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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1997
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OR
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 0-19651
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MAGAININ PHARMACEUTICALS INC.
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(Exact name of registrant as specified in its charter.)
Delaware 13-3445668
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5110 Campus Drive, Plymouth Meeting, PA 19462
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 941-4020
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None N/A
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(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.002 par value per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $158,602,000. Such aggregate market value was
computed by reference to the closing price of the Common Stock as reported on
the National Market System of The Nasdaq Stock Market, on March 5, 1998. For
purposes of this calculation only, the registrant has defined affiliates as
including all directors and executive officers. The number of shares of the
registrant's Common Stock outstanding as of March 5, 1998 was 22,105,130.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Registrant's 1998 Annual
Meeting of Stockholders to be filed within 120 days after the end of the fiscal
year covered by this Annual Report on Form 10-K are incorporated by reference
into Part III of this Form 10-K.
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MAGAININ PHARMACEUTICALS INC.
INDEX TO FORM 10-K
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DESCRIPTION PAGE NO
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PART I
ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 24
ITEM 3 LEGAL PROCEEDINGS 24
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 24
MATTERS
ITEM 6 SELECTED FINANCIAL DATA 26
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION 27
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 31
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 31
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 31
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 32
ITEM 11 EXECUTIVE COMPENSATION 32
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 32
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 32
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 32
INDEX TO FINANCIAL STATEMENTS F-1
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ITEM 1 BUSINESS
GENERAL
Magainin Pharmaceuticals Inc. ("Magainin" or the "Company") is a
biopharmaceutical company engaged in the development of medicines for serious
diseases. The Company's development efforts are focused on anti-infectives,
oncology, and pulmonary and allergic disorders.
Magainin's research and drug development efforts are focused on two
technology platforms:
- Host Defense Drug Discovery--the Company isolates and develops
therapeutically active compounds from the host defense systems of
animals. Magainin peptides represent a new class of antibiotics being
developed for the treatment of infection. The Company's second host
defense class, aminosterols, is a new class of pharmaceuticals which
the Company believes may have multiple applications, including the
control of cell proliferation.
- Asthma Genomics--the Company employs a broad range of genomics
techniques to identify genes associated with the pathogenesis of
asthma, with the objective of utilizing the optimal biologic gene
targets in the development of novel therapeutics for asthma and
allergy.
Magainin Peptides--Cytolex(TM)
The Company's most advanced class of compounds under development are
magainin peptides. Discovered in the skin of the African clawed frog, magainins
have demonstrated broad activity against a variety of pathogens in preclinical
studies. These molecules act by puncturing the membrane of the pathogen cell,
resulting in the death of the pathogen.
The Company's lead product development candidate is Cytolex(TM)
(formerly called MSI-78), a topical cream antibiotic. The Company has completed
two pivotal Phase III clinical trials of Cytolex for the treatment of infection
in diabetic foot ulcers. These studies were designed as equivalence trials, with
the goal of demonstrating that topically applied Cytolex is as effective as
orally administered ofloxacin, a quinolone antibiotic indicated for the
treatment of infection, including skin and soft tissue infections. The Company
intends to submit a New Drug Application ("NDA") to the U.S. Food and Drug
Administration (the "FDA") based on the results of these trials early in the
second half of 1998. See Item 1 -- Risk Factors: "Risks Associated with Clinical
Testing and FDA Approval of Cytolex."
In February 1997, the Company and SmithKline Beecham ("SB") entered
into a development, supply and distribution agreement pursuant to which SB will
market and sell Cytolex in North America. Under this agreement, SB has paid $10
million to the Company, and may make additional payments of up to $22.5 million
upon the occurrence of certain product milestones. SB will also fund a majority
of development expenses for any additional indications for Cytolex.
Cytolex(TM) is a registered trademark of the Company. All other
brand names or trademarks appearing herein are the property of their respective
holders.
Aminosterols--Squalamine
Squalamine is the lead product development candidate in the Company's
aminosterol program. Squalamine was discovered in the body tissues of the
dogfish shark. The shark was initially examined because of its known resistance
to infection and cancer. Since the discovery of squalamine, the Company has
discovered several other aminosterol compounds in the shark. In preclinical
testing conducted to date, certain of these compounds have demonstrated an
ability to control cell growth, along with other pharmacological properties.
These properties may have application in the treatment of disease indications
characterized by cell proliferation, such as cancer.
The Company's initial disease focus for squalamine is solid tumors.
The formation of new blood vessels, or angiogenesis, is believed to be a
critical factor in tumor growth. Squalamine may be of benefit in the
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treatment of a number of solid tumors by inhibition of new blood vessel growth
required for tumor nourishment.
The Company is currently conducting Phase I clinical testing of
squalamine in patients with advanced malignancy.
Asthma Genomics
In 1996, the Company initiated a research program in the genomics of
asthma. These efforts led to the identification of AAF1, a gene which varies in
DNA structure and function in asthmatic and allergic humans and animals. The
Company maintains a comprehensive research and development program to identify
additional genes in the AAF1 biologic pathway, which genes are believed to be
important in mediating the allergic responses controlled by AAF1. AAF2 has been
discovered in humans as a key second gene candidate in the AAF1 pathway, and
other genes have also been identified by the Company. The Company continues to
investigate the role of such genes in the allergic inflammatory response.
Since commencing operations, the Company has not generated any
sales revenue. The Company has funded operations primarily from the proceeds
of public and private placements of securities. The Company has incurred
losses in each year since its inception, and expects to incur substantial
additional losses for the next several years. The Company currently has no
marketable products, and it may be several years, if ever, until marketable
products are developed and approved.
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RISK FACTORS
The Company's business is subject to a number of risks and
uncertainties. In addition to the other information contained in this Annual
Report on Form 10-K, the following risk factors should be carefully considered.
Risks Associated with Clinical Testing and FDA Approval of Cytolex. The
Company has completed two pivotal Phase III clinical trials of Cytolex for the
treatment of infection in diabetic foot ulcers and intends to submit an NDA to
the FDA based on the results of these trials early in the second half of 1998.
Although the Company believes the two pivotal trials conducted for Cytolex
yielded successful results, there can be no assurance that the FDA will concur
with the Company's analysis in this regard.
The clinical trials conducted for Cytolex yielded substantial data
including data relating to clinical cure or improvement of infection, and data
relating to overall microbiological results. The Company's data package will
include extensive additional data, including clinical data on key patient
cohorts (subgroups), and microbiology data for specific pathogens. Certain of
the data favor ofloxacin. Additionally, the Company is continuing its analyses
of data from the studies.
There can be no assurance that Cytolex will receive FDA approval on a
timely basis, if at all. The guidelines pursuant to which clinical trials of
this nature are to be conducted have evolved since the commencement of these
studies by the Company. There can be no assurance that the FDA will not, after
completing its own analysis of the two pivotal trials conducted for Cytolex,
determine that such trials should have been conducted or analyzed differently,
and thus reach a different conclusion from that reached by the Company or
request that further studies be conducted. Conducting additional studies would
likely be time consuming and expensive. The failure of the Company to obtain FDA
approval for Cytolex, any significant delay in obtaining such approval, or the
imposition of highly restrictive conditions on such approval, would have a
material adverse effect on the Company.
Accumulated Deficit; Continuing Losses. The Company has been engaged
to date primarily in research and development activities and, through December
31, 1997, has generated no revenue from product sales. The Company has incurred
losses in each year since its inception, and at December 31, 1997, had an
accumulated deficit of approximately $109.6 million. There can be no assurance
that the Company will realize product revenues on a timely basis, if at all.
The Company's operations are subject to numerous risks associated with research
and development companies, including a competitive and regulatory environment
in an industry characterized by numerous well-established and well-capitalized
companies and exhaustive and expensive regulatory scrutiny. The Company will be
required to continue to conduct significant research, development and testing
activities which, together with projected general and administrative expenses,
are expected to result in continued substantial losses for the foreseeable
future.
Need for Substantial Additional Funds. The Company will require
substantial additional funds to continue its research and development programs
and to commercialize potential products. The Company may not have sufficient
funds to complete development activities for any of its proposed products,
including Cytolex.
The Company intends to seek additional funding through a combination
of future offerings of securities and collaborative arrangements with third
parties, and regularly explores alternatives in this regard. The Company does
not have any commitments to obtain any additional funds and has no established
banking arrangements through which it can obtain additional debt financing.
There can be no assurance that future funding will be available to the Company,
or, if available, will be obtainable on terms favorable to the Company. The
receipt of funding, if any, from any corporate partners, including SB, will
depend largely on the progress of research and development programs. Under
collaborative arrangements, the Company may convey marketing, distribution,
manufacturing, development or other rights to its proposed products to
pharmaceutical companies in order to receive financial or other assistance.
This will result in lower consideration to the Company upon
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commercialization of such products than if no arrangements were entered into or
if such arrangements were entered into at later stages in the product
development process. There can be no assurance that the Company will be able to
enter into such arrangements on favorable terms, if at all.
If the Company does not enter into appropriate collaborations, receive
additional funds from SB under its current agreement, or raise sufficient funds
from the periodic sale of securities, the Company will be required to delay or
eliminate expenditures for potential products, including Cytolex, or to enter
into collaborations with third parties to commercialize potential products or
technologies that the Company would otherwise seek to develop itself, or seek
other arrangements.
Manufacturing Uncertainties; Dependence on Third Parties. The
Company does not have the resources, facilities or capabilities to manufacture
any of its proposed products. The Company has no current plans to establish a
manufacturing facility. The Company expects that it will be dependent to a
significant extent on contract manufacturers for commercial scale manufacturing
of its proposed products in accordance with regulatory standards. The Company's
dependence on third parties for manufacturing may adversely affect operating
results as well as the Company's ability to develop and deliver products on a
timely and competitive basis. Production of peptides (such as Cytolex and other
magainins) is expensive relative to production of traditional antibiotics.
Additionally, there are a limited number of companies which are currently able
to produce bulk peptides on the scale which the Company expects to require to
commercialize Cytolex. There can be no assurance that qualified outside
contractors will be available to manufacture materials for the Company, or do
so at costs which are affordable by the Company.
Contract manufacturers may utilize their own technology, technology
developed by the Company, or technology acquired or licensed from third
parties. When contract manufacturers develop proprietary process technology and
have ownership of the Drug Master File, the Company's reliance on such contract
manufacturer is increased, and the Company may have to obtain a license from
such contract manufacturer to have its products manufactured by another party.
Technology transfer from the original contract manufacturer may also be
required. There can be no assurance that any such license will be available on
terms acceptable to the Company, or, if available, that such technology will be
successfully transferred to the Company. Any such technology transfer may also
require transfer of requisite data for regulatory purposes, including
information contained in a proprietary Drug Master File held by a contract
manufacturer. There can be no assurance that any such transfer can be
completed.
The Company is working with Abbott Laboratories ("Abbott") with regard
to development by Abbott of a solution phase chemical process to manufacture
bulk drug substance for Cytolex on a commercial scale. The Company is currently
dependent upon Abbott for the production of bulk drug substance for Cytolex. In
the event that bulk drug substance for Cytolex is not manufactured at Abbott,
the Company will need to secure other manufacturing arrangements. The process
developed by Abbott is proprietary, and in the event the Company desires to
utilize, or have another party utilize, such technology, the Company would be
required to make license payments to Abbott. Further progress in scale-up and
manufacturing development efforts will be required to enable the Company to
manufacture and sell Cytolex on a profitable basis. This may require
substantial additional funds. The Company has certain efforts underway with
respect to alternative manufacturing sources, including recombinant
manufacturing; however, these programs are at an early stage, and significant
expenditures over an extended period of time will be required to develop a
commercially viable process. No assurance can be given that a cost-effective
manufacturing process can ultimately be developed, or that any such process
would be approved by the FDA, or that the Company, Abbott, or others will be
able to manufacture Cytolex on a commercially viable basis.
The Company also expects to conduct significant manufacturing
development activities for its other products under development. The Company is
currently working with outside contractors for the chemical production of
squalamine. The Company expects to expend significant resources in the
production of squalamine and any other compounds under development, and there
can be no assurance that these efforts will be successful.
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Dependence on Sales and Marketing Partners; Marketing Uncertainties.
In order to successfully develop and market its products, it will be necessary
for the Company to enter into marketing, distribution, development or other
arrangements with third parties, granting marketing rights, which may be
exclusive, to potential products. The Company has entered into such an
arrangement with SB with respect to Cytolex in North America, and intends to
seek a sales and marketing collaboration for Cytolex in other territories. Such
sales and marketing arrangements may also involve delegating to the Company's
partner in such collaborations the responsibility for all or a significant
portion of the development and regulatory approval process. In the event that
such collaborators do not develop an approvable or marketable product or do not
market a product successfully, the Company's business will be adversely
affected. There can be no assurance that the Company will be able to enter into
any such arrangements in the future, or that such collaborations will be
successful.
The amount and timing of resources to be devoted to the Company's
products by any of its collaborative partners is not within the control of the
Company. There can be no assurance that the interests of the Company will
continue to coincide with the interests of its collaborators. Collaborators
could develop products independently or through third parties which could
compete with the Company's proposed products. With respect to Cytolex, SB
maintains a significant presence in the antibiotic area, and currently sells a
topical antibiotic product indicated for the treatment of certain skin
infections. Furthermore, SB may unilaterally terminate its agreement with the
Company. There can be no assurance that any of the Company's collaborative
agreements will not be terminated by the Company's collaborators.
For certain products under development, the Company may conduct its
own marketing activities through its own sales force. The Company has no
marketing and sales staff and, although certain members of management have
experience in the marketing of pharmaceutical products, the Company has no
experience with respect to marketing its proposed products. Significant
additional expenditures, management resources and time will be required to
develop a sales force, and there can be no assurance that the Company will be
successful either in developing a sales force or penetrating the markets for
any proposed products it may develop.
Technological Uncertainty and Early Stage of Product Development.
There can be no assurance that the Company's research and development
activities will be successful, that any products under development will be
approved or will be commercially viable and successfully marketed, or that the
Company will ever achieve significant levels of revenue or profits. In
addition, the Company may encounter unanticipated problems, including
development, regulatory, manufacturing and marketing difficulties, some of
which may be beyond the Company's ability to resolve.
There has been only limited research in the area of the use of
naturally occurring host defense compounds for the treatment of infectious and
other diseases. The Company has submitted an Investigational New Drug
Application ("IND") to the FDA, to obtain authorization for human testing, for
only two compounds, Cytolex and squalamine. The Company's research activities
in asthma have only recently been initiated, and there can be no assurance that
any product candidates will result from these efforts. Additionally, there can
be no assurance that results obtained in preclinical studies will be indicative
of results that will be obtained in human clinical testing.
The Company's proposed products are in the developmental stage,
require significant further research, development, testing and regulatory
approvals and are subject to the risks of failure inherent in the development
of all pharmaceutical products. These risks include the possibilities that any
or all of the proposed products are found to be ineffective or toxic, or
otherwise fail to receive necessary regulatory approvals, that the proposed
products, although effective, are uneconomical to manufacture or to market,
that third parties hold proprietary rights that preclude the Company from
marketing any products, or that third parties market superior or equivalent
products.
No Assurance of Market Acceptance of Cytolex. Even if the requisite
regulatory approvals for Cytolex are obtained, there is no assurance that such
product would be accepted in the United States or foreign markets. A number of
factors may affect the rate and overall market acceptance of Cytolex, including
the perception by physicians and other members of the health care community of
the safety and efficacy of Cytolex on an absolute
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basis or in comparison to other drugs, the price of Cytolex relative to other
drugs or competing treatment modalities, the availability of third-party
reimbursement, and the effectiveness of the sales and marketing efforts by SB
and the Company relative to the sales and marketing efforts of competitors. In
addition, side effects or unfavorable publicity concerning Cytolex or
comparable drugs on the market could have an adverse effect on the Company's
ability to obtain physician, patient or third-party payor acceptance.
Government Regulation. The production and marketing of the Company's
products and its research and development activities are subject to regulation
by numerous governmental authorities in the United States and other countries.
In the United States, drug products are subject to rigorous review by the FDA.
The Federal Food, Drug, and Cosmetic Act and other federal statutes and
regulations govern or influence the testing, manufacture, safety, efficacy,
labeling, storage, recordkeeping, approval, advertising, promotion and
distribution of such products. Noncompliance with applicable requirements can
result in Warning Letters, fines, recall or seizure of products, refusal of the
government to approve marketing applications or to allow the Company to enter
into government supply contracts, the withdrawal of previously approved new
drug applications and criminal prosecution.
In order to obtain FDA approval to market a new drug product, the
Company must submit proof of safety, efficacy and quality. Such proof entails
extensive and time consuming preclinical and clinical testing. The results of
preclinical studies are submitted to the FDA as part of an IND. Once the IND
is effective, human clinical trials may be conducted. The results of the
clinical trials are submitted to the FDA as part of an NDA.
Detailed manufacturing information is also required to be included in
the NDA for review and approval by the FDA. Among other things, the Company must
submit data indicating that the drug product can be consistently manufactured at
the same quality standard, that the drug product is stable over time, and that
the level of chemical impurities in the drug product is under specified levels.
