE
---------------------
Section l. Exterior Signs. Tenant shall have the right, at its sole risk and
--------------
expense and in conformity with applicable laws and ordinances, to erect and
thereafter, to repair or replace, if it shall so elect signs on any portion of
the Leased Premises, providing that Tenant shall remove any such signs upon
termination of this lease, and repair all damage occasioned thereby to the
Leased Premises.
Section 2. Interior Signs. Tenant shall have the right, at its sole risk and
--------------
expense and in conformity with applicable laws and ordinances, to erect,
maintain, place and install its usual and customary signs and fixtures in the
interior of the Leased Premises.
ARTICLE XIII - INSURANCE
------------------------
Section 1. Insurance Proceeds. In the event of any damage to or destruction
------------------
of the Leased Premises, Tenant shall adjust the loss and settle all claims with
the insurance companies issuing such policies. The parties hereto do irrevocably
assign the proceeds from such insurance policies for the purposes hereinafter
stated to any institutional first mortgagee or to Landlord and Tenant jointly,
if no institutional first mortgagee then holds an interest in the Leased
Premises. All proceeds of said insurance shall be paid into a trust fund under
the control of any institutional first mortgagee, or of Landlord and Tenant if
no institutional first mortgagee then holds an interest in the Leased Premises,
for repair, restoration, rebuilding or replacement, or any combination thereof,
of the Leased Premises or of the improvements in the Leased Premises. In case of
such damage or destruction, Landlord shall be entitled to make withdrawals from
such trust fund, from time to time, upon presentation of:
a. bills for labor and materials expended in repair, restoration,
rebuilding or replacement, or any combination thereof;
b. Landlord's sworn statement that such labor and materials for which
payment is being made have been furnished or delivered on site; and
c. the certificate of a supervising architect (selected by Landlord and
Tenant and approved by an institutional first mortgagee, if any, whose fees will
be paid out of said insurance proceeds) certifying that the work being paid for
has been completed in accordance with the Plans and Specifications previously
approved by Landlord, Tenant and any institutional first mortgagee in a first
class, good and workmanlike manner and in accordance with all pertinent
governmental requirements.
Any insurance proceeds in excess of such proceeds as shall be
necessary for such repair, restoration, rebuilding, replacement or any
combination thereof shall be the sole property of Landlord every case the
resubject to any rights therein of Landlord's mortgagee, and if the proceeds
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necessary for such repair, restoration, rebuilding or replacement, or any
combination thereof shall be inadequate to pay the cost thereof, Tenant shall
suffer the deficiency.
Section 2. Subrogation. Landlord and Tenant hereby release each other, to
-----------
the extent of the insurance coverage provided hereunder, from any and all
liability or responsibility (to the other or anyone claiming through or under
the other by way of subrogation or otherwise) for any loss to or damage of
property covered by the fire and extended coverage insurance policies insuring
the Leased Premises and any of Tenant's property, even if such loss or damage
shall have been caused by the fault or negligence of the other party.
Section 3. Contribution. Tenant shall reimburse Landlord for all insurance
------------
premiums connected with or applicable to the Leased Premises for whatever
insurance policy the Landlord , at its sole and exclusive option, should select.
ARTICLE XIV - DAMAGE TO DEMISED PREMISES
Section 1. Abatement or Adjustment of Rent. If the whole or any part of the
--------------------------------
Leased Premises shall be damaged or destroyed by fire or other casualty after
the execution of this Lease and before the termination hereof, then in nt
reserved in Article IV herein and other charges, if any, shall be abated or
adjusted, as the case may be, in proportion to that portion of the Leased
Premises of which Tenant shall be deprived on account of such damage or
destruction and the work of repair, restoration, rebuilding, or replacement or
any combination thereof, of the improvements so damaged or destroyed, shall in
no way be construed by any person to effect any reduction of sums or proceeds
payable under any rent insurance policy.
Section 2. Repairs and Restoration. Landlord agrees that in the event of
-----------------------
the damage or destruction of the Leased Premises, Landlord forthwith shall
proceed to repair, restore, replace or rebuild the Leased Premises (excluding
Tenant's leasehold improvements), to substantially the condition in which the
same were immediately prior to such damage or destruction. The Landlord
thereafter shall diligently prosecute said work to completion without delay or
interruption except for events beyond the reasonable control of Landlord .
Notwithstanding the foregoing, if Landlord does not either obtain a building
permit within ninety (90) days of the date of such damage or destruction, or
complete such repairs, rebuilding or restoration and comply with conditions (a),
(b) and (c) in Section 1 of Article XIII within nine (9) months of such damage
or destruction, then Tenant may at any time thereafter cancel and terminate this
Lease by sending ninety (90) days written notice thereof to Landlord , or, in
the alternative, Tenant may, during said ninety (90) day period, apply for the
same and Landlord shall cooperate with Tenant in Tenant's application.
Notwithstanding the foregoing, if such damage or destruction shall occur during
the last year of the term of this Lease, or during any renewal term, and shall
amount to twenty-five (25%) percent or more of the replacement cost, (exclusive
of the land and foundations), this Lease, except as hereinafter provided in
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Section 3 of Article XV, may be terminated at the election of either Landlord or
Tenant, provided that notice of such election shall be sent by the party so
electing to the other within thirty (30) days after the occurrence of such
damage or destruction. Upon termination, as aforesaid, by either party hereto,
this Lease and the term thereof shall cease and come to an end, any unearned
rent or other charges paid in advance by Tenant shall be refunded to Tenant, and
the parties shall be released hereunder, each to the other, from all liability
and obligations hereunder thereafter arising.
ARTICLE XV - CONDEMNATION
Section 1. Total Taking. If, after the execution of this Lease and prior to
------------
the expiration of the term hereof, the whole of the Leased Premises shall be
taken under power of eminent domain by any public or private authority, or
conveyed by Landlord to said authority in lieu of such taking, then this Lease
and the term hereof shall cease and terminate as of the date when possession of
the Leased Premises shall be taken by the taking authority and any unearned rent
or other charges, if any, paid in advance, shall be refunded to Tenant.