Peptides are an especially difficult compound to manufacture at these standards,
particularly in the quantities at which Cytolex will be required to be
manufactured. Any contract manufacturers that the Company may use must adhere
to the Good Manufacturing Practices prescribed by the FDA. Drug manufacturing
facilities must pass a plant inspection before the FDA will issue approval to
market a new drug product. There can be no assurance that the manufacturing
information submitted for Cytolex, or other products under development, will be
sufficient for approval by the FDA.
Following extensive review of the NDA, the FDA may grant marketing
approval, require additional testing or information, or deny the application.
Sales of a new drug may commence following FDA approval of an NDA and
satisfactory completion of a pre-approval inspection of the manufacturing
facility, including a review of pertinent production records. If there are any
modifications to the drug, including any changes in indication, manufacturing
process, labeling or manufacturing facility, an NDA supplement may be required
to be submitted to the FDA. The FDA may also require post-marketing testing and
surveillance to monitor the effects of approved products or place conditions on
any approvals that could restrict the commercial applications of such products.
Product approvals may be withdrawn if compliance with regulatory standards is
not maintained or if problems concerning safety, efficacy or quality of the
product occur following approval.
Continued compliance with all FDA requirements and conditions in an
approved application, including those concerning product specifications,
manufacturing process, validation, labeling, promotional material,
recordkeeping and reporting, is necessary for all approved drug products.
Failure to comply could result in Warning Letters, product recall or other
FDA-initiated actions, which could delay further marketing until the products
are brought into compliance.
In October 1992, the Prescription Drug User Fee Act of 1992 ("PDUFA")
was enacted, imposing substantial fees on a one-time basis for applications for
approval, and on an annual basis for manufacturing and marketing of
prescription drugs. Legislation reauthorizing PDUFA is currently pending in
Congress and it is anticipated that such user fees will continue and may
increase in the future.
The Company is also subject to regulation by other regulatory
authorities, including the Occupational Safety and Health Administration, the
Environmental Protection Agency, the Nuclear Regulatory Commission, the Drug
Enforcement Agency and the United States Department of Agriculture, and to
regulation under the
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Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other regulatory statutes, and may in the future be subject to additional
federal, state or local regulations. These agencies may promulgate regulations
that affect the Company's research and development programs.
Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities of foreign countries must be obtained prior
to the commencement of marketing the product in those countries. The time
required to obtain such approvals may be longer or shorter than that required
for FDA approval.
There can be no assurance that any required FDA or other governmental
approval will be granted, or if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products, cause the Company to undertake costly procedures, and
furnish a competitive advantage to the more substantially capitalized companies
with which the Company competes. In addition, the extent of potentially adverse
government regulations which might arise from future administrative action or
legislation cannot be predicted. Efforts are currently underway in the U.S.
Congress to reform federal regulation of drug and biological products. The
reform provisions, when and if implemented, could modify a number of existing
legal requirements and standards and create new legal requirements and
standards. Although certain of these provisions, if implemented, could
streamline and otherwise benefit development, marketing and related
requirements for drugs and biologics, others could increase regulatory
requirements or otherwise materially adversely affect the Company.
Competition. The pharmaceutical industry is characterized by intense
competition. Many companies, research institutions and universities are working
in a number of areas similar to the Company's field of interest. The Company is
aware that research is being conducted by others in connection with compounds
derived from the host defense systems of various animals. Additionally, many
companies are involved in research and development activities focused on the
pathogenesis of disease, and competition among companies attempting to find
genes responsible for disease is intense. Furthermore, many companies are
engaged in the development and sale of products, such as traditional
antibiotics, which may be, or are, competitive with the Company's proposed
products. Most of these entities have substantially greater financial,
technical, manufacturing, marketing, distribution and other resources than the
Company. The Company's proposed products will also be subject to competition
from products using techniques other than those developed by the Company or
based on advances that may render the Company's products obsolete.
The Company expects technological developments in the
biopharmaceutical field to occur at a rapid rate and expects competition to
intensify as advances in this field are made. Accordingly, the Company will be
required to continue to devote substantial resources and efforts to research
and development activities in order to maintain a competitive position in this
field. Compounds, products or processes developed by the Company may become
obsolete before the Company is able to recover a significant portion of its
research and development expenses. The Company will be competing with respect
to its proposed products with companies that have significantly more experience
in undertaking preclinical testing and human clinical trials of new or improved
therapeutic products and obtaining regulatory approvals of such products. Some
of these companies may be in advanced phases of clinical testing of various
drugs that may be competitive with the Company's proposed products.
Colleges, universities, governmental agencies and other public and
private research organizations 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. In addition, these institutions, along with
pharmaceutical and specialized biotechnology companies, can be expected to
compete with the Company in recruiting highly qualified scientific personnel.
As to the disease areas being targeted by the Company, there can be no
assurance that Cytolex will be successfully marketed against oral antibiotics
for the treatment of infection in diabetic foot ulcers. These infections have
historically been treated with systemically administered antibiotics, such as
ofloxacin, which
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may be perceived by some medical professionals as having certain
advantages over Cytolex. There also can be no assurance that Cytolex can be
manufactured at a cost which will allow it to be sold at a competitive price
relative to oral antibiotics, or other topical antibiotics that may be used for
this indication. Significant efforts are underway by many companies in the
development and marketing of products intended for the additional disease areas
being targeted by the Company, including cancer and asthma. A number of major
pharmaceutical companies have significant franchises in these disease areas, and
can be expected to invest heavily to protect these interests. In addition, in
the cancer field, anti-angiogenic agents are under development at a number of
companies. In the asthma field, other biopharmaceutical companies have also
reported the discovery of genes relating to asthma.
Uncertainties Relating to Patents and Proprietary Rights. The
Company's success will depend in part upon its ability to obtain patent
protection for compounds, uses of compounds, and processes. Patent matters
involve complex legal and factual issues, and can be highly uncertain. Host
defense compounds can be isolated from a wide variety of sources, and it is not
possible for the Company or any other entity to have proprietary rights to all
such compounds or their uses. Additionally, chemical entities that are similar
to, but not identical with, the Company's compounds, may not be protected by
issued patents of the Company. In the genomics area, a number of companies are
attempting to rapidly identify and patent genes whose functions have not been
characterized. Additional companies are seeking to patent fully characterized
genes. The criteria for obtaining patent protection for genes is unclear and
the impact of this uncertainty on the Company's business cannot be determined.
The Company owns or has exclusive rights under license agreements to
45 issued patents, and an additional 26 patent applications are pending,
including the patent application relating to Cytolex. Of the 71 patents or
patent applications to which the Company has rights, 45 are related to host
defense and 26 are related to the Company's research efforts in genomics. There
can be no assurance that any patent applications now pending or filed in the
future will result in patents being issued or that any patents now held by or
licensed to the Company, or issued or licensed to the Company in the future,
will afford any competitive advantages for the Company, or will not be
challenged by third parties. The cost of litigation to uphold the validity and
prevent infringement of patents and to enforce licensing rights can be
substantial. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate the technology owned by
or licensed to the Company or design around the patented aspects of such
technology. In addition, there can be no assurance that the products and
technologies the Company will seek to market will not infringe patents or other
rights owned by others, licenses to which may not be available to the Company.
The Company also relies upon unpatented proprietary technology, and
may determine in appropriate circumstances that its interest would be better
served by reliance on trade secrets or confidentiality agreements rather than
patents. There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to such proprietary technology or that the Company can meaningfully
protect its rights in such unpatented proprietary technology. Additionally, if
the Company is unable to obtain strong proprietary rights protection of its
products after obtaining regulatory clearance, competitors may be able to
market competing products by obtaining regulatory clearance, through showing
equivalency to the Company's product, without being required to conduct the
lengthy clinical tests required to be conducted by the Company.
Virtually all of the Company's key scientists worked at other
biotechnology or pharmaceutical companies or at universities and research
institutions before joining the Company. Disputes may arise as to whether
technology developed by such scientists while employed by or associated with
the Company was first discovered when they were employed by or associated with
others in a manner that would give third parties rights to such technology
superior to the rights, if any, of the Company. Disputes of this nature have
occurred in the past, and are expected to continue to arise in the future, and
there can be no assurance that the Company will prevail in any such disputes.
To the extent that consultants, vendors or other third parties apply
technological information independently developed by them or by others to the
Company's proposed products, disputes may arise as to the
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proprietary rights to such information, which may not be resolved in favor of
the Company. Consultants to the Company are employed by or have consulting
agreements with third parties, and any inventions discovered by such
individuals are not likely to become the property of the Company.
The Company has rights under license agreements to certain patents and
patent applications under which the Company expects to owe royalties on sales
of any products which are covered by issued patent claims. Additionally,
certain of these agreements also provide that if the Company elects not to
pursue the commercial development of any licensed technology, or does not
adhere to an acceptable schedule of commercialization, then the Company's
exclusive rights to such technology would terminate.
Dependence on Key Personnel. The Company depends to a considerable
degree on a limited number of key personnel. Due to the Company's limited
number of employees, many key responsibilities within the Company have been
assigned to a relatively small number of individuals. The Company does not
maintain "key man" insurance on any of its employees. The loss of certain
senior management could adversely affect the business of the Company. The
success of the Company will depend, among other factors, upon the successful
recruitment and retention of qualified personnel.
Product Liability and Insurance Risks. Before obtaining required
regulatory approvals for the commercial sale of products, the Company must
demonstrate through human clinical testing that such products are safe and
efficacious for use in each target indication. The administration of any
product being developed by the Company could produce undesirable side effects
in humans. The Company carries limited clinical trial insurance, and there can
be no assurance that such coverage is adequate.
In addition, in the event the Company successfully develops any
products, the marketing of such products could expose the Company to product
liability claims. Certain agreements require the Company to maintain insurance
coverage naming third parties as additional insureds at such time as any
related products may be marketed. There can be no assurance that the Company
will be able to obtain such insurance or that such insurance can be maintained
in sufficient amounts to protect the Company against such liabilities or at a
reasonable cost. Certain arrangements also require the Company to indemnify
third parties with whom the Company has entered into contractual arrangements
against any liabilities that may arise in connection with such third party's
activities on behalf of the Company.
In the event of an uninsured or inadequately insured claim, the
Company's business and financial condition could be materially adversely
affected.
Uncertainty Related to Reimbursement Policies; Health Care Reform.
Successful commercialization of Cytolex and the Company's other potential
products will be dependent in part on the coverage and reimbursement of such
products from third-party payors, such as government authorities, private
health insurers and other organizations, such as managed care organizations.
There can be no assurance that such coverage and reimbursement will be
available or, if available, will be in adequate amounts.
The revenues and profitability of pharmaceutical companies can be
significantly affected by the efforts of governmental and third-party payors to
contain or reduce the cost of health care through various means. For example,
in the United States, pricing of prescription pharmaceutical products has been
impacted by the efforts of managed care organizations and other third-party
payors, and, in certain foreign markets, pricing of prescription pharmaceutical
products is subject to government control. Government and third-party payors
have also taken more aggressive steps to limit the availability of new and
often more costly therapeutics especially where they believe that the
incremental therapeutic benefit is not justified by the additional cost. All of
these trends are expected to continue in the future.
Various proposals have been put forth to reform the current health
care system in the United States. Additionally, several states have enacted
modifications to the current health care system to both improve access and
control costs. Such reform measures could adversely affect the amount of
reimbursement available from governmental agencies or third party insurers, or
could affect the ability to set prices for newly approved
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therapeutic products. Similar proposals are being considered by governmental
officials in other significant pharmaceutical markets, including Europe.
The Company cannot predict if such reforms will be implemented or the
effect any such reforms might have on the Company's business, and no assurance
can be given that any such reforms will not have an adverse effect on the
Company's business. In particular, it is possible that any such reform could
impact the manner in which drugs or therapies are marketed and could include
restrictions on the ability of pharmaceutical and biotechnology companies to
price drugs or therapies, which in turn could impact the ability of
biotechnology companies, such as the Company, to obtain financing for the
continued development of potential products. Furthermore, any such reform
could also impose limits on the overall growth of health care spending, as well
as limits on the growth of Medicare and Medicaid spending, all of which could
have an adverse effect on the Company.
Possible Volatility of Stock Price. The market prices for securities
of emerging and biotechnology companies, including the Company, have
historically been highly volatile. Future events concerning the Company or its
competitors, including product testing results, technological innovations, new
commercial products, government regulations, proprietary rights, regulatory
actions, litigation and other matters, may have a significant impact on the
market price of the Common Stock.
Effect of Exercise of Options and Warrants, and Other Issuance of
Shares. As of December 31, 1997, the Company had outstanding options to
purchase 2,974,000 shares at prices ranging from $.002 per share to $16.75 per
share, of which 1,586,000 were exercisable as of such date. Also outstanding at
December 31, 1997 were warrants to purchase 229,739 shares of the Company's
Common Stock exercisable at $8 per share, a warrant to purchase 300,000 shares
of the Company's Common Stock, exercisable at $7.50 per share, and warrants to
purchase an aggregate of 1,017,872 shares of the Company's Common Stock,
exercisable at $8.43 per share, subject to adjustment. Exercise of options and
warrants at prices below the market price of the Company's Common Stock could
adversely affect the price of the Company's Common Stock. Additional dilution
may result from the issuance of shares in connection with collaborations or
manufacturing arrangements, or in connection with other financings.
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THE COMPANY
Background
Magainin's biopharmaceutical research and development efforts are
focused on two technology platforms. In host defense drug discovery, the
Company seeks to isolate and develop therapeutically active compounds from
various organisms for the treatment of human diseases. The Company's second
platform technology is a gene-based target and drug discovery program in
asthma. The Company employs a broad range of genomics techniques to identify
genes associated with the pathogenesis of asthma, with the objective of
utilizing the optimal biologic gene targets in the development of novel
therapeutics for asthma and allergy.
Host Defense System
The Company was formed to engage in the research, development and
commercialization of compounds derived from the host defense systems of
animals. The host defense system is the complex of natural processes and
mechanisms used by the body to protect itself against infection and certain
cancers. This system comprises physical barriers to infection, such as skin and
mucosal membranes and fluids, as well as more complex chemical and biological
components, such as the immune system. The Company believes that certain
classes of naturally occurring peptides, such as magainins, and certain small
molecules, such as aminosterols, both described below, are used by the host
defense system to provide a first line of defense against infection and may
have activity against certain cancers.
The Company's approach to identifying pharmaceutically active
compounds in the host defense systems of animals involves the extraction of
compounds from animal tissues. The extracts are assayed for activity against
selected pathogens, such as bacteria, fungi, viruses and certain cancers. The
Company then purifies the active compounds and determines the precise chemical
structure of the purified molecule. Once naturally occurring molecules have
been isolated, the Company analyzes the relationship between the molecular
structure of the compound and its biological activity. In general, this
requires identification of the structures in the compound which are believed to
have therapeutic effects and an analysis of how the compounds could be modified
to improve the desired therapeutic effects. The Company then utilizes its
combinatorial chemistry capabilities to modify the molecules to alter
biological activity or increase stability.
Magainins
The Company's lead product development candidate, Cytolex, is a
synthetic magainin peptide. The first magainins were isolated from the African
frog Xenopus laevis by Dr. Michael A. Zasloff (presently Vice Chairman and
Executive Vice President of the Company) while conducting genetic and molecular
biological research at the National Institutes of Health ("NIH") in 1987. In
connection with his research, Dr. Zasloff was performing surgery on African
clawed frogs in his laboratory. After suturing the frogs and returning them to
their aquarium tank, he noticed that the incisions healed without infection,
inflammation or notable scarring, despite being exposed to the bacteria-filled
aquarium water. Dr. Zasloff deduced that the frogs produced a substance that
protected them against infection. Eventually, he isolated, from the skin, two
related peptides, which he called magainins and which were later shown to kill
a variety of pathogens, including bacteria, amoeba, fungi and parasites.
Magainins are peptides. A peptide is a chain of molecules, known as
amino acids, that are considered to be one of the basic building blocks of the
human body. Chains of two to 50 amino acids are generally referred to as
peptides, while longer chains are referred to as proteins. Magainins are
shorter-chain peptides, and can be synthesized chemically as well as by
recombinant technology. Chemical synthesis permits greater flexibility in
manipulating the sequence of amino acids, enabling the Company to create and
test derivative compounds more rapidly and efficiently than using recombinant
technology. The Company has modified natural peptides by rearranging the order
and combination of amino acids and by substituting and deleting additional
amino acids to produce magainins having a broader spectrum of therapeutic
activity and improved potency.
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An increasing problem in the antibiotic field is resistance, the
process by which antibiotics lose their effectiveness over time as bacteria,
through mutation, develop the means to produce enzymes capable of diminishing
the antibiotic utility. To date, the Company has not noted the development of
resistance to magainins. The Company believes this is due to the means by which
magainins break down pathogen cells and kill pathogens, which mechanism of
action differs from traditional antibiotics. In the presence of a cell membrane
rich in acidic phospholipids and poor in cholesterol, such as bacterial
membranes, magainins twist into two-sided, spiral shaped molecules (helices),
with one side soluble in the fat-like substance that comprise cell membranes
and the other side soluble in water. Individual magainin peptides then
aggregate and line up to form a channel in the membrane of a pathogen. Once
formed, this aggregate punctures the cell membrane, breaks down the integrity
of the cell and kills the pathogen.
Aminosterols and Angiogenesis
Squalamine is the lead product development candidate in the Company's
aminosterol program. squalamine was discovered in the body tissues of the
dogfish shark. The shark was initially examined because of its known resistance
to infection and cancer. The chemical structure of squalamine uniquely combines
a steroid and a polyamine, two classes of systemic agents that are generally
well-tolerated in humans. Since 1992, the Company has discovered several other
aminosterol compounds in the shark. In preclinical testing, certain of these
compounds have demonstrated an ability to control cell growth, along with other
pharmacological properties. These properties may have application in the
treatment of a number of disease indications characterized by cell
proliferation, including cancer.
Within the human body, a network of arteries, capillaries and veins,
known as the vasculature, functions to transport blood throughout the body.
The basic network of the vasculature is developed through angiogenesis, a
fundamental process by which new blood vessels are formed. The primary
angiogenic period in humans takes place during the first three months of
embryonic development. During this period, cytokines and growth factors are
activated to stimulate the growth of new blood vessels. Once the general
network of the blood vessels is complete, these angiogenic stimulators are
balanced and stabilized by the production of inhibitory factors. Although
angiogenesis occurs in human embryonic development, wound healing and in
certain reproductive processes in women, angiogenesis is also associated with
several diseases, including cancer, as well as diabetic retinopathy and macular
degeneration, both of which are major causes of blindness.
The term cancer includes many different types of uncontrolled cellular
growth. Clusters of cancer cells, referred to as tumors, may invade and destroy
surrounding organs, impair physiological function and lead to death. In order
to survive, cancer cells require oxygen and nutrients which they receive from
the body's blood supply. In order to access this blood supply, cancer cells
initiate a biochemical mechanism that stimulates angiogenesis, which provides
the blood supply that nourishes the tumor. As cancer cells grow and metastasize
(spread from primary sites to secondary sites) they require continuous
angiogenesis. Anti-angiogenic substances are intended to inhibit the growth of
new blood vessels and may therefore be effective in treating certain cancers,
with potentially less serious and fewer adverse side effects than traditional
therapies.
The aminosterol compounds are believed by the Company to have a unique
mechanism of action whereby they inhibit cell proliferation at an early stage
in cell activation by blocking the function of certain ion transporters in the
cell membrane. These transporters act as pumps on the surface of cells, and
control cell function through regulation of intracellular pH, cell metabolism
and cell volume. In the case of squalamine, there is a blockade of function for
a specific sodium proton exchanger in the cell membrane of certain endothelial
cells which leads to a cessation of endothelial cell proliferation, and as a
consequence, capillary formation. Thus, squalamine is believed by the Company
to limit growth promoting signals from several different growth stimulatory
factors.
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Genomics and Drug Discovery
Advances in genetics and molecular biology have significantly enhanced
the ability of scientists to clone and sequence genes and identify the causes
of disease at the molecular level. The examination of the genetic influences on
human disease is called genomics, or the study of the genome. Functional
genomics refers to the determination of the manner in which disease genes
specifically impact the disease process. In contrast to traditional drug
discovery and development, a genetics approach commences by identifying those
genes that are responsible for the initiation or progression of disease.
Analysis of DNA (deoxyribonucleic acid) helps characterize the specific role of
genes in the disease process. The information stored in the DNA of a gene is a
set of instructions to living cells of the organism. These instructions direct
the cells to synthesize specific proteins such as hormones or enzymes that
perform the basic biochemical and physiological functions of the cells. Disease
may occur when a defect (mutation) occurs in a gene or genes, resulting in
incorrect instructions being sent to cells, and disrupting the normal balance
or function of these essential proteins. The ability to detect such a mutation
and to understand how the disruption of normal protein function contributes to
the initiation and progression of the resultant disease are potentially
valuable aids to pharmaceutical discovery and development. To identify an
appropriate molecular target for therapeutic intervention, it may also be
necessary to characterize fully the biochemical pathway in which the disease
gene functions.
The Company employs a comprehensive functional genomics approach to
understand the genetic basis of disease and to develop potential drug leads.
The key elements of the Company's asthma genomics program include:
Gene Identification--To link a disease with specific genes,
DNA and relevant clinical information is collected from families and
isolated individuals afflicted with the disease. The DNA from each
individual of the families is tested with DNA mapping markers, which
when analyzed give a chromosomal location for a disease gene. The
process is then extended to more detailed DNA mapping studies of the
chromosomal area, and the identification of genes located in the area
that may be associated with the disease. These genes are screened for
mutations (defects) using DNA sequencing and other techniques and then
correlated based on inherited disease patterns in families and
isolated discrete populations. Parallel studies of gene mapping and
mutation analyses of animal models of a disease process are often
possible, and provide complimentary information. Genetic defects
related to disease susceptibility and progression are thus identified.
Target Validation--Genes identified as potential targets for
pharmaceutical intervention undergo an integrated analysis using
advanced in vitro and in vivo bench techniques to elucidate mechanisms
of disease initiation and progression. This process, known as target
validation, provides further evidence of the relevance of the
identified genes to particular portions of the disease process, and
guides the selection of strategies for pharmaceutical intervention.
The Company uses an integrated approach of biochemistry, genetics,
cellular and molecular biology, and animal models of the disease in
the target validation process.
Pathway Elucidation--To identify an appropriate target for
therapeutic intervention, it is highly desirable to know how the
disease genes are turned on or off (gene regulation pathways) and how
the gene functions within the biochemical processes of cells (signal
transduction pathways). The discovery process for novel regulatory and
signaling proteins involves a combination of biochemical, molecular,
biological and genetic approaches.
Target Specific Assay Development--Targets identified as
appropriate for therapeutic intervention are placed in biochemical and
cell based assay systems that closely mimic their native environment.
In a biochemical assay, the components and mechanism of action of the
target proteins are known. Since biochemical assays are usually
amenable to high-throughput screening, results can be obtained rapidly
and reproduced consistently. As a complimentary approach, cell based
assays extend the biochemical screening capabilities by allowing
analysis of sample activity in a physiologically relevant environment
while similarly permitting the assessment of cytotoxicity and cell
permeability. Cell based screens provide
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multiple sites of therapeutic intervention to be assessed at one time,
such as the receptors, regulatory proteins, and signaling proteins
involved in a pathway.
Through these processes, the Company seeks to identify appropriate
targets for pharmaceutical intervention that aim to control the root cause of
human disease. The Company believes that pharmaceuticals developed for use
against these specific targets have the potential for greater effectiveness and
fewer side-effects than pharmaceuticals developed through more traditional
processes.
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Product Development and Research Programs
Cytolex--Infected Diabetic Foot Ulcers
The Company's most advanced development compound is Cytolex, a topical
cream antibiotic. Cytolex is a 22 amino acid magainin peptide, formulated as a
1% topical cream. In vitro studies of Cytolex have shown that it is a broad
spectrum anti-infective, effective against gram negative, gram positive and
fungal organisms. The Company's initial intended use for Cytolex is for the
treatment of infection in diabetic foot ulcers.
Infected foot ulcers in diabetic patients are a serious complication.
The often compromised vasculature and nervous systems in the diabetic patient
can create conditions conducive to foot ulceration and consequent infection.
These infections can lead to osteomyelitis (bone infection) and limb
amputation. Patients with infected ulcers are typically treated with oral
antibiotics and no topical antibiotics are currently approved specifically for
the treatment of infection in diabetic foot ulcers.
The Company believes that topical antibiotics may offer advantages
over oral antibiotics in the treatment of infection in diabetic foot ulcers.
Increasing utilization of oral antibiotics has exacerbated the development of
antibiotic resistance, and resistant organisms are expected to continue to
develop. Additionally, there can be side effects associated with oral
antibiotics, including gastrointestinal distress, headaches and insomnia. The
Company believes that a topical treatment for diabetic foot ulcers may also
improve patient compliance with their medication and associated wound care.
In September 1996, the Company reported results of its initial,
pivotal Phase III clinical trial of Cytolex, and in March 1997, the Company
reported results from a second such pivotal trial. These trials were designed
as equivalence studies with the goal of demonstrating that Cytolex topical
cream is as effective as orally administered ofloxacin, a quinolone antibiotic,
indicated for the treatment of infection, including skin and soft tissue
infections. The Company intends to submit an NDA with the FDA based on the
results of these clinical trials early in the second half of 1998; however,
there can be no assurance that Cytolex will be approved by the FDA. (See Item 1
- - Risk Factors: "Risks Associated with Clinical Testing and FDA Approval of
Cytolex.")
Squalamine--Solid Tumors
Squalamine is the Company's lead product development candidate in its
aminosterol program. The Company's initial disease focus for squalamine is
solid tumors. The Company is currently conducting Phase I clinical testing of
squalamine in patients with advanced malignancy.
Cancer is the second most common cause of death in the Western world,
exceeded only by coronary heart disease. The three most prevalent methods of
treating patients with cancer are surgery, radiation therapy and chemotherapy.
A cancer patient often receives a combination of these treatment methods.
Surgery and radiation therapy are particularly effective in patients in which
the disease has not yet metastasized to other tissue or organs. Chemotherapy is
the principal treatment for tumors that have metastasized. Chemotherapy
involves the administration of drugs designed to kill cancer cells ("cytotoxic
drugs") or the administration of hormone analogues to either reduce the
production of, or block the action of, certain hormones, such as estrogens and
androgens, which affect the growth of tumors. Because chemotherapeutic agents
generally attack rapidly dividing cells indiscriminately, damaging normal as
well as cancerous cells, use of such agents often has serious adverse effects.
Additionally, resistance to chemotherapy inevitably occurs over time.
Advances in the understanding of the genesis and development of cancer
have begun to yield new approaches to cancer treatment. One such approach is
the control of angiogenesis, or new blood vessel growth. Angiogenesis is a key
stage in the development of tumor malignancy, and its inhibition should
contribute to the tumor becoming or remaining dormant.
Squalamine may be of benefit in the treatment of solid tumors by
inhibiting new blood vessel growth
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required for tumor nourishment. Squalamine has exhibited anti-angiogenic
properties in a number of in vitro and in vivo assays, and in animal models.
Squalamine is believed to inhibit the growth of primitive or embryonic
capillaries associated with tumor growth. Squalamine has the potential to be
used in combination with a number of cytotoxic drugs in the treatment of solid
tumors, and the Company has observed synergies with certain such cytotoxic
therapies in animal testing.
Asthma Genomics Program
Asthma is characterized clinically by wheezing and shortness of breath
due to reversible bronchospasm. It is a chronic, disabling disorder that
appears to be increasing in prevalence and severity. The complex
pathophysiology of asthma is under intensive scrutiny; however, its precise
causes are not well understood. A number of studies suggest a genetic component
to asthma, but family studies have been difficult to interpret due to other
influences, including allergens and pollutants. Allergic diseases, including
allergic rhinitis, are often present in individuals with asthma, but are also
important disease entities by themselves. The Company believes the genetic
susceptibility factors for asthma and allergy will be, at least in part,
related to one another. Current treatments for asthma and allergy are limited
to controlling inflammation or treating airway constriction through use of
bronchodilators.
In 1996, Magainin initiated a research program in the genomics of
asthma. These efforts led to the identification of AAF1, a gene which varies in
DNA structure and function in asthmatic and allergic humans and animals. The
Company maintains a comprehensive research and development program to identify
additional genes in the AAF1 biologic pathway, which other genes are believed
to be important in mediating the allergic responses controlled by AAF1. AAF2
has been discovered in humans as a key second gene candidate in the AAF1
pathway, and other genes have also been identified by the Company. The Company
has filed patent applications and has licensed intellectual property relating
to AAF1, AAF2 and certain other genes in the treatment of asthma and allergy.
The Company continues to investigate the role of these genes in the allergic
inflammatory response, with the objective of utilizing the optimal biologic
gene targets in the development of novel therapeutics for asthma and allergy.
Other Research Programs
The Company is evaluating additional magainin peptides in a number of
disease indications. One such program is directed toward the treatment of
pseudomonas infections in cystic fibrosis patients. In this program, early
stage efforts include compound formulation activities necessary to deliver the
peptide in an aerosolized manner appropriate for inhalation therapy. Additional
magainin peptides are under evaluation in the treatment of other infections.
The Company is also pursuing other research programs related to
squalamine. Due to the unique mechanism of action of squalamine, it may also
have application in a number of disease conditions characterized by abnormal
blood vessel growth, including rheumatoid arthritis, diabetic retinopathy,
psoriasis and age related macular degeneration of the eye. Additionally, the
Company has early research efforts directed toward the reformulation of
squalamine as an oral agent. As compared to the current intravenous
formulation, an oral formulation of squalamine may be of benefit in the
treatment of chronic disease conditions.
The Company has discovered a number of other aminosterol compounds in
the shark, each differing from squalamine in chemical structure. Each is
believed to interact with a different, specific receptor, and, as a
consequence, alter the intracellular metabolism in a manner that disturbs the
target cell response to certain growth factors, hormones and other signals. The
Company is evaluating the role of aminosterols in altering metabolism as it
affects obesity. Other therapeutic opportunities for these compounds may
include various malignancies, inflammatory diseases, and viral infections.
In addition, the Company has a number of other early stage research
programs. In one such program, the Company is engaged in research efforts on
defensins. Defensins are compounds found in animals and man
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which have host defense properties similar to magainins and aminosterols. The
Company believes that the longer-term evolution of the host defense field may
lie in the discovery of compounds that regulate endogenous defensin expression,
rather than direct application of the defensin molecules themselves.
The Company conducts the majority of its research and development
activities through its own staff and facilities, including the Magainin
Research Institute, an internal division of the Company focused on host defense
research, and the Magainin Institute of Molecular Medicine, an internal
division of the Company focused on the genomics of asthma. The Company also
employs contract research organizations, independent consultants and other
research professionals to aid in its research and development activities.
Collaborative Arrangements
Development and Marketing Collaborations. Collaborations may allow
the Company to leverage its own scientific and financial resources and gain
access to markets and technologies that would not otherwise be available to the
Company. In the long term, development and marketing arrangements with
established companies in the markets in which potential products will compete
may allow the Company's products easier access to their intended market and may
accordingly conserve Company resources. The Company expects that it will enter
into development and marketing arrangements for most of the products it may
develop. From time to time, the Company holds discussions with various
potential partners.
In February 1997, the Company entered into a development, supply and
distribution agreement (the "Agreement") in North America with SB for Cytolex.
SB has paid the Company $10.0 million under this Agreement, and may make
additional payments to Magainin of up to $22.5 million upon the occurrence of
certain product milestones. SB will also fund a percentage of any development
expenses for any additional indications for Cytolex. Upon the commencement of
commercial sales by SB, Magainin will be responsible for the supply of Cytolex
and SB will be responsible for the marketing and sales of Cytolex. Magainin
will receive certain percentages of SB sales revenues under agreed upon terms.
The Agreement also gives SB the right to negotiate for rights to another
Magainin product development candidate, under certain terms and conditions. The
Agreement gives SB the right to terminate on a country by country basis if SB
determines it is not economical to distribute Cytolex in those areas. (See Item
1 - Risk Factors: "Need for Substantial Additional Funds" and "Dependence on
Sales and Marketing Partners; Marketing Uncertainties".)
Research and License Agreements. The Company has rights under
license agreements to several patents and patent applications under which the
Company expects to owe royalties on sales of any products which are covered by
issued patent claims. Additionally, certain of these agreements also provide
that if the Company elects not to pursue the commercial development of any
licensed technology, or does not adhere to an acceptable schedule of
commercialization, then the Company's exclusive rights to such technology would
terminate. The Company also funds research at certain institutions, and these
relationships may provide the Company with an option to license any results of
the research.
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Manufacturing
The Company does not have the resources, facilities or capabilities to
manufacture any of its proposed products. The Company has no current plans to
establish a manufacturing facility. The Company expects that it will be
dependent to a significant extent on contract manufacturers for commercial
scale manufacturing of its proposed products in accordance with regulatory
standards. The Company's dependence on third parties for manufacturing may
adversely affect operating results as well as the Company's ability to develop
and deliver products on a timely and competitive basis. Production of peptides
(such as Cytolex and other magainins) is expensive relative to production of
traditional antibiotics. Additionally, there are a limited number of companies
currently able to produce bulk peptides on the scale which the Company expects
to require to commercialize Cytolex. There can be no assurance that qualified
outside contractors will be available to manufacture materials for the Company,
or do so at costs which are affordable by the Company.
Contract manufacturers may utilize their own technology, technology
developed by the Company, or technology acquired or licensed from third
parties. When contract manufacturers develop proprietary process technology and
have ownership of the Drug Master File, the Company's reliance on such contract
manufacturer is increased, and the Company may have to obtain a license from
such contract manufacturer to have its products manufactured by another party.
Technology transfer from the original contract manufacturer may be required.
There can be no assurance that any such license will be available on terms
acceptable to the Company, or, if available, that such technology will be
successfully transferred to the Company. Any such technology transfer may also
require transfer of requisite data for regulatory purposes, including
information contained in a proprietary Drug Master File held by a contract
manufacturer. There can be no assurance that any such transfer can be
completed.