Section 2. Partial Taking. If, after the execution of this Lease and prior
---------------
to the expiration of the term hereof, any public or private authority shall,
under the power of eminent domain, take, or Landlord shall convey to said
authority in lieu of such taking, property which results in a reduction by
fifteen (15%) percent or more of the area in the Leased Premises, or of a
portion of the Leased Premises that substantially interrupts or substantially
obstructs the conducting of business on the Leased Premises; then Tenant may, at
its election, terminate this Lease by giving Landlord notice of the exercise of
Tenant's election within thirty (30) days after Tenant shall receive notice of
such taking. In the event of termination by Tenant under the provisions of
Section 1 of this Article XV, this Lease and the term hereof shall cease and
terminate as of the date when possession shall be taken by the appropriate
authority of that portion of the Entire Property that results in one of the
above takings, and any unearned rent or other charges, if any, paid in advance
by Tenant shall be refunded to Tenant.
Section 3. Restoration. In the event of a taking in respect of which Tenant
-----------
shall not have the right to elect to terminate this Lease or, having such right,
shall not elect to terminate this Lease, this Lease and the term thereof shall
continue in full force and effect and Landlord , at Landlord's sole cost and
expense, forthwith shall restore the remaining portions of the Leased Premises,
including any and all improvements made theretofore to an architectural whole in
substantially the same condition that the same were in prior to such taking. A
just proportion of the rent reserved herein and any other charges payable by
Tenant hereunder, according to the nature and extent of the injury to the Leased
Premises and to Tenant's business, shall be suspended or abated until the
completion of such restoration and thereafter the rent and any other charges
shall be reduced in proportion to the square footage of the Leased Premises
remaining after such taking.
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Section 4. The Award. All compensation awarded for any taking, whether for
---------
the whole or a portion of the Leased Premises, shall be the sole property of the
Landlord whether such compensation shall be awarded for diminution in the value
of, or loss of, the leasehold or for diminution in the value of, or loss of, the
fee in the Leased Premises, or otherwise. The Tenant hereby assigns to Landlord
all of Tenant's right and title to and interest in any and all such
compensation. However, the Landlord shall not be entitled to and Tenant shall
have the sole right to make its independent claim for and retain any portion of
any award made by the appropriating authority directly to Tenant for loss of
business, or damage to or depreciation of, and cost of removal of fixtures,
personality and improvements installed in the Leased Premises by, or at the
expense of Tenant, and to any other award made by the appropriating authority
directly to Tenant.
Section 5. Release. In the event of any termination of this Lease as the
-------
result of the provisions of this Article XV, the parties, effective as of such
termination, shall be released, each to the other, from all liability and
obligations thereafter arising under this lease.
ARTICLE XVI - DEFAULT
---------------------
Section 1. LANDLORD'S Remedies. In the event that:
-------------------
a. Tenant shall on three or more occasions be in default in the payment of
rent or other charges herein required to be paid by Tenant (default herein being
defined as payment received by Landlord ten or more days subsequent to the due
date), regardless of whether or not such default has occurred on consecutive or
non-consecutive months; or
b. Tenant has caused a lien to be filed against the Landlord's property and
said lien is not removed within thirty (30) days of recordation thereof; or
c. Tenant shall default in the observance or performance of any of the
covenants and agreements required to be performed and observed by Tenant
hereunder for a period of thirty (30) days after notice to Tenant in writing of
such default (or if such default shall reasonably take more than thirty (30)
days to cure, Tenant shall not have commenced the same within the thirty (30)
days and diligently prosecuted the same to completion); or
d. Sixty (60) days have elapsed after the commencement of any proceeding by
or against Tenant, whether by the filing of a petition or otherwise, seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or future Federal Bankruptcy Act or any
other present or future applicable federal, state or other statute or law,
whereby such proceeding shall not have been dismissed (provided, however, that
the non-dismissal of any such proceeding shall not be a default hereunder so
long as all of Tenant's covenants and obligations hereunder are being performed
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by or on behalf of Tenant); then Landlord shall be entitled to its election
(unless Tenant shall cure such default prior to such election), to exercise
concurrently or successively, any one or more of the following rights:
i. Terminate this Lease by giving Tenant notice of termination, in which
event this Lease shall expire and terminate on the date specified in such notice
of termination, with the same force and effect as though the date so specified
were the date herein originally fixed as the termination date of the term of
this Lease, and all rights of Tenant under this Lease and in and to the Premises
shall expire and terminate, and Tenant shall remain liable for all obligations
under this Lease arising up to the date of such termination, and Tenant shall
surrender the Premises to Landlord on the date specified in such notice; or
ii. Terminate this Lease as provided herein and recover from Tenant all
damages Landlord may incur by reason of Tenant's default, including, without
limitation, a sum which, at the date of such termination, represents the then
value of the excess, if any, of (a) the Minimum Rent, Percentage Rent, Taxes and
all other sums which would have been payable hereunder by Tenant for the period
commencing with the day following the date of such termination and ending with
the date herein before set for the expiration of the full term hereby granted,
over (b) the aggregate reasonable rental value of the Premises for the same
period, all of which excess sum shall be deemed immediately due and payable; or
iii. Without terminating this Lease, declare immediately due and payable
all Minimum Rent, Taxes, and other rents and amounts due and coming due under
this Lease for the entire remaining term hereof, together with all other amounts
previously due, at once; provided, however, that such payment shall not be
deemed a penalty or liquidated damages but shall merely constitute payment in
advance of rent for the remainder of said term. Upon making such payment, Tenant
shall be entitled to receive from Landlord all rents received by Landlord from
other assignees, tenants, and subtenants on account of said Premises during the
term of this Lease, provided that the monies to which tenant shall so become
entitled shall in no event exceed the entire amount actually paid by Tenant to
Landlord pursuant to the preceding sentence less all costs, expenses and
attorney's fees of Landlord incurred in connection with the reletting of the
Premises; or
iv. Without terminating this Lease, and with or without notice to Tenant,
Landlord may in its own name but as agent for Tenant enter into and upon and
take possession of the Premises or any part thereof, and, at landlord's option,
remove persons and property therefrom, and such property, if any, may be removed
and stored in a warehouse or elsewhere at the cost of, and for the account of
Tenant, all without being deemed guilty of trespass or becoming liable for any
loss or damage which may be occasioned thereby, and Landlord may rent the
Premises or any portion thereof as the agent of Tenant with or without
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advertisement, and by private negotiations and for any term upon such terms and
conditions as Landlord may deem necessary or desirable in order to relet the
Premises. Landlord shall in no way be responsible or liable for any rental
concessions or any failure to rent the Premises or any part thereof, or for any
failure to collect any rent due upon such reletting. Upon such reletting, all
rentals received by Landlord from such reletting shall be applied: first, to the
payment of any indebtedness (other than any rent due hereunder) from Tenant to
Landlord; second, to the payment of any costs and expenses of such reletting,
including, without limitation, brokerage fees and attorney's fees and costs of
alterations and repairs; third, to the payment of rent and other charges then
due and unpaid hereunder; and the residue, if any shall be held by Landlord to
the extent of and for application in payment of future rent as the same may
become due and payable hereunder. In reletting the Premises as aforesaid,
Landlord may grant rent concessions and Tenant shall not be credited therefor.