The Company is working with Abbott with regard to development by
Abbott of a solution phase chemical process to manufacture bulk drug substance
for Cytolex on a commercial scale. The Company is currently dependent upon
Abbott for the production of bulk drug substance for Cytolex. In the event that
bulk drug substance for Cytolex is not manufactured at Abbott, the Company will
need to secure other manufacturing arrangements. The process developed by
Abbott is proprietary, and in the event the Company desires to utilize, or have
another party utilize, such technology, the Company would be required to make
license payments to Abbott. Further progress in scale-up and manufacturing
development efforts will be required to enable the Company to manufacture and
sell Cytolex on a profitable basis. This may require substantial additional
funds. The Company has certain efforts underway with respect to alternative
manufacturing sources, including recombinant manufacturing; however, these
programs are at an early stage, and significant expenditures over an extended
period of time will be required to develop a commercially viable process. No
assurance can be given that a cost-effective manufacturing process can
ultimately be developed, or that any such process would be approved by the FDA,
or that the Company, Abbott, or others will be able to manufacture Cytolex on a
commercially viable basis.
The Company also expects to conduct significant manufacturing
development activities for its other products under development. The Company is
currently working with outside contractors for the chemical production of
squalamine. The Company expects to expend significant resources in the
production of squalamine and any other compounds under development, and there
can be no assurance that these efforts will be successful.
Government Regulation
The production and marketing of the Company's products and its
research and development activities are subject to regulation by numerous
governmental authorities in the United States and other countries. In the
United States, drug products are subject to rigorous review by the FDA. The
Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations
govern or influence the testing, manufacture, safety, efficacy,
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labeling, storage, recordkeeping, approval, advertising, promotion and
distribution of such products. Noncompliance with applicable requirements can
result in Warning Letters, fines, recall or seizure of products, refusal of the
government to approve marketing applications or to allow the Company to enter
into government supply contracts, the withdrawal of previously approved new
drug applications and criminal prosecution.
In order to obtain FDA approval to market a new drug product, the
Company must submit proof of safety, efficacy and quality. Such proof entails
extensive and time consuming preclinical and clinical testing. The results of
preclinical studies are submitted to the FDA as part of an IND. Preclinical
studies involve laboratory evaluation of product characteristics and animal
studies to assess the efficacy and safety of the product. Once the IND is
effective, human clinical trials may be conducted. Human clinical trials are
typically conducted in three sequential phases, but the phases may overlap.
Phase I trials consist of testing the product in a small number of patients or
healthy volunteer subjects primarily for safety at one or more doses. In Phase
II, in addition to safety, the efficacy of the product is evaluated in a
patient population somewhat larger than Phase I trials. Phase III trials
typically involve additional testing for safety and clinical efficacy in an
expanded population at geographically dispersed test sites. A clinical plan, or
"protocol," accompanied by the approval of the Institutional Review Board
participating in the trials, must be submitted to the FDA prior to commencement
of clinical trials. Various reports must be submitted to the FDA during the
course of the trials, and the FDA may order the temporary or permanent
discontinuation of a clinical trial at any time. The results of the clinical
trials are submitted to the FDA as part of an NDA.
Detailed manufacturing information is also required to be included in
the NDA for review and approval by the FDA. Among other things, the Company
must submit data indicating that the drug product can be consistently
manufactured at the same quality standard, that the drug product is stable over
time, and that the level of chemical impurities in the drug product is under
specified levels. Peptides are an especially difficult compound to manufacture
at these standards, particularly at the scale at which Cytolex will be required
to be manufactured. Any contract manufacturers that the Company may use must
adhere to the Good Manufacturing Practices prescribed by the FDA. Drug
manufacturing facilities must pass a plant inspection before the FDA will issue
approval to market a new drug product. There can be no assurance that the
manufacturing information submitted for Cytolex, or other products under
development, will be sufficient for approval of the FDA.
Following extensive review of the NDA, the FDA may grant marketing
approval, require additional testing or information, or deny the application.
Sales of a new drug may commence following FDA approval of an NDA and
satisfactory completion of a pre-approval inspection of the manufacturing
facility, including a review of pertinent production records. If there are any
modifications to the drug, including any changes in indication, manufacturing
process, labeling or manufacturing facility, an NDA supplement may be required
to be submitted to the FDA. The FDA may also require post-marketing testing and
surveillance to monitor the effects of approved products or place conditions on
any approvals that could restrict the commercial applications of such products.
Product approvals may be withdrawn if compliance with regulatory standards is
not maintained or if problems concerning safety, efficacy or quality of the
product occur following approval.
Continued compliance with all FDA requirements and conditions in an
approved application, including those concerning product specifications,
manufacturing process, validation, labeling, promotional material,
recordkeeping and reporting, is necessary for all approved drug products.
Failure to comply could result in Warning Letters, product recall or other
FDA-initiated actions, which could delay further marketing until the products
are brought into compliance.
In October 1992, PDUFA was enacted, imposing substantial fees on a
one-time basis for applications for approval, and on an annual basis for the
manufacturing and marketing of prescription drugs. Legislation reauthorizing
PDUFA is currently pending in Congress and it is anticipated that such user
fees will continue and may increase in the future.
The Company is also subject to regulation by other regulatory
authorities, including the Occupational Safety and Health Administration, the
Environmental Protection Agency, the Nuclear Regulatory Commission, the Drug
Enforcement Agency and the United States Department of Agriculture, and to
regulation under the
19
<PAGE> 22
Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other regulatory statutes, and may in the future be subject to additional
federal, state or local regulations. These agencies may promulgate regulations
that affect the Company's research and development programs.
Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
Whether or not FDA approval has been obtained, approval by comparable
regulatory authorities of foreign countries must be obtained prior to the
commencement of marketing in those countries. The time required to obtain such
approval may be longer or shorter than that required for FDA approval.
Patent and Proprietary Rights; Licensed Technology
The Company's success will depend in part upon its ability to obtain
patent protection for compounds, uses of compounds, and processes. Patent
matters involve complex legal and factual issues, and can be highly uncertain.
Host defense compounds can be isolated from a wide variety of sources, and it
is not possible for the Company or any other entity to have proprietary rights
to all such compounds, or their uses. Additionally, chemical entities that are
similar to, but not identical with, the Company's compounds, may not be
protected by issued patents of the Company. In the genomics area, a number of
companies are attempting to rapidly identify and patent genes whose functions
have not yet been characterized. Additional companies are seeking to patent
fully characterized genes. The criteria for obtaining patent protection for
genes is unclear, and the impact of this uncertainty on the Company's business
can not be determined.
The Company owns or has exclusive rights under license agreements to
45 issued patents, and an additional 26 patent applications are pending,
including the patent application relating to Cytolex. Of the 71 patents or
patent applications to which the Company has rights, 45 are related to host
defense and 26 are related to the Company's research efforts in genomics. There
can be no assurance that any patent applications now pending or filed in the
future will result in patents being issued or that any patents now held by or
licensed to the Company, or issued or licensed to the Company in the future,
will afford any competitive advantages for the Company, or will not be
challenged by third parties. The cost of litigation to uphold the validity and
prevent infringement of patents and to enforce licensing rights can be
substantial. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate the technology owned by
or licensed to the Company or design around the patented aspects of such
technology. In addition, there can be no assurance that the products and
technologies the Company will seek to market will not infringe patents or other
rights owned by others, licenses to which may not be available to the Company.
The Company also relies upon unpatented proprietary technology, and
may determine in appropriate circumstances that its interest would be better
served by reliance on trade secrets or confidentiality agreements rather than
patents. There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to such proprietary technology or that the Company can meaningfully
protect its rights in such unpatented proprietary technology. Additionally, if
the Company is unable to obtain strong proprietary rights protection of its
products after obtaining regulatory clearance, competitors may be able to
market competing products by obtaining regulatory clearance, through showing
equivalency to the Company's product, without being required to conduct the
lengthy clinical tests required to be conducted by the Company.
Virtually all of the Company's key scientists worked at other
biotechnology or pharmaceutical companies or at universities and research
institutions before joining the Company. Disputes may arise as to whether
technology developed by such scientists while employed by or associated with
the Company was first discovered when they were employed by or associate with
others in a manner that would give third parties rights to such technology
superior to the rights, if any, of the Company. Disputes of this nature have
occurred in the past, and are expected to continue to arise in the future, and
there can be no assurance that the Company will prevail in any such disputes.
To the extent that consultants, vendors or other third parties apply
technological information
20
<PAGE> 23
independently developed by them or by others to the Company's proposed
products, disputes may arise as to the proprietary rights to such information,
which may not be resolved in favor of the Company. Consultants to the Company
are employed by or have consulting agreements with third parties, and any
inventions discovered by such individuals are not likely to become the property
of the Company.
The Company has rights under license agreements to certain patents and
patent applications under which the Company expects to owe royalties on sales
of any products which are covered by issued patent claims. Additionally,
certain of these agreements also provide that if the Company elects not to
pursue the commercial development of any licensed technology, or does not
adhere to an acceptable schedule of commercialization, then the Company's
exclusive rights to such technology would terminate.
Competition
The pharmaceutical industry is characterized by intense competition.
Many companies, research institutions and universities are working in a number
of areas similar to the Company's field of interest. The Company is aware that
research is being conducted by others in connection with compounds from the
host-defense systems of various animals. Additionally, many companies are
involved in research and development activities focused on the pathogenesis of
disease, and competition among companies attempting to find the genes
responsible for disease is intense. Furthermore, many companies are engaged in
the development and sale of products, such as traditional antibiotics, which
may be, or are, competitive with the Company's proposed products. Most of these
entities have substantially greater financial, technical, manufacturing,
marketing, distribution and other resources than the Company. The Company's
proposed products may also be subject to competition from products using
techniques other than those developed by the Company or based on advances that
may render the Company's products obsolete.
The Company expects technological developments in the
biopharmaceutical field to occur at a rapid rate and expects competition to
intensify as advances in this field are made. Accordingly, the Company will be
required to continue to devote substantial resources and efforts to research
and development activities in order to maintain a competitive position in this
field. Compounds, products or processes developed by the Company may become
obsolete before the Company is able to recover a significant portion of its
research and development expenses. The Company will be competing with respect
to its proposed products with companies that have significantly more experience
in undertaking preclinical testing and human clinical trials of new or improved
therapeutic products and obtaining regulatory approvals of such products. Some
of these companies may be in advanced phases of clinical testing of various
drugs that may be competitive with the Company's proposed products.
Colleges, universities, governmental agencies and other public and
private research organizations 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. In addition, these institutions, along with pharmaceutical and
specialized biotechnology companies, can be expected to compete with the Company
in recruiting highly qualified scientific personnel.
As to the disease areas being targeted by the Company, there can be no assurance
that Cytolex will be successfully marketed against oral antibiotics for the
treatment of infection in diabetic foot ulcers. These infections have
historically been treated with systemically administered antibiotics such as
ofloxacin, which may be perceived by some medical professionals as having
certain advantages over Cytolex. There also can be no assurance that Cytolex
can be manufactured at a cost which will allow it to be sold at a competitive
price relative to oral antibiotics, or other topical antibiotics that may be
used for this indication. Significant efforts are underway by many companies in
the development and marketing of products intended for the additional disease
areas being targeted by the Company, including cancer and asthma. A number of
major pharmaceutical companies have significant franchises in these disease
areas, and can be expected to invest heavily to protect these interests. In
addition, in the cancer field, anti-angiogenic agents are under development at
a number of companies. In the asthma field, other biopharmaceutical companies
have also reported the discovery of genes relating to asthma.
21
<PAGE> 24
EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jay Moorin 46 Chairman, President and Chief Executive Officer
Michael A. Zasloff, M.D., Ph.D. 52 Vice Chairman and Executive Vice President
Michael R. Dougherty 40 Executive Vice President and Chief Financial Officer
Roy C. Levitt, M.D. 44 Executive Vice President
Thomas J. Bigger 41 Senior Vice President
</TABLE>
Mr. Moorin has served as President and Chief Executive Officer of the Company
since 1991. In July 1996, Mr. Moorin was appointed Chairman of the Board. Prior
to joining the Company, Mr. Moorin served as a Managing Director at Bear,
Stearns & Co., Inc. and was responsible for health care investment banking and
other services to the pharmaceutical and distribution industry. Mr. Moorin was
employed in other capacities by Bear, Stearns from 1988 to 1990. From 1983 to
1988, Mr. Moorin was employed by E. R. Squibb & Co., Inc. ("Squibb"), a
pharmaceutical company, joining Squibb as its first Corporate National Accounts
Director and subsequently was promoted to Business Area Director and Vice
President of Marketing and Business Development at SquibbMark, a division of
Squibb. Mr. Moorin is a director of SunPharm Corp., and a special adjunct
fellow of the Leonard Davis Institute of Health Economics of the University of
Pennsylvania.
Dr. Zasloff has served as Executive Vice President of the Company and President
of the Magainin Research Institute, since July 1992. In July 1996, Dr. Zasloff
was appointed Vice Chairman of the Board. From 1988 until Dr. Zasloff joined
the Company on a full-time basis in July 1992, Dr. Zasloff was the Company's
Chief Scientific Advisor and served as the Charles E.H. Upham Professor,
Department of Pediatrics and Genetics, University of Pennsylvania School of
Medicine, and Chief, Division of Human Genetics and Molecular Biology, The
Children's Hospital of Philadelphia. From 1982 until 1988, Dr. Zasloff was
Chief, Human Genetics Branch, National Institutes of Child Health and Human
Development, National Institutes of Health. Dr. Zasloff currently also serves
as Adjunct Professor, Department of Human Genetics and Orthopedics, University
of Pennsylvania School of Medicine.
Mr. Dougherty has served as Executive Vice President and Chief Financial
Officer of the Company since March 1995, and as a Director since August, 1997.
From August 1993, when he joined the Company, until March 1995, Mr. Dougherty
served as Senior Vice President and Chief Financial Officer. Prior to joining
the Company, Mr. Dougherty served in the following capacities at Centocor, Inc.
(a biopharmaceutical company): Senior Vice President, Chief Financial Officer
and Treasurer, from February 1992 to August 1993, Vice President Corporate
Finance from May 1990 to February 1992 and Treasurer from June 1986 to May
1990.
Dr. Levitt has served as Executive Vice President and the Director of the
Magainin Institute of Molecular Medicine since joining the Company in January
1996. Dr. Levitt was appointed head of Research and Development at the
Company, and a Director in August, 1997. Prior to joining the Company, Dr.
Levitt was a faculty member at Johns Hopkins University in the Department of
Anesthesiology and Critical Care Medicine, from 1986 to 1995, in Neurological
Surgery from 1995 to 1996 and in Environmental Health Sciences from 1988 to
1996.
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<PAGE> 25
Mr. Bigger has served as Senior Vice President Business Development, Marketing
and Sales since joining the Company in July 1996. Mr. Bigger served as Senior
Vice President of Advanced Polymer Systems (a drug development company), in
1994 and 1995. From 1979 to 1994, Mr. Bigger held a number of positions of
increasing responsibility at Rhone-Poulenc Rorer ("RPR"), a pharmaceutical
company, including serving as President of Dermik Laboratories, a subsidiary of
RPR.
Officers are elected or appointed by the Board of Directors to serve until the
appointment or election and qualification of their successors or their earlier
termination or resignation.
EMPLOYEES
As of December 31, 1997, the Company had 72 full-time employees. No employees
are covered by collective bargaining agreements, and the Company considers
relations with its employees to be good.
23
<PAGE> 26
ITEM 2. PROPERTIES.
The Company occupies an aggregate of approximately 26,000 square feet
of space in Plymouth Meeting, Pennsylvania, which is used as office
and laboratory space. The Company leases this space pursuant to
leases expiring in 1999 and 2001, which provide for minimum annual
payments of approximately $436,000 in the year ending December 31,
1998 and are subject to increases on an annual basis for the remaining
term.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Magainin Pharmaceuticals Inc. common stock trades on the Nasdaq Stock
Market under the symbol MAGN. The quarterly range of high and low closing sales
prices of the Company's common stock, as reported on the Nasdaq National Market,
are shown below.
<TABLE>
<CAPTION>
Year Ended
December 31, 1997 High Low
- -------------------------------------
<S> <C> <C>
1st Quarter $10.50 $7.88
2nd Quarter $8.50 $6.63
3rd Quarter $11.81 $7.25
4th Quarter $12.13 $7.50
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1996 High Low
- -------------------------------------
<S> <C> <C>
1st Quarter $15.13 $10.25
2nd Quarter $12.88 $8.38
3rd Quarter $12.88 $7.50
4th Quarter $12.13 $7.38
</TABLE>
24
<PAGE> 27
DIVIDENDS
The Company has not paid any cash dividends since its inception and does not
anticipate paying any cash dividends in the foreseeable future. It is the
present policy of the Board of Directors to retain all earnings, if any, to
finance the development of the Company's business.
NUMBER OF HOLDERS OF COMMON STOCK
At March 5, 1998, there were approximately 338 stockholders of record and
approximately 4,300 beneficial holders of the Company's common stock.