If such rentals received from such reletting shall at any time or from time to
time be less than sufficient to pay to Landlord the entire sums then due from
Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such
deficiency shall, at Landlord's option, be calculated and paid monthly. No such
reletting shall be construed as an election by Landlord to terminate this Lease
unless a written notice of such election has been given to Tenant by Landlord.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this Lease for any such previous default provided
same has not been cured; or
v. Without liability to Tenant or any other party and without constituting
a constructive or actual eviction, suspend or discontinue furnishing or
rendering to Tenant any property, material, labor, Utilities or other service,
whether Landlord is obligated to furnish or render the same, so long as Tenant
is in default under this Lease; or
vi. Allow the Premises to remain unoccupied and collect rent from Tenant as
it comes due; or
vii. Foreclose the security interest described herein, including the
immediate taking of possession of all property on or in the Premises; or
viii. Pursue such other remedies as are available at law or equity.
e. Landlord's pursuit of any remedy of remedies, including without
limitation, any one or more of the remedies stated herein shall not (1)
constitute an election of remedies or preclude pursuit of any other remedy or
remedies provided in this Lease or any other remedy or remedies provided by law
or in equity, separately or concurrently or in any combination, or (2) sever as
the basis for any claim of constructive eviction, or allow Tenant to withhold
any payments under this Lease.
Section 2. LANDLORD'S Self Help. If in the performance or observance of any
---------------------
agreement or condition in this Lease contained on its part to be performed or
observed and shall not cure such default within thirty (30) days after notice
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from Landlord specifying the default (or if such default shall reasonably take
more than thirty (30) days to cure, shall diligently prosecuted the same to
completion), Landlord may, at its option, without waiving any claim for damages
for breach of agreement, at any time thereafter cure such default for the
account of Tenant, and any amount paid or contractual liability incurred by
Landlord in so doing shall be deemed paid or incurred for the account of Tenant
and Tenant agrees to reimburse Landlord therefor and save Landlord harmless
therefrom. Provided, however, that Landlord may cure any such default as
aforesaid prior to the expiration of said waiting period, without notice to
Tenant if any emergency situation exists, or after notice to Tenant, if the
curing of such default prior to the expiration of said waiting period is
reasonably necessary to protect the Leased Premises or Landlord's interest
therein, or to prevent injury or damage to persons or property. If Tenant shall
fail to reimburse Landlord upon demand for any amount paid for the account of
Tenant hereunder, said amount shall be added to and become due as a part of the
next payment of rent due and shall for all purposes be deemed and treated as
rent hereunder.
Section 3. TENANT'S Self-help. If Landlord shall default in the performance
------------------
or observance of any agreement or condition in this Lease contained on its part
to be performed or observed, and if Landlord shall not cure such default within
thirty (30) days after notice from Tenant specifying the default (or, if such
default shall reasonably take more than thirty (30) days to cure, and Landlord
shall not have commenced the same within the thirty (30) days and diligently
prosecuted the same to completion), Tenant may, at its option, without waiving
any claim for damages for breach of agreement, at any time thereafter cure such
default for the account of Landlord and any amount paid or any contractual
liability incurred by Tenant in so doing shall be deemed paid or incurred for
the account of Landlord and Landlord shall reimburse Tenant therefor and save
Tenant harmless therefrom. Provided, however, that Tenant may cure any such
default as aforesaid prior to the expiration of said waiting period, without
notice to Landlord if an emergency situation exists, or after notice to Landlord
, if the curing of such default prior to the expiration of said waiting period
is reasonably necessary to protect the Leased Premises or Tenant's interest
therein or to prevent injury or damage to persons or property. If Landlord shall
fail to reimburse Tenant upon demand for any amount paid or liability incurred
for the account of Landlord hereunder, said amount or liability may be deducted
by Tenant from the next or any succeeding payments of rent due hereunder;
provided, however, that should said amount or the liability therefor be disputed
by Landlord, Landlord may contest its liability or the amount thereof, through
arbitration or through a declaratory judgment action and Landlord shall bear the
cost of the filing fees therefor.