25
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data. The selected
financial data is derived from, and is qualified by reference to, the financial
statements of the Company.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995 1994 1993
----------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract and government grant $10,088 $ 150 $ 2,056 $ 85 $ 273
Related party contract -- --- 280 326 319
-------------------------------------------------------------------------
10,088 150 2,336 411 592
-------------------------------------------------------------------------
Costs and expenses:
Research and development 22,875 22,326 18,160 11,258 11,455
General and administrative 3,246 3,488 3,137 3,468 2,630
Charge for stock insurance
relating to royalty buyout -- 7,080 --- --- ---
-------------------------------------------------------------------------
26,121 32,894 21,297 14,726 14,085
-------------------------------------------------------------------------
Loss from operations (16,033) (32,744) (18,961) (14,315) ( 13,493)
Interest income 1,770 2,172 1,778 1,207 846
Interest expense (118) (48) (32) (48) (64)
-------------------------------------------------------------------------
Loss $(14,381) $(30,620) $(17,215) $(13,156) $(12,711)
Loss per share - basic $(0.73) $ (1.71) $ (1.17) $ (.99) $ (1.14)
=========================================================================
Weighted average shares
outstanding 19,679 17,938 14,696 13,301 11,108
December 31, 1997 1996 1995 1994 1993
------------ -------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and investments $39,061 $ 33,340 $ 43,666 $25,921 $38,303
Working capital 33,073 28,276 30,429 21,750 30,621
Total assets 42,444 36,376 45,727 28,050 40,460
Long-term liabilities 1,096 915 304 460 299
Total liabilities 7,574 6,433 4,534 4,137 3,451
Accumulated deficit (109,624) (95,243) (64,623) (47,408) (34,252)
Stockholders' equity 34,870 29,943 41,193 23,913 37,009
</TABLE>
26
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This report contains, in addition to historical information,
statements by the Company with regard to its expectations as to
financial results and other aspects of its business that involve risks
and uncertainties and may constitute forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements reflect management's current views and are based on
certain assumptions. Actual results could differ materially from
those currently anticipated as a result of a number of factors,
including, but not limited to, the risks and uncertainties discussed
in this report, as well as those discussed under "Risk Factors" set
forth in Item 1 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, as filed with the Securities and
Exchange Commission. Given these uncertainties, current or
prospective investors are cautioned not to place undue reliance on any
such forward-looking statements. Furthermore, the Company disclaims
any obligation or intent to update any such factors or forward looking
statements to reflect future events or developments.
GENERAL
The Company is a biopharmaceutical company engaged in the development of
medicines for serious diseases. The Company has completed two pivotal Phase
III clinical trials for its lead product development candidate, Cytolex, a
topical cream antibiotic intended for the treatment of infection in diabetic
foot ulcers. The Company is also conducting research on an aminosterol class
of compounds. One such compound, squalamine, is being evaluated in Phase I
clinical testing in cancer. The Company's newest research efforts are in the
genomics of asthma.
Since commencing operations in 1988, the Company has not generated any sales
revenue. The Company has funded operations primarily from the proceeds of
public and private placements of securities. The Company has incurred net
losses in each year since its inception, and expects to incur substantial
additional losses for at least the next several years. The Company expects
that losses will fluctuate from quarter to quarter, and that such fluctuations
may be substantial. At December 31, 1997, the Company's accumulated deficit
was $109,624,000.
As a result of revenues earned during the year ended December 31, 1997, the
Company is no longer in the development stage.
RESULTS OF OPERATIONS
REVENUES
The Company has received no revenue from product sales. Revenues recorded to
date have consisted principally of revenues recognized under collaborative
arrangements with corporate partners. The Company recorded revenues of
$10,000,000 in 1997 reflecting the receipt of payments under the Development,
Supply and Distribution Agreement entered into in February 1997 with SmithKline
Beecham ("SB") for Cytolex. Contract revenues of $88,000, $150,000 and
$150,000 in 1997, 1996 and 1995, respectively, consist of payments under a
collaborative arrangement with Abbott Laboratories ("Abbott") in the
nutritional field. The Company recorded revenues of $1,900,000 in 1995
relating to the execution of an Agreement in Principle with Fisons plc in
September 1995, and the termination of this arrangement in November 1995.
Related party contract revenue consisted of funding received from
Colgate-Palmolive Company pursuant to an oral health care collaboration which
concluded in January 1996.
The Company does not expect to realize additional milestone revenues from its
arrangement with SB until FDA approval of Cytolex. However, there can be no
assurance that Cytolex will be approved by the FDA. The
27
<PAGE> 30
Company has no other currently existing collaborations which will result in the
realization of research and development revenues.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased on an annual basis from 1995
through 1997 principally as a result of increases in manufacturing development
expenses, clinical and pre-clinical testing, personnel costs, and laboratory
supplies expense. In particular, these increases have been related to
increasing costs associated with the Company's lead product candidate, Cytolex.
Expenses have also increased due to pre-clinical activities associated with the
Company's other research and development programs, including its aminosterol
and asthma genomics programs.
Significant development work is necessary to scale-up the manufacturing process
for the Company's products to those levels necessary for a profitable
commercial product. The Company contracts with third parties for these
manufacturing development activities, and for the procurement of material for
clinical and pre-clinical testing, and such expenses, including those for
Cytolex, amounted to $10,174,000, $9,557,000 and $7,652,000 in 1997, 1996 and
1995, respectively.
The Company contracts with third parties to conduct its clinical trial
programs. In 1994, the Company initiated a pivotal clinical trial of Cytolex
for the treatment of infection in diabetic foot ulcers, and a second trial was
initiated in 1995. Clinical trial and regulatory contract costs amounted to
$1,761,000, $4,005,000, and $5,172,000 in 1997, 1996 and 1995, respectively.
The level of research and development expenses in future periods will depend
upon the success of the Cytolex development program, and the progress of other
research programs at the Company. Expenses relating to the development of
Cytolex are expected to continue to be significant in future periods principally
as a result of the Company's ongoing manufacturing development program,
partially offset by a decline in clinical trial costs related to Cytolex. The
Company expects to finalize an agreement with Abbott for the purchase of bulk
drug substance for Cytolex in 1998, prior to any FDA approval of Cytolex,
resulting in significant research and development expenses in 1998. The Company
also expects, in future periods, increased development expenses relating to its
aminosterol and asthma genomics programs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses have consisted principally of personnel
costs and professional fees, and have fluctuated year to year from 1995 through
1997 due largely to changes in professional fees expense. The Company expects
general and administrative expenses to increase in future periods as the
Company's level of activities increase.
OTHER EXPENSES/INCOME
The Company recorded a charge to earnings of $7,080,000 in 1996 principally
representing the fair value of 550,000 shares of Common Stock issued by the
Company in a buyout of royalties which the Company would otherwise have owed on
any sales of Cytolex.
The decrease in interest income in the year ended December 31, 1997 as compared
to the same period a year ago is principally due to decreased investment
balances. The increase in interest income in 1996 over 1995 is due principally
to increasing investment balances and higher prevailing interest rates.
Interest expense consists primarily of interest under the Company's credit
facility, and the interest component of equipment capital lease obligations. In
late 1996 and early 1997, the Company borrowed $1,500,000 under its credit
facility, resulting in increased interest expense in the year ended December 31,
1997 as compared to the same period a year ago.
28
<PAGE> 31
LOSS
The Company expects to conduct, over the next several years, significant
research, pre-clinical development, clinical testing and manufacturing
development activities which, together with projected general and
administrative expenses, are expected to result in continued and significant
losses, particularly due to the extended time period before the Company expects
to commercialize any products.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and investments were approximately $39,061,000 at December 31, 1997 as
compared to $33,340,000 at December 31, 1996. Cash used in operating
activities was $12,666,000, $21,831,000 and $14,953,000 in 1997, 1996 and 1995,
respectively.
Since inception, the Company has funded its operations primarily from the
proceeds of public and private placements of securities, including $17,080,000
raised from its initial public offering in December 1991, $21,469,000 raised
from a public offering completed in February 1993, $18,023,000 raised from a
private placement of Common Stock completed in October 1993, $32,627,000 raised
from a public offering completed in August 1995, $11,932,000 raised from a
private placement completed in August 1996 and $19,172,000 raised from a public
offering completed in December 1997, as well as contract and grant revenues,
interest income and lease and debt financing.
Capital expenditures were $1,294,000 in 1997, principally reflecting equipment
purchases. Capital expenditures were $1,655,000 in 1996, principally
reflecting an expansion of the Company's leased facility.
Accounts payable and accrued expenses were $5,944,000 at December 31, 1997, an
increase of $799,000 over December 31, 1996, primarily as a result of increases
in amounts owed under clinical and regulatory contract arrangements. The
Company expects an increase in accounts payable and accrued expenses in future
periods as costs for the purchase of bulk drug substance are accrued in 1998,
but not paid until late 1998 and 1999. During 1997, the Company borrowed an
additional $500,000 under a credit facility, resulting in an increase in note
payable.
In February 1997, the Company entered into a Development, Supply and
Distribution Agreement (the "Agreement") in North America with SB for Cytolex.
SB has paid the Company $10,000,000 under this Agreement, and may make
additional payments to Magainin of up to $22,500,000 upon the occurrence of
certain product milestones. SB will also fund a percentage of any development
expenses for any additional indications for Cytolex. Upon the commencement of
commercial sales by SB, Magainin will be responsible for the supply of Cytolex
and SB will be responsible for the marketing and sales of Cytolex. Magainin
will receive certain percentages of SB sales revenues under agreed upon terms.
The Agreement also gives SB the right to negotiate for rights to another
Magainin product development candidate, under certain terms and conditions.
In September 1996, the Company announced results of its initial pivotal trial
of Cytolex for the treatment of infection in diabetic foot ulcers, and in March
1997 the Company reported results from a second such pivotal trial. The
clinical trials conducted for Cytolex yielded substantial data. Such data
includes information relating to the primary endpoint for the studies (clinical
cure or improvement of infection), as well as additional data relating to
microbiological results, wound healing and side effects. Analyses were done on
various aspects of the data, and various patient subgroups, some of which
yielded results that favored ofloxacin. Additionally, the Company is
continuing its analyses of data from the studies. There can be no assurance
that such continued analyses will yield positive results. Although the Company
believes the two pivotal trials of Cytolex yielded successful results, there
can be no assurance that the FDA will concur with the Company's analysis in
this regard. There can be no assurance that Cytolex will receive FDA approval
on a timely basis, if at all. The failure of the Company to obtain FDA approval
for Cytolex, any significant delay in obtaining such approval, or the
imposition of highly restrictive conditions on such approval, would have a
material adverse effect on the Company.
29
<PAGE> 32
The Company believes that its existing capital resources should be sufficient
to finance its operations through 1999. However, the Company's capital
requirements may change due to numerous factors, including the progress of the
Company's research and development programs, regulatory approvals, competitive
and technological advances, the commercial viability of the Company's products,
the terms of collaborative arrangements, if any, entered into by the Company,
and other factors, many of which are beyond the Company's control. The Company
will require substantial additional funds to continue its research and
development programs and to commercialize potential products. The Company
intends to seek such funds through a combination of future offerings of
securities and collaborative arrangements with third parties, and regularly
explores alternatives in this regard. The Company does not have any
commitments to obtain any additional funds and has no established banking
arrangements through which it can obtain additional debt financing. There can
be no assurance that future funding will be available to the Company or, if
available, will be obtainable on terms favorable to the Company. The receipt
of funding, if any, from any corporate partners, including SB, will depend
largely on the progress of research and development programs. Under
collaborative arrangements, the Company may convey marketing, distribution,
manufacturing, development or other rights to its proposed products to
pharmaceutical companies in order to receive financial or other assistance.
This will result in lower consideration to the Company upon commercialization
of such products than if no arrangements were entered into or if such
arrangements were entered into at later stages in the product development
process. There can be no assurance that the Company will be able to enter into
such arrangements on favorable terms, if at all.
If the Company does not enter into appropriate collaborations, receive
additional funds from SB under its current agreement or raise sufficient funds
from the periodic sale of securities, the Company will be required to delay or
eliminate expenditures for potential products, including Cytolex, or to enter
into collaborations with third parties to commercialize potential products or
technologies that the Company would otherwise seek to develop itself, or seek
other arrangements.
The Company is working with Abbott with regard to the development by Abbott of
a solution phase chemical process to manufacture bulk drug substance for
Cytolex on a commercial scale. The Company is currently dependent upon Abbott
for the production of bulk drug substance for Cytolex. In the event that bulk
drug substance for Cytolex is not manufactured at Abbott, the Company will need
to secure other manufacturing arrangements. The process developed by Abbott is
proprietary, and in the event the Company desires to utilize, or have another
party utilize, such proprietary technology, the Company would be required to
make license payments to Abbott. Further progress in scale-up and
manufacturing development efforts will be required to enable the Company to
manufacture and sell Cytolex on a profitable basis. This may require
substantial additional funds. The Company has certain efforts under way with
respect to alternative manufacturing sources, including recombinant
manufacturing; however, these programs are at an early stage, and significant
expenditures over an extended period of time will be required to develop a
commercially viable process. No assurance can be given that a cost-effective
manufacturing process can ultimately be developed, or that any such process
would be approved by the FDA, or that the Company, Abbott or others will be
able to manufacture Cytolex on a commercially viable basis.
The Company's arrangement with Abbott also provides for the issuance by the
Company to Abbott of up to 500,000 shares of its Common Stock and the
obligation to pay a royalty on any future sales of Cytolex. Stock issuances by
the Company to Abbott will result in a charge to earnings, representing the
fair value of the shares when issued. The Company issued 125,000 shares of
common stock to Abbott in October 1995, resulting in a charge to earnings of
$1,250,000 in 1995. Future stock issuances are related to the achievement by
Abbott of contractual performance milestones.
The Company expects to contract with Abbott for the purchase of bulk drug
substance for Cytolex in 1998, prior to any FDA approval of Cytolex, resulting
in significant research and development expenses in 1998.
The Company also expects to conduct significant manufacturing development
activities for its other products under development. The Company is currently
working with outside contractors for the chemical production of squalamine.
The Company expects to expend significant resources in the production of
squalamine and any
30
<PAGE> 33
other compounds under development, and there can be no assurance that these
efforts will be successful.
The Company's capital expenditure requirements will depend upon numerous
factors, including the success of Cytolex and the progress of the Company's
other research and development programs, the time and cost required to obtain
regulatory approvals, the ability of the Company to enter into additional
collaborative arrangements, the demand for products based on the Company's
technology, if and when such products are approved, and possible acquisitions
of products, technologies and companies. The Company had no significant
capital commitments as of December 31, 1997.
ITEM 7A QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth beginning on page
F-1 hereof in the Table of Contents for PART II - Financial
Information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
31
<PAGE> 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item concerning directors is incorporated
herein by reference from the Company's Proxy Statement for the 1998
Annual Meeting of Shareholders. Set forth in Part I - Item 1 is the
information required by this item concerning executive officers.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is incorporated herein by reference
from the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information required by this item is incorporated herein by reference
from the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
Financial Statements
The information required by this item is set forth in the Table of
Contents to Financial Statements on page F-1 hereof.
Financial Statement Schedules
All schedules have been omitted because they are not applicable, or
not required, or the information is shown in the Financial Statements
or Notes thereto.
Reports on Form 8-K
None.
32
<PAGE> 35
Exhibits
The following is a list of exhibits filed as part of this Annual
Report on Form 10-K. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated
parenthetically, together with a reference to the filing indicated by footnote.