ARTICLE XVII - TITLE
--------------------
Section l. Subordination. Tenant shall, upon the request of Landlord in
-------------
writing, subordinate this Lease to the lien of any present or future
institutional mortgage upon the Leased Premises irrespective of the time of
execution or the time of recording of any such mortgage. Provided, however, that
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as a condition to such subordination, the holder of any such mortgage shall
enter first into a written agreement with Tenant in form suitable for recording
to the effect that:
a. in the event of foreclosure or other action taken under the mortgage by
the holder thereof, this Lease and the rights of Tenant hereunder shall not be
disturbed but shall continue in full force and effect so long as Tenant shall
not be in default hereunder, and
b. such holder shall permit insurance proceeds and condemnation proceeds to
be used for any restoration and repair required by the provisions of Articles
XIII, XIV or XV, respectively. Tenant agrees that if the mortgagee or any person
claiming under the mortgagee shall succeed to the interest of Landlord in this
Lease, Tenant will recognize said mortgagee or person as its Landlord under the
terms of this Lease, provided that said mortgagee or person for the period
during which said mortgagee or person respectively shall be in possession of the
Leased Premises and thereafter their respective successors in interest shall
assume all of the obligations of Landlord hereunder. The word "mortgage", as
used herein includes mortgages, deeds of trust or other similar instruments, and
modifications, and extensions thereof. The term "institutional mortgage" as used
in this Article XVII means a mortgage securing a loan from a bank (commercial or
savings) or trust company, insurance company or pension trust or any other
lender institutional in nature and constituting a lien upon the Leased Premises.
Section 2. Quiet Enjoyment. Landlord covenants and agrees that upon Tenant
---------------
paying the rent and observing and performing all of the terms, covenants and
conditions on Tenant's part to be observed and performed hereunder, that Tenant
may peaceably and quietly have, hold, occupy and enjoy the Leased Premises in
accordance with the terms of this Lease without hindrance or molestation from
Landlord or any persons lawfully claiming through Landlord.
Section 3. Zoning and Good Title. Landlord warrants and represents, upon
---------------------
which warranty and representation Tenant has relied in the execution of this
Lease, that Landlord is the owner of the Leased Premises, in fee simple
absolute, free and clear of all encumbrances, except for the easements,
covenants and restrictions of record as of the date of this Lease. Such
exceptions shall not impede or interfere with the quiet use and enjoyment of the
Leased Premises by Tenant. Landlord further warrants and covenants that this
Lease is and shall be a first lien on the Leased Premises, subject only to any
Mortgage to which this Lease is subordinate or may become subordinate pursuant
to an agreement executed by Tenant, and to such encumbrances as shall be caused
by the acts or omissions of Tenant; that Landlord has full right and lawful
authority to execute this Lease for the term, in the manner, and upon the
conditions and provisions herein contained; that there is no legal impediment to
the use of the Leased Premises as set out herein; that the Leased Premises are
not subject to any easements, restrictions, zoning ordinances or similar
governmental regulations which prevent their use as set out herein; that the
Leased Premises presently are zoned for the use contemplated herein and
throughout the term of this lease may continue to be so used therefor by virtue
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of said zoning, under the doctrine of "non-conforming use", or valid and binding
decision of appropriate authority, except, however, that said representation and
warranty by Landlord shall not be applicable in the event that Tenant's act or
omission shall invalidate the application of said zoning, the doctrine of
"non-conforming use" or the valid and binding decision of the appropriate
authority. Landlord shall furnish without expense to Tenant, within thirty (30)
days after written request therefor by Tenant, a title report covering the
Leased Premises showing the condition of title as of the date of such
certificate, provided, however, that Landlord's obligation hereunder shall be
limited to the furnishing of only one such title report.
Section 4. Licenses. It shall be the Tenant's responsibility to obtain any
--------
and all necessary licenses and the Landlord shall bear no responsibility
therefor; the Tenant shall promptly notify Landlord of the fact that it has
obtained the necessary licenses in order to prevent any delay to Landlord in
commencing construction of the Leased Premises.
ARTICLE XVIII - EXTENSIONS/WAIVERS/DISPUTES
Section l. Extension Period. Any extension hereof shall be subject to the
-----------------
provisions of Article III hereof.
Section 2. Holding Over. In the event that Tenant or anyone claiming under
------------
Tenant shall continue occupancy of the Leased Premises after the expiration of
the term of this Lease or any renewal or extension thereof without any agreement
in writing between Landlord and Tenant with respect thereto, such occupancy
shall not be deemed to extend or renew the term of the Lease, but such occupancy
shall continue as a tenancy at will, from month to month, upon the covenants,
provisions and conditions herein contained. The rental shall be the rental in
effect during the term of this Lease as extended or renewed, prorated and
payable for the period of such occupancy.
Section 3. Waivers. Failure of either party to complain of any act or
-------
omission on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any of its rights
hereunder. No waiver by either party at any time, express or implied, of any
breach of any provision of this Lease shall be deemed a waiver of a breach of
any other provision of this Lease or a consent to any subsequent breach of the
same or any other provision. If any action by either party shall require the
consent or approval of the other party, the other party's consent to or approval
of such action on any one occasion shall not be deemed a consent to or approval
of said action on any subsequent occasion or a consent to or approval of any
other action on the same or any subsequent occasion. Any and all rights and
remedies which either party may have under this Lease or by operation of law,
either at law or in equity, upon any breach, shall be distinct, separate and
cumulative and shall not be deemed inconsistent with each other, and no one of
them, whether exercised by said party or not, shall be deemed to be an exclusion
of any other; and any two or more or all of such rights and remedies may be
exercised at the same time.
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Section 4. Disputes. It is agreed that, if at any time a dispute shall arise
--------
as to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of the said party to institute suit for the recovery of such sum. If
it shall be adjudged that there was no legal obligation on the part of said
party to pay such sum or any part thereof, said party shall be entitled to
recover such sum or so much thereof as it was not legally required to pay under
the provisions of this Lease. If at any time a dispute shall arise between the
parties hereto as to any work to be performed by either of them under the
provisions hereof, the party against whom the obligation to perform the work is
asserted may perform such work and pay the costs thereof "under protest" and the
performance of such work shall in no event be regarded as a voluntary
performance and shall survive the right on the part of the said party to
institute suit for the recovery of the costs of such work. If it shall be
adjudged that there was no legal obligation on the part of the said party to
perform the same or any part thereof, said party shall be entitled to recover
the costs of such work or the cost of so much thereof as said party was not
legally required to perform under the provisions of this Lease and the amount so
paid by Tenant may be withheld or deducted by Tenant from any rents herein
reserved.