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant (Exhibit 3.1)(1)
3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant (Exhibit 3.2)(13)
3.3 By-laws of the Registrant (Exhibit 3.2)(2)
4.1 Specimen copy of stock certificate for shares of Common Stock of the Registrant (Exhibit 4.1) (3)
10.1 # 1990 Stock Option Plan of the Registrant (Exhibit 10.1) (2)
10.2 # 1992 Stock Option Plan of the Registrant, as amended (4)
10.3 # Stock Option Agreement with Jay Moorin (Exhibit 10.24) (3)
10.4 # Amendment to Stock Option Agreement with Jay Moorin (Exhibit 10.4) (1)
10.5 # Form of Stock Option Agreement under Stock Option Plans (Exhibit 4.6) (2)
10.6 # Employment Agreement with Jay Moorin (Exhibit 10.2) (2)
10.7 # Employment Agreement with Michael A. Zasloff (Exhibit 10.23) (3)
10.8 # Amendment of Employment Agreement with Michael A. Zasloff (Exhibit 10.9) (3)
10.9 # Employment Agreement with Michael R. Dougherty (Exhibit 10.26) (7)
10.10 # Employment Agreement with Roy C. Levitt, M.D. (Exhibit 10.24) (5) (9)
10.11 # Employment Agreement with Thomas J. Bigger (Exhibit 10.12)(13)
10.12 Lease with respect to Plymouth Meeting, Pennsylvania offices and laboratories (Exhibit 10.16) (2)
10.13 * Lease with respect to Plymouth Meeting, Pennsylvania office
10.14 Patent License Agreement and Sponsored Research Agreement with The Children's Hospital of Philadelphia
(Exhibit 10.15)(2)
10.15 License Agreement with Multiple Peptide Systems, Inc. (Exhibit 10.12)(2)
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
10.16 Second Amendment to License Agreement with Multiple Peptide Systems, Inc. (Exhibit 10.30) (12)
10.17 Stock Issuance Agreement between the Company and The Scripps Research Institute. (Exhibit 10.2) (11)
10.18 Stock Issuance Agreement between the Company and Houghten Pharmaceuticals, Inc. (Exhibit 10.1)(11)
10.19 Form of Credit Agreement, including form of Promissory Note and Warrant (Exhibit 10.22) (2)
10.20 Form of Amendment to Credit Agreement Warrant (Exhibit 10.18) (6)
10.21 Research and Development Agreement with Abbott Laboratories (Exhibit 10.23)(7)
10.22 Warrant Agreement with Abbott Laboratories (Exhibit 10.25)(7)
10.23 Manufacturing Agreement with Abbott Laboratories, dated October 4, 1995 (Exhibit 10.27)(5)(8)
10.24 Stock Issuance Agreement with Abbott Laboratories, dated October 4, 1995 (Exhibit 10.28)(5)(8)
10.25 Assignment Agreement between Magainin Pharmaceuticals Inc., Roy C. Levitt, M.D. and GeneQuest, Inc. (Exhibit 10.25)
(5)(9)
10.26 Form of Purchase Agreement relating to the issuance by the Company of units consisting of shares of the Company's
Common Stock and warrants to purchase shares of the Company's Common Stock. (Exhibit 10.1)(10)
10.27 Form of Warrant to purchase shares of the Company's Common Stock. (Exhibit 10.2)(10)
10.28 Development, Supply and Distribution Agreement, effective as of February 12, 1997 with SmithKline Beecham Corporation
(Exhibit 10.29)(5)(13)
23 * Consent of Richard A. Eisner & Company, LLP
24 * Power of Attorney (included on signature page of this Annual Report on Form 10-K)
27 * Financial Data Schedule
</TABLE>
34
<PAGE> 37
- -------------------
Explanation of Footnotes to Listing of Exhibits
<TABLE>
<S> <C>
* Filed herewith.
# Compensation plans and arrangements for executives and others.
(1) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended June 30, 1992 filed with the Securities and
Exchange Commission on September 24, 1992.
(2) Filed as an Exhibit to Registration Statement (No. 33-43579) on Form S-1 filed with the Securities and Exchange
Commission on October 24, 1991.
(3) Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration Statement (No. 33-43579) on Form S-1 filed with
the Securities and Exchange Commission on November 27, 1991.
(4) Filed as Exhibit A to the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders.
(5) Portions of this Exhibit were omitted and filed separately with the Securities and Exchange Commission pursuant to an
order granting confidential treatment.
(6) Filed as an Exhibit to the Transition Report on Form 10-K for the year ended December 31, 1993 filed with the
Securities and Exchange Commission on March 9, 1994.
(7) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 1994 filed with the Securities
and Exchange Commission on March 31, 1995.
(8) Filed as an Exhibit to the Form 10-Q for the quarter ended September 30, 1995 filed with the Securities and Exchange
Commission on November 9, 1995.
(9) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 1995 filed with the Securities
and Exchange Commission on March 29, 1996.
(10) Filed as an Exhibit to Registration Statement (No. 333-9927) on Form S-3 filed with the Securities and Exchange
Commission on August 9, 1996.
(11) Filed as an Exhibit to Registration Statement (No. 333-14555) on Form S-3 filed with the Securities and Exchange
Commission on October 21, 1996.
(12) Filed as an Exhibit to the Form 10-Q for the quarter ended September 30, 1996 filed with the Securities and Exchange
Commission on November 14, 1996.
(13) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 1996 filed with the Securities
and Exchange Commission on March 31, 1997.
</TABLE>
35
<PAGE> 38
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.
MAGAININ PHARMACEUTICALS INC.
Date: March 6, 1998 By: /s/ Jay Moorin
----------------
Jay Moorin
Chairman, President and Chief Executive Officer
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 in the capacities and on the dates indicated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Jay Moorin, Chairman, President and Chief Executive
Officer, and Michael R. Dougherty, Executive Vice President and Chief Financial
Officer, and each of them severally, his true and lawful attorney-in-fact, in
his name, place and stead to execute and cause to be filed with the Securities
and Exchange Commission any or all amendments to this report.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jay Moorin Chairman, President and Chief March 6, 1998
- ------------------------- Executive Officer and Director
Jay Moorin (Principal Executive Officer)
/s/ Michael A. Zasloff, M.D. Ph. D. Vice Chairman, Executive Vice March 6, 1998
- ----------------------------------- President and Director
Michael A. Zasloff, M.D., Ph.D.
/s/ Michael R. Dougherty Executive Vice President and March 6, 1998
- ------------------------ Chief Financial Officer, and Director
Michael R. Dougherty (Principal Financial and Accounting Officer)
/s/ Roy C. Levitt, M.D. Executive Vice President and March 6, 1998
- ----------------------- Head of Research and Development
Roy C. Levitt, M.D. and Director
/s/ Bernard Canavan, M.D. Director March 6, 1998
- -------------------------
Bernard Canavan, M.D.
/s/ Zola P. Horovitz, Ph. D. Director March 6, 1998
- ----------------------------
Zola P. Horovitz, Ph.D.
/s/ Charles A. Sanders, M.D. Director March 6, 1998
- ----------------------------
Charles A. Sanders, M.D.
/s/ Robert F. Shapiro Director March 6, 1998
- ---------------------
Robert F. Shapiro
Director
- -------------------------
James B. Wyngaarden, M.D.
</TABLE>
36
<PAGE> 39
MAGAININ PHARMACEUTICALS INC.
Table of Contents
PART II - Financial Information
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS
Page
----
<S> <C>
Report of Independent Auditors F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Magainin Pharmaceuticals Inc.
Plymouth Meeting, Pennsylvania
We have audited the accompanying balance sheets of Magainin Pharmaceuticals
Inc. as at December 31, 1997, and December 31, 1996 and the related statements
of operations, changes in stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 financial statements enumerated above present fairly, in
all material respects, the financial position of Magainin Pharmaceuticals Inc.
at December 31, 1997 and December 31, 1996 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 6, 1998
F-2
<PAGE> 41
BALANCE SHEETS Magainin Pharmaceuticals Inc.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, 1997 1996
- ------------ ---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 487 $ 2,072
Short-term investments 38,574 31,268
Prepaid expenses and other current assets 490 454
--------- --------
Total current assets 39,551 33,794
Fixed assets, net 2,824 2,506
Other assets 69 76
--------- --------
Total assets $ 42,444 $ 36,376
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,944 $ 5,145
Note payable - current 500 250
Equipment lease obligations - current 34 123
--------- --------
Total current liabilities 6,478 5,518
Note payable - long-term 1,000 750
Equipment lease obligations - long-term - 38
Deferred rent 96 127
--------- --------
Total liabilities 7,574 6,433
--------- --------
Commitments, contingencies and other matters
Stockholders' equity:
Preferred stock - $.001 par value; shares
authorized - 9,211; none issued
Common stock - $.002 par value; shares
authorized - 45,000; shares issued and
outstanding - 21,980 and 19,364 44 39
Additional paid-in capital 144,444 125,134
Unrealized gain on investments 6 13
Accumulated deficit (109,624) (95,243)
--------- --------
Total stockholders' equity 34,870 29,943
--------- --------
Total liabilities and stockholders' equity $ 42,444 $ 36,376
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 42
STATEMENTS OF OPERATIONS Magainin Pharmaceuticals Inc.
(In thousands, except per share
amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES:
Contract $ 10,088 $ 150 $ 2,056
Related party contract -- -- 280
-------- -------- --------
10,088 150 2,336
-------- -------- --------
COSTS AND EXPENSES:
Research and development 22,875 22,326 18,160
General and administrative 3,246 3,488 3,137
Charge for stock issuance relating -- 7,080 --
to royalty buyout -------- -------- --------
26,121 32,894 21,297
-------- -------- --------
Loss from operations (16,033) (32,744) (18,961)
Interest income 1,770 2,172 1,778
Interest expense (118) (48) (32)
-------- -------- --------
Loss $(14,381) $(30,620) $(17,215)
======== ======== ========
Loss per share - basic $(0.73) $(1.71) $(1.17)
======== ======== ========
Weighted average shares outstanding 19,679 17,938 14,696
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 43
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Magainin Pharmaceuticals Inc.
(In thousands)
<TABLE>
<CAPTION>
Common Stock
Unrealized
Additional Gain
Number Paid-in Accumulated (Loss) on
of Shares Amount Capital Deficit Investments
--------- ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 13,320 $ 27 $ 71,463 $(47,408) $ (169)
Common stock issued pursuant to public 3,500 7 32,620 --
offering
Common stock issued, exercise of 107 -- 329 --
options
Fair value of shares issued to 125 -- 1,250 --
contract manufacturer
Carrying value adjustment -- -- -- -- 289
Loss -- -- -- (17,215) --
--------- --------- ---------- ---------- ------
BALANCE AT DECEMBER 31, 1995 17,052 34 105,662 (64,623) 120
Common stock issued pursuant to 1,557 3 11,929 -- --
private placement
Fair value of shares issued pursuant 550 1 7,059 -- --
to royalty buyout
Common stock issued, exercise of 205 1 484 -- --
options and warrants
Carrying value adjustment -- -- -- -- (107)
Loss -- -- -- (30,620) --
--------- --------- --------- ---------- ------
BALANCE AT DECEMBER 31, 1996 19,364 39 125,134 (95,243) 13
Common stock issued pursuant to public 2,587 5 19,167
offering
Common stock issued, exercise of 29 143
options and warrants
Carrying value adjustment (7)
Loss -- -- -- (14,381) --
--------- --------- -------- ---------- ------
BALANCE AT DECEMBER 31, 1997 21,980 $44 $144,444 ($109,624) $6
========= ========= ======== ========== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 44
STATEMENTS OF CASH FLOWS Magainin Pharmaceuticals Inc.
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss $(14,381) $(30,620) $(17,215)
Adjustments to reconcile loss to net
cash used in operating activities:
Fair value of stock, options and
warrants issued -- 7,060 1,250
Depreciation and amortization 976 625 456
Deferred rent (31) (16) (6)
Changes in operating assets and
liabilities:
(Increase) decrease in prepaid
expenses and other assets (29) 55 (28)
Increase in accounts payable
and accrued expenses 799 1,065 590
--------- --------- ---------
Net cash used in operating activities (12,666) (21,831) (14,953)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (73,065) (28,019) (62,948)
Proceeds from maturities and
sales of investments 65,752 38,430 44,821
Capital expenditures (1,294) (1,655) (360)
--------- --------- ---------
Net cash provided by (used in)
investing activities (8,607) 8,756 (18,487)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 500 1,000 --
Payments on capitalized equipment leases (127) (150) (186)
Proceeds from sale of stock and exercise
of options and warrants 19,315 12,417 32,956
--------- --------- ---------
Net cash provided by financing activities 19,688 13,267 32,770
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (1,585) 192 (670)
Cash and cash equivalents at beginning
of period 2,072 1,880 2,550
--------- --------- ---------
Cash and cash equivalents at end of period $ 487 $ 2,072 $ 1,880
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 106 $ 48 $ 32
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS Magainin Pharmaceuticals Inc.
1. THE COMPANY:
Magainin Pharmaceuticals Inc. (the "Company") was incorporated on June 29,
1987. The Company is a biopharmaceutical company engaged in the development of
medicines for serious diseases. The Company has completed two pivotal Phase
III clinical trials for its lead product development candidate, Cytolex, a
topical cream antibiotic intended for the treatment of infection in diabetic
foot ulcers. The Company is also conducting research on an aminosterol class
of compounds. One such compound, squalamine, is being evaluated in Phase I
clinical testing in cancer. The Company's newest research efforts are in the
genomics of asthma.
The Company has not generated any revenues from product sales, and has funded
operations primarily from the proceeds of public and private placements of
securities. Substantial financing will be required by the Company to fund its
research and development activities. There can be no assurance that such
financing will be available when needed or that the Company's research and
development efforts will be successful.
As a result of revenues earned during the year ended December 31, 1997, the
Company is no longer in the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and related notes. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid investment
instruments purchased with a maturity of three months or less to be cash
equivalents.
Investments - Investments purchased with a maturity of more than three months,
and which mature less than twelve months from the balance sheet date, are
classified as short-term investments. Long-term investments are those with
maturities greater than twelve months from the balance sheet date. The Company
generally holds investments to maturity, however, since the Company may, from
time to time, sell securities to meet cash requirements, the Company classifies
its investments as available-for-sale as defined by Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). Available-for-sale securities are carried at
market value with unrealized gains and losses reported as a separate component
of Stockholders' Equity. Gross realized gains and losses on the sales of
investment securities are determined on the specific identification method and
are included in interest income.
Fixed Assets and Depreciation - Fixed assets are recorded at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets. Equipment under capital leases and leasehold improvements are
amortized using the straight-line method over the term of the respective lease,
or their estimated useful lives, whichever is shorter. Expenditures for
maintenance and repairs are charged to expense as incurred.
Revenue recognition - Any revenues from research and development arrangements
are recognized pursuant to the terms of the related agreements, either as work
is performed, or as milestones are achieved.
Research and development - Research and development costs are expensed as
incurred.
Patent costs - Patent-related costs are expensed as incurred.
Lease expense - Expense related to the facility lease is recorded on a
straight-line basis over the lease term. The
F-7
<PAGE> 46
difference between rent expense incurred and the amount paid is recorded as
deferred rent and is amortized over the lease term.
Stock Based Compensation - The Company accounts for stock-based employee
compensation under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
Effective January 1, 1996, the Company adopted the disclosure-only provisions
of Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123").
Income Taxes - The Company accounts for income taxes using the liability method
as prescribed by Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by a valuation
allowance for any tax benefits which are not expected to be realized. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted.
Loss per share - The Company calculates its loss per share under the provisions
of Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 requires a dual presentation of "basic" and "diluted"
loss per share on the face of the income statement. Basic loss per share is
computed by dividing loss by the weighted average number of shares of
common stock outstanding during each period. Diluted loss per share includes
the effect, if any, from the potential exercise or conversion of securities,
such as stock options and warrants, which would result in the issuance of
incremental shares of common stock. Only basic loss per share amounts have been
presented on the face of the statements of operations as the inclusion of
incremental shares would have been anti-dilutive.
Reclassification - Certain reclassifications have been made to prior years'
financial statements to conform to the current year presentation.
3. INVESTMENTS:
The Company invests in securities of the U.S. Treasury and U.S. Government
agencies. Excess cash is invested on a short-term basis in U.S. government
based money market funds. Unrealized gains at December 31, 1997 and 1996 total
$6,000 and $13,000, respectively. The Company has not realized any losses on
its investments.
4. FIXED ASSETS:
Fixed assets are stated at cost and are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ --------------
<S> <C> <C>
Laboratory and office equipment $3,147 $3,766
Leasehold improvements 2,625 2,433
------- --------
Total 5,772 6,199
Less accumulated depreciation and amortization (2,948) (3,693)
------- --------
$2,824 $2,506
======= ========
</TABLE>
F-8
<PAGE> 47
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Accounts payable $ 215 $ 176
Clinical and regulatory costs 1,197 720
Manufacturing development costs 3,507 3,426
Preclinical costs 338 269
Professional fees 258 200
Other 429 354
------ ------
$5,944 $5,145
====== ======
</TABLE>
6. EQUIPMENT LEASE OBLIGATIONS:
The Company leases equipment under various agreements with original terms of 48
months and accounts for these leases as capital leases. The net book value of
the equipment held under capital leases was approximately $38,000 and $149,000
at December 31, 1997 and 1996, respectively.
Future lease payments as of December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Year Ending December 31, 1998 $36
Less amount representing interest 2
------
Present value of future lease
payments at end of year 34
======
</TABLE>
F-9
<PAGE> 48
7. NOTE PAYABLE:
The Company has entered into a credit arrangement with a commercial bank under
which up to $1,500,000 may be borrowed to finance the acquisition of equipment
and the costs of improvements to the Company's leased facilities. Borrowings
under this credit facility bear interest at rates ranging from 8.5% to the
prime rate minus one quarter percent. The loans provide for monthly interest
payments, with principal payments due on contractual repayment dates.
As of December 31, 1997 and 1996, the Company had borrowed $1,500,000 and
$1,000,000, respectively, under this facility.
Any amounts outstanding under this credit arrangement shall become immediately
due and payable under certain circumstances, including the failure of the
Company to maintain certain minimum cash and investment balances, and financial
ratios.
The principal repayment obligations as of December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
1998 $ 500
1999 1,000
-----
Total $ 1,500
=====
</TABLE>
F-10
<PAGE> 49
8. STOCKHOLDERS' EQUITY:
In August 1995, the Company consummated a public offering of 3,500,000 shares
of common stock with proceeds to the Company (after underwriting discounts and
offering expenses) of approximately $32,627,000.