Section 5. TENANT'S Right to cure LANDLORD'S Default. In the event that
--------------------------------------------
Landlord shall fail, refuse or neglect to pay any mortgages, liens or
encumbrances, the judicial sale of which might affect the interest of Tenant
hereunder, or shall fail, refuse or neglect to pay any interest due or payable
on any such mortgage, lien or encumbrance, Tenant may pay said mortgages, liens
or encumbrances, or interest or perform said conditions and charge to Landlord
the amount so paid and withhold and deduct from any rents herein reserved such
amounts so paid, and any excess over and above the amounts of said rents shall
be paid by Landlord to Tenant.
Section 6. Notices. All notices and other communications authorized or
-------
required hereunder shall be in writing and shall be given by mailing the same by
certified mail, return receipt requested, postage prepaid, and any such notice
or other communication shall be deemed to have been given when received by the
party to whom such notice or other communication shall be addressed. If intended
for Landlord the same will be mailed to such address as Landlord may hereafter
designate by notice to Tenant, and if intended for Tenant, the same shall be
mailed to Tenant at such address as Tenant may hereafter designate by notice to
Landlord.
ARTICLE XIX - PROPERTY DAMAGE
-----------------------------
Section l. Loss and Damage. Notwithstanding any contrary provisions of this
---------------
Lease, Landlord shall not be responsible for any loss of or damage to property
of Tenant or of others located on the Leased Premises, except where caused by
the willful act or omission or negligence of Landlord , or Landlord's agents,
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<PAGE>
employees or contractors, provided, however, that if Tenant shall notify
Landlord in writing of repairs which are the responsibility of Landlord under
Article VII hereof, and Landlord shall fail to commence and diligently prosecute
to completion said repairs promptly after such notice, and if after the giving
of such notice and the occurrence of such failure, loss of or damage to Tenant's
property shall result from the condition as to which Landlord has been notified,
Landlord shall indemnify and hold harmless Tenant from any loss, cost or expense
arising therefrom.
Section 2. Force Majeure. In the event that Landlord or Tenant shall be
--------------
delayed or hindered in or prevented from the performance of any act other than
Tenant's obligation to make payments of rent, additional rent, and other charges
required hereunder, by reason of strikes, lockouts, unavailability of materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrections, the act, failure to act, or default of the other party, war or
other reason beyond its control, then performance of such act shall be excused
for the period of the delay and the period for the performance of such act shall
be extended for a period equivalent to the period of such delay. Notwithstanding
the foregoing, lack of funds shall not be deemed to be a cause beyond control of
either party.
ARTICLE XX - MISCELLANEOUS
--------------------------
Section 1. Assignment and Subletting. Under the terms and conditions
---------------------------
hereunder, Tenant shall have the absolute right to transfer and assign this
lease or to sublet all or any portion of the Leased Premises or to cease
operating Tenant's business on the Leased Premises provided that at the time of
such assignment or sublease Tenant shall not be in default in the performance
and observance of the obligations imposed upon Tenant hereunder, and in the
event that Tenant assigns or sublets this property for an amount in excess of
the rental amount then being paid, then Landlord shall require as further
consideration for the granting of the right to assign or sublet, a sum equal to
fifty (50%) percent of the difference between the amount of rental to be charged
by Tenant to Tenant's sublessee or assignee and the amount provided for herein,
payable in a manner consistent with the method of payment by the sublessee or
assignee to the Tenant, and/or fifty (50%) percent of the consideration paid or
to be paid to Tenant by Tenant's sublessee or assignee. Landlord must consent in
writing to any such sublessee or assignee, although such consent shall not be
unreasonably withheld. The use of the Leased Premises by such assignee or
sublessee shall be expressly limited by and to the provisions of this lease.
Section 2. Fixtures. All personal property, furnishings and equipment
---------
presently and all other trade fixtures installed in or hereafter by or at the
expense of Tenant and all additions and/or improvements, exclusive of
structural, mechanical, electrical, and plumbing, affixed to the Leased Premises
and used in the operation of the Tenant's business made to, in or on the Leased
Premises by and at the expense of Tenant and susceptible of being removed from
the Leased Premises without damage, unless such damage be repaired by Tenant,
52
<PAGE>
shall remain the property of Tenant and Tenant may, but shall not be obligated
to, remove the same or any part thereof at any time or times during the term
hereof, provided that Tenant, at its sole cost and expense, shall make any
repairs occasioned by such removal.
Section 3. Estoppel Certificates. At any time and from time to time,
----------------------
Landlord and Tenant each agree, upon request in writing from the other, to
execute, acknowledge and deliver to the other or to any person designated by the
other a statement in writing certifying that the Lease is unmodified and is in
full force and effect, or if there have been modifications, that the same is in
full force and effect as modified (stating the modifications), that the other
party is not in default in the performance of its covenants hereunder, or if
there have been such defaults, specifying the same, and the dates to which the
rent and other charges have been paid.
Section 4. Invalidity of Particular Provision. If any term or provision of
-----------------------------------
this Lease or the application hereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
Section 5. Captions and Definitions of Parties. The captions of the Sections
-----------------------------------
of this Lease are for convenience only and are not a part of this Lease and do
not in any way limit or amplify the terms and provisions of this Lease. The word
"Landlord" and the pronouns referring thereto, shall mean, where the context so
admits or requires, the persons, firm or corporation named herein as Landlord or
the mortgagee in possession at any time, of the land and building comprising the
Leased Premises. If there is more than one Landlord, the covenants of Landlord
shall be the joint and several obligations of each of them, and if Landlord is a
partnership, the covenants of Landlord shall be the joint and several
obligations of each of the partners and the obligations of the firm. Any pronoun
shall be read in the singular or plural and in such gender as the context may
require. Except as in this Lease otherwise provided, the terms and provisions of
this Lease shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Nothing contained herein shall be
deemed or construed by the parties hereto nor by any third party as creating the
relationship of principal and agent or of partnership or of a joint venture
between the parties hereto, it being understood and agreed that neither any
provision contained herein, nor any acts of the parties hereto, shall be deemed
to create any relationship between the parties hereto other than the
relationship of Landlord and Tenant.