In October 1995, pursuant to an arrangement with a contract manufacturer, the
Company issued to such manufacturer 125,000 shares of common stock with a fair
value of $10 per share. In connection therewith, the Company recorded a
non-cash charge to earnings of $1,250,000.
In May 1996, the Company increased the number of its authorized common shares
to 45,000,000.
In August 1996, the Company completed a private placement of 1,556,763 shares
of common stock, together with warrants as described below, with proceeds to
the Company (after offering expenses) of approximately $11,932,000.
In September 1996, pursuant to a buyout of a royalty arrangement, the Company
issued 550,000 shares of common stock. In connection, therewith, the Company
recorded a non-cash charge to earnings of $7,060,000.
In December 1997, the Company consummated a public offering of 2,587,500 shares
of common stock with proceeds to the Company (after underwriting discounts and
offering expenses) of approximately $19,172,000.
Warrants - Under a 1991 credit agreement with certain stockholders, the Company
granted warrants to the lenders to purchase an aggregate of 250,000 shares of
common stock at $8.00 per share. These warrants expire in 2001. At December 31,
1997, 229,739 of these warrants are outstanding.
In October 1994, pursuant to an arrangement with a contract manufacturer, the
Company granted to such manufacturer a warrant to purchase 300,000 shares of
common stock at $7.50 per share. The warrant expires in 1999.
In connection with the August 1996 private placement, the Company issued common
stock together with warrants to purchase an aggregate of 1,011,896 shares of
common stock, exercisable at $8.48 per share. The warrants contain provisions
to decrease the exercise price, and increase the issuable shares, under certain
circumstances. Such circumstances include the issuance of shares of common
stock by the Company for a consideration per share less than the exercise price
of the warrants, and the issuance by the Company of securities convertible into
shares of common stock for which the exercise or conversion price is less than
the exercise price of the warrants. In this regard, as a result of the
Company's December 1997 public offering, the warrants were adjusted to be
exercisable for an aggregate of 1,017,872 shares of common stock and the
exercise price was decreased to $8.43 per share. The warrant holders also
have a one-time right, in the event the average price of the Company's common
stock in any month prior to August 1999 falls below a certain level, to reduce
the exercise price of the warrant to 110% of such average price.
Stock option plans - In May 1991, the stockholders approved the 1990 Stock
Option Plan (the "1990 Plan") which provides for the granting of options for
the purchase of up to 160,000 shares of common stock. In May 1996, the
stockholders approved the amended 1992 Stock Option Plan (the "1992 Plan")
which provides for the granting of options for the purchase of up to 2,500,000
shares of common stock.
The plans provide for the granting of incentive stock options and nonqualified
stock options and are administered by a committee of the Board of Directors.
The committee has the authority to determine the term during which an option
may be exercised (provided that no option may have a term of more than 10
years), the exercise price of an option and the rate at which options may be
exercised. Incentive stock options may be granted only to employees of the
Company. Nonqualified stock options may be granted to employees, directors or
consultants of the Company.
F-11
<PAGE> 50
For nonqualified stock options under the 1992 Plan and incentive stock options,
the exercise price can not be less than the fair market value of the underlying
common stock on the date of the grant.
In addition to the shares of common stock issuable upon exercise of options
granted under the Company's stock option plans, 734,383 shares of common stock
are issuable upon exercise of outstanding options granted to officers,
employees and consultants pursuant to other written agreements. The exercise
price for these options was set by the Board of Directors, or a committee
designated by the Board, based upon an evaluation of the fair market value of
the Company's common stock on the date of grant. The options vest over various
periods, not exceeding five years, and expire no later than ten years from the
date of grant.
A summary of the status of the Company's stock options as of December 31, 1997,
1996 and 1995, and changes during the years ending on those dates, is presented
below (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- --------------------------- ---------------------------
SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
- ------- -------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of 2,466 $6.07 2,048 $3.97 1,759 $3.07
year
Granted 576 $7.51 782 $10.56 504 $7.16
Exercised (29) $4.91 (196) $ 2.56 (107) $3.08
Forfeited (39) $8.46 (168) $ 5.01 (108) $4.90
----- ----- -----
Outstanding at end of year 2,974 $6.33 2,466 $ 6.07 2,048 $3.97
Exercisable at end of year 1,586 $4.29 1,203 $ 3.00 1,157 $2.39
</TABLE>
The following table summarizes information about stock options outstanding as
of December 31, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE
--------------------------------------------------- -------------------------------
SHARES WEIGHTED AVERAGE SHARES
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- ---------------- ----------- ---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$.002 - $.40 146 1 Year $ 0.02 146 $ 0.02
$2.00 - $3.75 1,039 5 Years $ 2.73 957 $ 2.65
$5.25 - $8.00 838 8 Years $ 7.22 196 $ 6.49
$8.25 - $11.63 936 8 Years $ 10.34 276 $ 10.19
$16.75 15 6 Years $ 16.75 11 $ 16.75
------------- -----------
$.002 - $16.75 2,974 7 Years $ 6.33 1,586 $ 4.29
</TABLE>
F-12
<PAGE> 51
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for options. Accordingly, no compensation cost has been recognized for
employee stock option grants. Had compensation cost for employee stock option
grants been determined based on the fair value at the grant dates for awards
consistent with the method of SFAS No. 123, the Company's loss and loss per
share would have been increased to the pro forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Loss As reported $(14,381) $(30,620) $(17,215)
Pro forma $(16,649) $(31,816) $(17,410)
Loss per share - As reported $(0.73) $(1.71) $(1.17)
basic Pro forma $(0.85) $(1.78) $(1.18)
</TABLE>
The resulting effect on pro forma loss and pro forma loss per share disclosed
above is not likely to be representative of the effects on a pro forma basis in
future years, because 1997, 1996 and 1995 pro forma results include the impact
of only three, two and one years, respectively, of grants and related vesting,
while subsequent years will include additional years of grants and vesting.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Range of risk free interest rates 5.8% - 6.6% 6.1% - 6.8% 5.6% - 7.2%
Dividend yield 0% 0% 0%
Volatility factor 75% 79% 82%
Expected life of options (in years) 6 6 6
</TABLE>
The Weighted Average Fair Value of options granted was $5.31 in 1997, $7.54 in
1996 and $5.30 in 1995.
F-13
<PAGE> 52
9. INCOME TAXES:
The Company has approximately $95,707,000 of net operating loss ("NOL")
carryforwards for income tax purposes and approximately $5,675,000 of research
and development tax credits available to offset future federal income tax
subject to limitations for alternative minimum tax. The NOL and research and
development credit carryforwards are subject to examination by the tax
authorities and expire in various years from 2003 through 2012. The NOL
carryforward differs from the accumulated deficit principally due to differences
in the recognition of certain research and development expenses for financial
and federal income tax reporting.
The Tax Reform Act of 1986 contains provisions that may limit the NOL and
research and development credit carryforwards available to be used in any given
year upon the occurrence of certain events, including significant changes in
ownership interest. A change in ownership of a company of greater than 50%
within a three-year period results in an annual limitation on that company's
ability to utilize its NOL carryforwards from tax periods prior to the ownership
change. The Company is subject to an annual limitation on the use of its NOL
carryforwards pursuant to these provisions. The Company does not believe that
such limitation will have a material adverse impact on the utilization of its
carryforwards.
The Company's NOL, research and development tax credit carryforwards and
temporary differences represent a previously unrecognized tax benefit.
Recognition of these benefits requires future income. Because the attainment of
future income is uncertain, the Company has established a valuation allowance,
which increased by approximately $6,954,000 during 1997, for the entire amount
of the tax benefit.
Significant components of the Company's deferred tax assets as of December 31,
1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 33,497 $ 29,077
Research credits 5,675 4,258
Capitalized research and development 2,284 2,360
Other, net 2,046 853
--------- ---------
Net deferred tax assets 43,502 36,548
Valuation allowance for deferred tax assets $(43,502) $(36,548)
--------- ---------
Total deferred tax assets $ -- $ --
========= =========
</TABLE>
10. COLLABORATIVE AGREEMENTS:
In 1990, the Company entered into a Research and License Agreement with
Colgate-Palmolive Company ("Colgate") pursuant to which the Company received
research funding of approximately $280,000 in the year ended December 31, 1995.
This agreement has expired.
In August 1994, the Company entered into a collaboration in the nutritional
field with Abbott Laboratories ("Abbott"). The Company recorded revenue of
$88,000, $150,000, and $150,000 in the years ended December 31, 1997, 1996 and
1995, respectively, under this arrangement.
The Company recorded revenues of $1.9 million in 1995 relating to the execution
of an agreement in principle with Fisons plc ("Fisons") in September 1995, and
the termination by Fisons of this arrangement in November 1995.
In February 1997, the Company entered into a development, supply and
distribution agreement (the "Agreement") in North America with SmithKline
Beecham ("SB") for Cytolex(TM). SB has paid the Company $10.0 million under
this Agreement, and may make additional payments to Magainin of up to $22.5
million,
F-14
<PAGE> 53
upon the occurrence of certain product milestones. SB will also fund a
percentage of any development expenses for any additional indications for
Cytolex(TM). Upon the commencement of commercial sales by SB, Magainin will be
responsible for the supply of Cytolex(TM) and SB will be responsible for the
marketing and sale of Cytolex(TM). Magainin will receive certain percentages of
SB sales revenues under agreed upon terms. The Agreement also gives SB the
right to negotiate for rights to another Magainin product development candidate,
under certain terms and conditions. The Agreement gives SB the right to
terminate on a country by country basis if SB determines it is not economical to
distribute Cytolex in those areas.
The Company has rights under license agreements to certain patents and patent
applications under which the Company expects to owe royalties on sales of any
products which are covered by issued patent claims. Additionally, certain of
these agreements also provide that if the Company elects not to pursue the
commercial development of any licensed technology, or does not adhere to an
acceptable schedule of commercialization, then the Company's exclusive rights
to such technology would terminate.
11. 401(K) PLAN:
The Company maintains a 401(k) retirement plan available to all full-time,
eligible employees. Employee contributions are voluntary and are determined on
an individual basis, limited to the maximum amount allowable under federal tax
regulations. The Company, at its discretion, may make certain contributions to
the plan. No such contributions have been made through December 31, 1997.
12. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
Manufacturing
The Company is working with Abbott with regard to the development by Abbott of
a solution phase chemical process to manufacture bulk drug substance for
Cytolex on a commercial scale. The Company is currently dependent upon Abbott
for the production of bulk drug substance for Cytolex. In the event that bulk
drug substance for Cytolex is not manufactured at Abbott, the Company will need
to secure other manufacturing arrangements. The process developed by Abbott is
proprietary, and in the event the Company desires to utilize, or have another
party utilize, such proprietary technology, the Company would be required to
make license payments to Abbott. Further progress in scale-up and
manufacturing development efforts will be required to enable the Company to
manufacture and sell Cytolex on a profitable basis. This may require
substantial additional funds. The Company has certain efforts under way with
respect to alternative manufacturing sources, including recombinant
manufacturing; however, these programs are at an early stage, and significant
expenditures over an extended period of time will be required to develop a
commercially viable process. No assurance can be given that a cost-effective
manufacturing process can ultimately be developed, or that any such process
would be approved by the FDA, or that the Company, Abbott or others will be
able to manufacture Cytolex on a commercially viable basis.
The Company's arrangement with Abbott also provides for the issuance by the
Company to Abbott of up to 500,000 shares of its Common Stock and the
obligation to pay a royalty on any future sales of Cytolex. Stock issuances by
the Company to Abbott will result in a charge to earnings, representing the
fair value of the shares when issued. The Company issued 125,000 shares of
common stock to Abbott in October 1995, resulting in a charge to earnings of
$1,250,000 in 1995. Future stock issuances are related to the achievement by
Abbott of contractual performance milestones.
The Company expects to finalize an agreement with Abbott for the purchase of
bulk drug substance for Cytolex in 1998, prior to any FDA approval of Cytolex,
resulting in significant research and development expenses in 1998.
The Company also expects to conduct significant manufacturing development
activities for its other products under development. The Company is currently
working with outside contractors for the chemical production of squalamine.
The Company expects to expend significant resources in the production of
squalamine and any other compounds under development, and there can be no
assurance that these efforts will be successful.
F-15
<PAGE> 54
Rent
The Company has entered into two operating leases for its laboratory and
corporate office facilities. These leases provide for minimum annual rent
payments through 2001 as follows (in thousands):
<TABLE>
<S> <C>
Year Ending December 31,
1998 $436
1999 435
2000 119
2001 10
</TABLE>
The leases provide for escalations relating to increases in real estate taxes
and certain operating expenses.
Rent expense was approximately $295,000, $310,000 and $297,000, for the years
ended December 31, 1997, 1996 and 1995, respectively.
F-16
<PAGE> 55
Exhibit Index
The Exhibits that have been filed herewith this Form 10-K are summarized as
follows:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
10.13 Lease with respect to Plymouth Meeting, PA office space
23 Consent of Richard A. Eisner & Company, LLP
24 Power of Attorney (included on signature page of this Annual Report on
Form 10-K)
27 Financial Statement Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.13
PLYMOUTH MEETING EXECUTIVE CAMPUS OFFICE LEASE
BETWEEN
PLYMOUTH CAMPUS ASSOCIATES
(a Pennsylvania limited partnership)
AS LANDLORD
-AND-
MAGAININ PHARMACEUTICALS, INC.
(a Delaware corporation)
AS TENANT
DATED: JANUARY 16, 1998
PREMISES:
5,077 RENTABLE SQUARE FEET
SECOND FLOOR - SUITE 270
PLYMOUTH MEETING EXECUTIVE CAMPUS
PLYMOUTH MEETING, PENNSYLVANIA 19462
<PAGE> 2
PLYMOUTH MEETING EXECUTIVE CAMPUS OFFICE LEASE
TABLE OF CONTENTS
PARAGRAPH PAGE
1. DEMISED PREMISES: USE ............................................. -1-
1.1 LETTING AND DEMISED PREMISES: USE ......................... -1-
1.2 CAMPUS .................................................... -1-
1.3 COMMON FACILITIES ......................................... -1-
1.4 RENTABLE SQUARE FEET ...................................... -1-
2. TERM: COMMENCEMENT ................................................ -2-
2.1 DURATION .................................................. -2-
2.2 SUBSTANTIAL COMPLETION .................................... -2-
2.3 CONFIRMATION .............................................. -2-
2.4 ACCEPTANCE OF WORK ........................................ -2-
3. MINIMUM RENT: INCREASES IN MINIMUM RENT: SECURITY DEPOSIT ......... -2-
3.1 AMOUNT AND PAYMENT ........................................ -2-
3.2 PARTIAL MONTH ............................................. -2-
3.3 ADDRESS FOR PAYMENT ....................................... -3-
3.4 NON-WAIVER OF RIGHTS ...................................... -3-
3.5 ADDITIONAL SUMS DUE: NO SET-OFF ........................... -3-
3.6 PERSONAL PROPERTY AND OTHER TAXES ......................... -3-
3.7 MINIMUM RENT INCREASES .................................... -3-
3.8 SECURITY DEPOSIT .......................................... -3-
4. INCREASES IN TAXES AND OPERATING EXPENSES ......................... -4-
4.1 DEFINITIONS ............................................... -4-
4.2 GENERAL ALLOCATION PROCEDURES ............................. -7-
4.3 TENANT'S SHARE OF TAXES AND OPERATING EXPENSES ............ -8-
4.4 DISPUTES .................................................. -9-
4.5 SURVIVAL .................................................. -9-
5. SERVICES .......................................................... -9-
5.1 HVAC AND ELECTRICITY ...................................... -9-
5.2 WATER AND SEWER ........................................... -11-
5.3 ELEVATOR: ACCESS .......................................... -11-
5.4 JANITORIAL ................................................ -11-
5.5 SECURITY .................................................. -12-
5.6 REPAIRS ................................................... -12-
5.7 SYSTEM CHANGES ............................................ -12-
-i-
<PAGE> 3
5.8 DIRECTORY ................................................. -13-
5.9 LIMITATION REGARDING SERVICES ............................. -13-
6. CARE OF DEMISED PREMISES .......................................... -13-
6.1 INSURANCE AND GOVERNMENTAL REQUIREMENTS ................... -13-
6.2 ACCESS .................................................... -14-
6.3 CONDITION ................................................. -14-
6.4 SURRENDER ................................................. -14-
6.5 SIGNS ..................................................... -14-
6.6 CARE; INSURANCE ........................................... -15-
6.7 ALTERATIONS; ADDITIONS .................................... -15-
6.8 MECHANICS' LIENS .......................................... -15-
6.9 VENDING MACHINES .......................................... -15-
6.10 RULES AND REGULATIONS ..................................... -15-
6.11 ENVIRONMENTAL COMPLIANCE .................................. -16-
7. SUBLETTING AND ASSIGNING .......................................... -17-
7.1 GENERAL RESTRICTIONS ...................................... -17-
7.2 DEFINITIONS ............................................... -18-
7.3 PROCEDURES FOR APPROVAL OF TRANSFER ....................... -18-
7.4 RECAPTURE ................................................. -19-
7.5 CONDITIONS ................................................ -19-
7.6 SPECIAL CONDITIONS FOR TRANSFERS TO AFFILIATES OF TENANT .. -19-
8. FIRE OR OTHER CASUALTY ............................................ -20-
9. REGARDING INSURANCE AND LIABILITY ................................. -20-
9.1 DAMAGE IN GENERAL ......................................... -20-
9.2 INDEMNITY ................................................. -20-
9.3 TENANT'S INSURANCE ........................................ -21-
9.4 WAIVER OF SUBROGATION ..................................... -22-
9.5 LIMITATION ON PERSONAL LIABILITY .......................... -22-
9.6 SUCCESSORS IN INTREST TO LANDLORD, MORTGAGEES ............. -22-
9.7. SURVIVAL .................................................. -23-
10. EMINENT DOMAIN .................................................... -23-
11. INSOLVENCY ........................................................ -23-
12. DEFAULT ........................................................... -24-
12.1 EVENTS OF DEFAULT ......................................... -24-
12.2 ACCELERATED RENT COMPONENT ................................ -24-
12.3 RE-ENTRY .................................................. -25-
-ii-
<PAGE> 4
12.4 CONTINUING LIABILITY ...................................... -25-
12.5 CREDIT .................................................... -26-
12.6 NO DUTY TO RELET .......................................... -26-
12.7 CONFESSION OF JUDGMENT .................................... -26-
12.8 BANKRUPTCY ................................................ -27-
12.9 WAIVER OF DEFECTS ......................................... -27-
12.10 NON-WAIVER BY LANDLORD .................................... -28-
12.11 PARTIAL PAYMENT ........................................... -28-
12.12 OVERDUE PAYMENTS .......................................... -28-
12.13 CUMULATIVE REMEDIES ....................................... -28-
13. SUBORDINATION ...................................................... -28-
13.1 GENERAL ................................................... -28-
13.2 RIGHTS OF MORTGAGEE ....................................... -29-
13.3 MODIFICATIONS ............................................. -29-
14. NOTICES ............................................................ -29-
14.1 IF TO LANDLORD ............................................ -29-
14.2 IF TO TENANT .............................................. -30-
15. HOLDING OVER ....................................................... -30-
16. RESERVATIONS IN FAVOR OF LANDLORD .................................. -30-
17. COMPLETION OF IMPROVEMENTS: DELAY IN POSSESSION .................... -30-
17.1 LANDLORD IMPROVEMENTS ..................................... -31-
17.2 TENANT IMPROVEMENTS ....................................... -31-
17.3 PERFORMANCE OF LANDLORD AND TENANT IMPROVEMENTS ........... -31-
17.4 ACCEPTANCE ................................................ -31-
17.5 DELAY IN POSSESSION ....................................... -31-
18. COMMUNICATION AND COMPUTER LINES ................................... -31-
18.1 LANDLORD RESERVATION ...................................... -32-
18.2 REMOVAL OF LINES .......................................... -32-
18.3 COMMUNICATION CONTRACTORS ................................. -33-
19. LANDLORD'S RELIANCE ................................................ -34-
20. PRIOR AGREEMENTS; AMENDMENTS ....................................... -34-
21. CAPTIONS ........................................................... -35-
22. LANDLORD'S RIGHT TO CURE ........................................... -35-
-iii-
<PAGE> 5
23. ESTOPPEL STATEMENT ........................................ -35-
24. RELOCATION OF TENANT ...................................... -35-
25. BROKER .................................................... -36-
26. MISCELLANEOUS ............................................. -36-
26.1. CERTAIN INTERPRETATIONS ........................... -36-
26.2. PARTIAL INVALIDITY ................................ -36-
26.3. GOVERNING LAW ..................................... -36-
26.4. LIGHT AND AIR ..................................... -37-
26.5. RECORDING ......................................... -37-
27. QUIET ENJOYMENT ........................................... -37-
28. CONFIDENTIALITY ........................................... -37-
====================================
SCHEDULE OF EXHIBITS
Exhibit Contents Page Nos.