Section 6. Brokerage. No party has acted as, by or through a broker in the
---------
effectuation of this Agreement.
Section 7. Notice on Radon Gas. Radon is a naturally occurring radioactive
-------------------
gas that, when it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over time. Levels of radon
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<PAGE>
that exceed federal and state guidelines have been found in buildings in this
state. Additional information regarding radon and radon testing may be obtained
from your county public health unit.
Section 8. Entire Agreement. This instrument contains the entire and only
-----------------
agreement between the parties, and no oral statements or representations or
prior written matter not contained in this instrument shall have any force and
effect. This Lease shall not be modified in any way except by a writing executed
by both parties.
Section 9. Governing Law. All matters pertaining to this agreement
---------------
(including its interpretation, application, validity, performance and breach) in
whatever jurisdiction action may be brought, shall be governed by, construed and
enforced in accordance with the laws of the State of New York. The parties
herein waive trial by jury and agree to submit to the personal jurisdiction and
venue of a court of subject matter jurisdiction located in Nassau County, State
of New York. In the event of litigation results from or arises out of this
Agreement or the performance thereof, the parties agree to reimburse the
prevailing party's reasonable attorney's fees, court costs, and all other
expenses, whether or not taxable by the court as costs, in addition to any other
relief to which the prevailing party may be entitled. In such event, no action
shall be entertained by said court or any court of competent jurisdiction if
filed more than one year subsequent to the date the cause(s) of action actually
accrued regardless of whether damages were otherwise as of said time calculable.
Section 10. Waiver by Tenant. Tenant hereby waives any and all right to
------------------
assert affirmative defenses or counterclaims in any eviction action instituted
by Landlord with the exception of an affirmative defense based upon payment of
all amounts claimed by Landlord not to have been paid by Tenant. Any other
matters may only be advanced by a separate suit instituted by Tenant.
Section 11. Contractual Procedures. Unless specifically disallowed by law,
-----------------------
should litigation arise hereunder, service of process therefor may be obtained
through certified mail, return receipt requested, the parties hereto waiving any
and all rights they may have to object to the method by which service was
perfected.
Section 12. Extraordinary remedies. To the extent cognizable at law, the
-----------------------
parties hereto, in the event of breach and in addition to any and all other
remedies available thereto, may obtain injunctive relief, regardless of whether
the injured party can demonstrate that no adequate remedy exists at law.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written or have caused this lease to be executed by their
respective officers thereunto duly authorized.
Signed, sealed and delivered in the presence of:
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Witness /s/Peter N. Schiller
--------------------------
By:
/s/Edwin H. Wegman Wilbur St. Corp.
- -----------------------------
President
Witness s/Peter N. Schiller
--------------------------
By:
/s/Albert Horcher Advance Biofactures Corp.
Secretary, Treasurer
55
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "Agreement") is entered into as of
October 10, 1997, by and between BIOSPECIFICS TECHNOLGIES CORP., a Delaware
corporation (the "Company"), and STEPHEN A. VOGEL, whose principal office is
located at 477 Madison Avenue, 14th Floor, New York, New York 10022 (the
"Consultant").
WHEREAS, the Company deems it useful and in the best interests of the
Company to have the benefit of the Consultant's services and experience as a
consultant; and
WHEREAS, the Consultant has indicated his willingness to provide his
services and experience as a consultant on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and of the covenants
and agreements contained herein, the parties hereby agree as follows:
1. Engagement. The Company hereby retains the Consulting Services (as
hereinafter defined) of the Consultant, and the Consultant hereby
agrees to do and perform the Consulting Services, upon the terms and
conditions set forth herein.
2. Extent of Service. During the Consulting Term (as hereinafter
defined), the Consultant shall perform and discharge well and
faithfully the consulting services (the "Consulting Services"), which
shall include but not be limited to:
(a) assisting the Company in fostering its relationship with existing
and potential investors;
(b) analyzing the business prospects of the Company and its products
in order to provide strategic advice to the Company and make
recommendations to the officers and directors of the Company
regarding the possibility and advisability of financing the
exploration and development of new products;
(c) seeking financing for, and organizing the structure of, a joint
venture or other entity for the development of new products
relating to a cure for the Dupuytren Contracture and other
products developed by the Company, on terms acceptable to the
Company (collectively, the "New Product Financing"); and
(d) executing and completing such other assignments that are, from
time to time, assigned to the Consultant by the Company in
connection with financial matters relating to the Company's
business.
<PAGE>
In performing the Consulting Services, the Consultant shall be
available to the officers and directors of the Company by telephone or
in person at reasonable times, and shall confer at least weekly with
the President and other officers of the Company as to his progress on
any particular project or projects, as well as the time commitment
required for any potential project. It is agreed by the Consultant and
the Company that the Consulting Services will require a time
commitment on the part of the Consultant of no less than 20 hours per
month. The Consultant agrees to keep timely and accurate records
memorializing the amount of time and activities of the Consultant in
providing the Consulting Services. The Consultant agrees to prepare
periodically a plan of action that will be submitted to the Board of
Directors of the Company.
3. Compensation and Expenses. For services rendered pursuant to this
Agreement, the Company shall:
(a) pay the Consultant a fee of $10,000 per month, payable on the
first day of each calendar month (prorated by day for any partial
months) from the date hereof and throughout the Consulting Term
(as defined herein) unless this Agreement is terminated sooner
pursuant to the terms hereof;
(b) grant the Consultant options (the "Initial Options") to purchase
100,000 shares of common stock (the "Shares") of the Company at
an exercise price equal to the greater of (i) the closing price
of the Shares on the date hereof and (ii) the average closing
price of the Shares for the 30 trading days preceding the date
hereof, which options shall not be exercisable, except as
otherwise provided herein, until the one-year anniversary date of
the date hereof and shall expire 90 days after such one-year
anniversary date; provided, however, that if this Agreement is
terminated for cause by the Consultant as a nondefaulting party
in accordance with Section 5, such options will be immediately
exercisable on the date such termination becomes effective and
shall expire 90 days after the one-year anniversary date of the
date hereof; and
(c) promptly after the funding and consummation of the New Product
Financing in an amount satisfactory to the Company (the "Approved
Amount"), which is secured primarily through the efforts of the
Consultant during the Consulting Term, (i) pay the Consultant an
amount in cash equal to 7% of the Approved Amount, or such other
amount as the Company and the Consultant may agree to in writing,
and (ii) grant the Consultant options to purchase an additional
100,000 Shares at an exercise price equal to the average closing
price of the Shares for the 30 trading days preceding the date of
the grant of such options, which options shall be immediately
exercisable on the date of such grant and will expire 90 days
after the one-year anniversary date of the date of such grant
(such cash payment and additional options, the "Additional
Compensation").
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<PAGE>
The options to purchase Shares referred to in paragraphs (b) and
(c) of this Section 3 shall include standard capital reorganization
and price protection provisions normally found in stock options.
Notwithstanding the foregoing, the Consultant shall be entitled to the
Additional Compensation if the New Product Financing is consummated
(i) after the Consulting Term but within a period of one year after
the Consulting Term, and (ii) pursuant to an offering memorandum,
prospectus or similar offering document (x) that the Consultant
prepared, or directed the preparation of, or (y) which contains a
proposal or substantially similar proposal to that recommended to the
Company by the Consultant.
The Company shall bear, be responsible and reimburse the
Consultant for all his out-of-pocket and other expenses incurred
connection with rendering the Consulting Services. To the extent
possible, such expenses shall be pre-cleared with the Company.
4. Term. The term of this Agreement (the "Consulting Term") shall
commence on the date hereof, and shall continue for twelve (12) months
from the date hereof, unless this Agreement is terminated in
accordance with the provisions hereof before such time. Unless either
the Consultant or the Company, as the case may be, shall notify the
other party in writing at least 30 days before the expiration of the
Consulting Term (or any extension thereof), that such party does not
wish to continue this Agreement, it shall be renewed for consecutive
one-year periods on the same terms and conditions provided in this
Agreement.
5. Termination for Cause. The nondefaulting party shall have the right to
terminate this Agreement during the Consulting Term (or any extension
thereof) upon the occurrence of any of the following events, and the
expiration of any applicable period of cure: (a) with respect to the
Consultant, any act constituting gross negligence or bad faith, a
criminal conviction; or material non-performance of the Consulting
Services; (b) the failure of a party to comply with any other term or
condition of this Agreement within ten (10) days after written notice
specifying the nature of such default, without cure; and (c) any
attempt by the Consultant to assign or otherwise transfer the
Consultant's rights and obligations hereunder.
6. No Agency. The parties expressly intend and agree that the Consultant
shall not be, and shall not hold himself out as being, an agent of the
Company. The Consultant shall have no authority to bind the Company to
any agreement or obligation, express or implied. The Consultant shall
not have the authority to, and shall not, sell or solicit sales of
products manufactured by the Company.
3
<PAGE>
7. Independent Contractor. The parties expressly intend and agree that
the Consultant is acting as an independent contractor and not as an
affiliate of the Company nor as an agent of the Company. The
Consultant retains sole and absolute discretion, control, and judgment
in the manner and means of carrying out the assignment. This Agreement
shall not be construed as a partnership agreement. However, this
provision does not preclude the possibility of the Consultant
performing executive duties for the Company such as acting as the
Treasurer of the Company, or becoming a member of the Board of the
Directors of the Company.
8. Indemnification.
(a) The Company agrees to hold the Consultant harmless against, and
indemnify him for any and all losses, claims, damages,
liabilities, obligations, penalties, judgments, awards, costs,
disbursements or expenses (collectively, "Losses") to any such
person in connection with, arising out of, or as a result,
directly or indirectly, of (i) matters arising as a result of the
Consultant's performance of the Consulting Services, or (ii) the
breach by the Company of this Agreement; except that the Company
shall neither hold harmless nor indemnify the Consultant under
this Section 8 in the event that such Losses are finally
judicially determined to have resulted from the gross negligence,
bad faith, unlawful acts or omissions or willful misconduct of
the Consultant.
(b) The Consultant agrees to hold the Company harmless against, and
indemnify the Company for, any Losses incurred by the Company in
connection with, arising out of, or as a result, directly or
indirectly, of (i) the breach by the Consultant of this
Agreement, (ii) the gross negligence, bad faith, unlawful acts or
omissions, or willful misconduct of the Consultant or any of the
Consultant's agents or (iii) disclosure or use of Trade Secrets
of the Company by unauthorized persons in violation of Section 9
of this Agreement.
9. Confidentiality.
(a) The Consultant recognizes the proprietary interest of the Company
in any Trade Secrets of the Company. As used herein, the term
"Trade Secrets" includes all of the Company's confidential or
proprietary information, including without limitation any
confidential information of the Company encompassed in any
reports, investigations, experiments, research or development
work, experimental work, work in progress, drawings, designs,
plans, proposals, codes, marketing and sales programs, financial
projections, cost summaries, pricing formulae, and all concepts
or ideas, materials or information related to the business,
products, or operations of the Company or the Company's customers
4
<PAGE>
which has not previously been released to the public at large by
duly authorized representatives of the Company, whether or not
such information would be enforceable as a trade secret or the
copying of which would be enjoined or restrained by a court as
constituting unfair competition. The Consultant acknowledges and
agrees, on behalf of himself and his agents, that any and all
Trade Secrets of the Company, learned by the Consultant during
the Consulting Term or otherwise, whether developed by the
Consultant alone or in conjunction with others or otherwise,
shall be and are the sole property of the Company.
(b) The Consultant acknowledges and agrees that the Company is
entitled to prevent the disclosure of Trade Secrets of the
Company. As a portion of the consideration for the appointment of
the Consultant and for the compensation being paid to the
Consultant by the Company, the Consultant, on behalf of himself
and his agents, agrees at all times during the Consulting Term
and thereafter to hold in strictest confidence, and not to
disclose or allow to be disclosed to any person, firm, or
corporation, other than to persons engaged by the Company to
further the business of the Company, and not to use except in the
pursuit of the business of the Company, Trade Secrets of the
Company, without the prior written consent of the Company,
including Trade Secrets developed by the Consultant, unless the
Consultant is required by a court of competent jurisdiction, by
any governmental agency having supervisory authority over the
business of the Consultant, or by any administrative body or
legislative body (including committees thereof) with jurisdiction
to order the Consultant to divulge, disclose or make accessible
such information.
10. Return of Materials at Termination. At the conclusion of the
Consulting Term or at such sooner time as the Agreement shall
terminate, the Consultant will promptly deliver to the Company
originals and copies of all materials, property, documents, data, and
other information belonging to the Company or pertaining to Trade
Secrets. The Consultant shall not take any materials, property,
documents or other information, or any reproduction or excerpt
thereof, belonging to the Company or containing on pertaining to any
Trade Secrets.
11. Remedies Upon Breach. In the event of any breach of this Agreement by
the Consultant, the Company shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to enjoin the Consultant
from violating any of the terms of this Agreement, to enforce the
specific performance by the Consultant of any of the terms of this
Agreement, and to obtain damages, or any of the above, but nothing
herein contained shall be construed to prevent such remedy or
combination of remedies as the Company may, in his discretion, choose
to invoke. The failure of the Company to promptly institute such
proceedings upon any breach of this Agreement shall not constitute a
5
<PAGE>
waiver of that or any other breach hereof. In the event of any breach
of this Agreement by the Company, the Consultant shall be entitled, if
he so elects, to institute and prosecute proceedings in any court of
competent jurisdiction, and the failure of the Consultant to promptly
initiate such proceedings shall not constitute a waiver of any breach
hereof.
12. Governing law. This Agreement shall be interpreted, construed,
governed and enforced according to the laws of the State of New York.
13. Attorneys' Fees. In the event of any litigation concerning any
controversy, claim or dispute between the parties hereto arising out
of or relating to this Agreement or the breach hereof, or the
interpretation hereof, the prevailing party shall be entitled to
recover from the losing party reasonable expenses, attorneys' fees,
and costs incurred therein or in the enforcement or collection of any
judgment or award rendered therein. The "prevailing party" means the
party determined by the court to have most nearly prevailed, even if
such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered. In the event of any default by a
party under this Agreement, such defaulting party shall pay all the
expenses and attorneys' fees incurred by the other party in connection
with such default, whether or not any litigation is commenced.
14. Amendments. No amendment or modification of the terms or conditions of
this Agreement shall be valid unless in writing and signed by the
parties hereto.
15. Change in Control; Successors and Assigns.
(a) In the event that any person or entity shall have the right to
elect a majority of the Board of Directors of the Company other
than Mr. Edwin H. Wegman, the Chairman and President of the
Company, or his heirs, legatees, devisees or legal
representatives, the Consultant shall have the right to terminate
this Agreement by notifying the Company (or successor thereof) in
writing of the Consultant's intention to terminate the Agreement
and the termination shall become effective when the Company (or
successor thereof) receives such notification.
(b) If the Consultant exercises the termination right provided in
paragraph (a) of this Section 15, (i) he shall be entitled only
to the compensation provided for in paragraph (a) of Section 3
hereof earned by him through the date of such termination, and
(ii) the Initial Options shall become exercisable on the date of
such termination on the same the terms.
(c) The Consultant shall not be entitled to assign any of the
Consultant's rights or obligations under this Agreement.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the appointment of the Consultant.
6
<PAGE>
17. Notices. All notices, offers, acceptances, approvals, waivers,
requests, demands and other communications hereunder shall be in
writing, and shall be considered as properly given (a) if delivered in
person, (b) if sent by a reputable overnight delivery service, (c) in
the event overnight delivery services are not readily available, if
mailed by first class United States mail, postage prepaid, registered
or certified with return receipt requested, (d) if sent by prepaid
telegram or by telex and transmission facility and confirmed in
writing by any other manner described above. Notice so mailed shall be
effective upon the earlier of actual receipt or the expiration of five
(5) business days after its deposit. Notice given in any other manner
shall be effective upon receipt by the addressee; provided, however,
-------- -------
that is any notice is tendered to an addressee and the delivery
thereof is refused by such addressee, such notice shall be effective
upon such tender.
18. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
19. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
BIOSPECIFICS TECHNOLOGIES CORP.
By: ________________________
Name:
Title:
STEPHEN A. VOGEL
---------------------------
8
Independent Auditors' Consent
The Board of Directors
BioSpecifics Technologies Corp.:
We consent to incorporation by reference in the Registration Statements No.
33-95116 and No. 333-36485 on Form S-8 of BioSpecifics Technologies Corp. of our
report dated April 22, 1998, relating to the consolidated balance sheet of
BioSpecifics Technologies Corp. and subsidiaries as of January 31, 1998 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the two-year period ended January 31, 1998, which
report appears in the January 31, 1998 annual report on Form 10-KSB of
BioSpecifics Technologies Corp.
KPMG PEAT MARWICK LLP
Jericho, New York
May 6, 1998
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