------- -------- ---------
A FLOOR PLAN OF THE DEMISED PREMISES A-1 only
B SITE PLAN B-1 only
C CONFIRMATION OF LEASE TERM C-1 through C-2
D JANITORIAL SERVICES D-1 through D-3
E RULES AND REGULATIONS E-1 through E-5
F INTENTIONALLY DELETED
G INTENTIONALLY DELETED
H ESTOPPEL CERTIFICATE H-1 through H-5
-iv-
<PAGE> 6
PLYMOUTH MEETING EXECUTIVE CAMPUS
OFFICE LEASE
THIS OFFICE LEASE (the "Lease") is made this 16 day of January, 1998,
by and between PLYMOUTH CAMPUS ASSOCIATES, a Pennsylvania limited partnership
(hereinafter called "Landlord"), and MAGAININ PHARMACEUTICALS, INC., a Delaware
corporation (hereinafter called "Tenant").
1. DEMISED PREMISES; USE.
1.1 LETTING AND DEMISED PREMISES: USE. Landlord, for the term and
subject to the provisions and conditions hereof, leases to Tenant, and Tenant
rents from Landlord, the space (hereinafter referred to as the "Demised
Premises" and more, particularly delineated on the floor plan attached hereto as
Exhibit "A" and made a part hereof) being, for purposes of the provisions hereof
5,077 rentable square feet, located on the second floor of the office building
(hereinafter referred to as the "Building") known as Building No. 620 of
Plymouth Meeting Executive Campus, or such other name as Landlord may from time
to time designate, with an address of 620 West Germantown Pike, Plymouth
Township, Montgomery County, Pennsylvania 19462, located as shown on the Site
Plan attached hereto as Exhibit "B", to be used by Tenant only for general
office purposes and associated incidental uses and for no other purpose without
the prior written consent of Landlord.
1.2. CAMPUS. Plymouth Meeting Executive Campus consists of
approximately 21.854 acres of ground and certain buildings and other
improvements thereon (including four separate office buildings, of which the
Building is one, and related amenities), all located at or about Germantown Pike
and Hickory Road, in Plymouth Township, Montgomery County, Pennsylvania (the
"Campus"). Landlord reserves the right, in its sole discretion, at any time and
from time to time, to expand and/or reduce the amount of ground and/or
improvements of which the Campus consists.
1.3. COMMON FACILITIES. Tenant and its agents, employees and
invitees, shall have the right to use, in common with all others granted such
rights by Landlord, in a proper and lawful manner, the common sidewalks, access
roads, parking areas and other outdoor areas within the Campus, the common
entranceways, lobbies and elevators furnishing access to the Demised Premises,
and (if the Demised Premises includes less than a full floor) the common
lobbies, hallways and toilet rooms on the floor on which the Demised Premises is
located. Such use shall be subject to the terms of this Lease and to such
reasonable rules, regulations, limitations and requirements as Landlord may from
time to time prescribe with respect thereto, including, without limitation, the
reservation of any particular parking spaces or parking areas for the exclusive
use of other tenants of the Campus.
1.4. RENTABLE SQUARE FEET. Tenant understands, acknowledges and
agrees (i) that the amount of rentable square feet set forth in Paragraph 1.1
above is calculated based on certain
-1-
<PAGE> 7
assumptions, and (ii) that such amount of rentable square feet is hereby
accepted by Tenant for all purposes of this Lease, including, without
limitation, for purposes of determining minimum rent, Tenant's Proportionate
Share of applicable items of Taxes and Operating Expenses, Tenant's construction
allowance, if any, and other items which are based upon the computation of
square footage.
2. TERM: COMMENCEMENT.
2.1. DURATION. The term of this Lease shall commence (the
"Commencement Date") on February 1, 1998. Unless extended or sooner terminated
as herein provided, the initial term of this Lease shall continue until, and
shall expire on January 31, 2001.
2.2. SUBSTANTIAL COMPLETION. INTENTIONALLY DELETED
2.3. CONFIRMATION. INTENTIONALLY DELETED
2.4. ACCEPTANCE OF WORK. INTENTIONALLY DELETED
3. MINIMUM RENT: INCREASES IN MINIMUM RENT; SECURITY DEPOSIT.
3.1. AMOUNT AND PAYMENT. Minimum rent for the Demised Premises shall
accrue during the term as follows:
<TABLE>
<CAPTION>
FROM TO RATE MONTHLY ANNUALLY
<S> <C> <C> <C> <C>
Commencement 01/31/99 $21.00 $8,884.75 $106,617.00
Date
02/01/99 01/31/00 $22.50 $9,519.38 $114,232.56
02/01/00 01/31/01 $23.50 $9,942.46 $119,309.52
</TABLE>
Minimum rent shall be payable during the term hereof, in advance, in the monthly
installments as set forth above, without demand, offset, abatement, diminution
or reduction. The first installment to be payable upon the execution of this
Lease and subsequent installments to be payable on the first day of each
successive month of the term hereof following the first month of such term.
3.2. PARTIAL MONTH. If the term of this Lease begins on a day other
than the first day of a month, rent from such day until the first day of the
following month shall be prorated (at the rate of one-thirtieth (1/30) of the
fixed monthly rental for each day) and shall be payable, in arrears, on the
first day of the first full calendar month of the term hereof (and, in such
event, the
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installment of rent paid at execution hereof shall be applied to the rent due
for the first full calendar month of the term hereof).
3.3. ADDRESS FOR PAYMENT. All rent and other sums due to Landlord
hereunder shall be payable to Plymouth Campus Associates, c/o The Rubenstein
Company, 4100 One Commerce Square, 2005 Market Street, Philadelphia,
Pennsylvania 19103, or to such other party or at such other address as Landlord
may designate, from time to time, by written notice to Tenant.
3.4. NON-WAIVER OF RIGHTS. If Landlord, at any time or times, shall
accept rent or any other sum due to it hereunder after the same shall become due
and payable, such acceptance shall not excuse delay upon subsequent occasions,
or constitute, or be construed as, a waiver of any of Landlord's rights
hereunder.
3.5. ADDITIONAL SUMS DUE: NO SET-OFF. All sums payable by Tenant
under this Lease, whether or not stated to be rent, minimum rent or additional
rent, shall be collectible by Landlord as rent, and upon default in payment
thereof Landlord shall have the same rights and remedies as for failure to pay
rent (without prejudice to any other right or remedy available therefor). All
minimum rent, additional rent and other sums payable by Tenant under this Lease
shall be paid, when due, without demand, offset, abatement, diminution or
reduction. Additional rent shall include all sums which may become due by reason
of Tenant's failure to comply with any of the terms, conditions and covenants of
the Lease to be kept and observed by Tenant and any and all damages, costs and
expenses (including without limitation thereto reasonable attorney fees) which
Landlord may suffer or incur by reason of any default of Tenant.
3.6. PERSONAL PROPERTY AND OTHER TAXES. As additional rent, Tenant
shall pay monthly or otherwise when due, whether collected by Landlord or
collected directly by the governmental agency assessing the same, any taxes
imposed or calculated on Tenant's rent or with respect to Tenant's use or
occupancy of the Demised Premises or Tenant's business or right to do business
in the Demised Premises, including, without limitation, a gross receipts tax or
sales tax on rents or a business privilege tax or use or occupancy tax, whether
such tax exists at the date of this Lease or is adopted hereafter during the
term of this Lease or during any renewal or extension thereof; but nothing
herein shall be taken to require Tenant to pay any income, estate, inheritance
or franchise tax imposed upon Landlord. In addition to the foregoing, Tenant
shall be responsible to pay when due all taxes imposed upon all personal
property of Tenant.
3.7. MINIMUM RENT INCREASES. INTENTIONALLY DELETED
3.8. SECURITY DEPOSIT. As additional security for the full and
prompt performance by Tenant of the terms and covenants of this Lease, Tenant
has deposited with the Landlord the sum of Nine Thousand Nine Hundred Forty Two
Dollars and 00/100 ($9,942.00), (the "Security Deposit") which shall not
constitute rent for any month (unless so applied by Landlord on account of
Tenants default). Tenant shall, upon demand, restore any portion of the Security
Deposit which may be applied by Landlord to the cure of any default by Tenant
hereunder. To the extent that
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Landlord has not applied the Security Deposit on account of a default, the
Security Deposit shall be returned (without interest) to Tenant promptly after
the expiration of this Lease. Until returned to Tenant after the expiration of
the Lease and the full performance of Tenant hereunder, the Security Deposit
shall remain the Property of Landlord.
4. INCREASES IN TAXES AND OPERATING EXPENSES.
4.1. DEFINITIONS. As used in this Paragraph 4, the following terms
shall be defined as hereinafter set forth:
(i) "TAXES" shall mean all real estate taxes and assessments
of whatever kind, general or special, ordinary or extraordinary, foreseen or
unforeseen, imposed upon the Building or with respect to the ownership of the
Building and the Campus and the parcel of land on which the Building and the
Campus are located, and any existing or future improvements to the Building or
the Campus or to the parcel of land on which the Building or the Campus is
located, all of the foregoing as allocable and attributable to each given
calendar year which occurs during the term of this Lease (and any renewals and
extensions thereof). If, due to a future change in the method of taxation, any
franchise, income, profit or other tax, however designated, shall be levied or
imposed in addition to or in substitution, in whole or in part, for any tax
which would otherwise be included within the definition of Taxes, such other tax
shall be deemed to be included within Taxes as defined herein. Taxes also shall
include amounts paid to anyone engaged by Landlord to contest the amount or rate
of taxes, provided that the amounts so paid do not exceed the savings procured.
Tenant acknowledges that the exclusive right to protest, contest or appeal Taxes
shall be in Landlord's sole and absolute discretion and Tenant hereby waives any
or all rights now or hereafter conferred upon it by law to independently contest
or appeal any Taxes.
(ii) (l) "OPERATING EXPENSES" shall mean Landlord's actual
out-of-pocket expenses, adjusted as set forth herein and as allocable and
attributable to each given calendar year which occurs during the term of this
Lease (and any renewals and extensions thereof), in respect of the ownership,
operation, maintenance, repair, replacement and management of the Building and
the Campus (after deducting any reimbursement, discount, credit, reduction or
other allowance received by Landlord) and shall include, without limitation: (A)
wages and salaries (and taxes and insurance imposed upon employers with respect
to such wages and salaries) and fringe benefits paid to persons employed by
Landlord to render services in the normal operation, maintenance, cleaning,
repair and replacement of the Building and the Campus and any security personnel
for the Building and the Campus, excluding any overtime wages or salaries paid
for providing extra services exclusively for any specific tenants; (B) costs of
independent contractors hired for, and other costs in connection with, the
operation, security, maintenance, cleaning, repair and replacement of the
Building and related facilities and amenities in the Campus; (C) costs of
materials, supplies and equipment (including trucks) used in connection with the
operation, security, maintenance, cleaning, repair and replacement of the
Building and related facilities and amenities in the Campus; (D) costs of
electricity, steam, water, sewer, fuel and other utilities used at the Building
or the Campus, together with the cost of providing the services specified in
Paragraph 5
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hereof, to the extent such utilities and/or services are not separately
chargeable to an occupant of the Building or an occupant elsewhere in the
campus; (E) cost of insurance for public and general liability insurance and
insurance relating to the Building and the Campus, including fire and extended
coverage or "All-Risk" coverage, if available, and coverage for elevator,
boiler, sprinkler leakage, water damage, and property damage, plate glass,
personal property owned by Landlord, fixtures, and rent protection (all with
such coverages and in such amounts as Landlord may elect or be required to
carry), but excluding any charge for increased premiums due to acts or omissions
of other occupants of the Building or elsewhere in the Campus because of extra
risk which are reimbursed to Landlord by such other occupants; (F) costs of
tools, supplies and services; (G) costs of "Essential Capital Improvements", as
defined in and to the extent permitted pursuant to subparagraph 4.1(ii)(3)
below; (H) costs of alterations and improvements to the Building or the Campus
made pursuant to any Governmental Requirements (as defined in subparagraph
4.1(iii) below) which are not capital in nature (except to the extent permitted
by subparagraph 4.1(ii)(3) below), and which are not the obligation of Tenant or
any other occupant of the Building or elsewhere in the Campus; (I) legal and
accounting fees and disbursements necessarily incurred in connection with the
ownership, maintenance and operation of the Building and the Campus, and the
preparation, determination and certification of bills for Taxes and Operating
Expenses pursuant to this and other leases at the Building and the Campus; (J)
sales, use or excise taxes on supplies and services and on any of the other
items included in Operating Expenses; (K) costs of redecorating, repainting,
maintaining, repairing and replacing the common areas of the Building and the
Campus (including seasonal decorations); (L) management fees payable to the
managing agent for the Building and the Campus (provided, however, that if
management fees are paid to any affiliate of Landlord, then the amount thereof
to be included in Operating Expenses shall not exceed such amount as is
customarily being charged for similar services rendered to comparable buildings
in the geographical submarket within which the Campus is located); (M) the cost
of telephone service, postage, office supplies, maintenance and repair of office
equipment and similar costs related to operation of the Building's and the
Campus's management and superintendents offices; (N) the cost of licenses,
permits and similar fees and charges related to operation, maintenance, repair
and replacement of the Building and the Campus, other than any of the foregoing
relating to tenant improvements; and (O) without limiting any of the foregoing,
any other expenses or charges which, in accordance with sound accounting and
management principles generally accepted with respect to a first-class suburban
office building would be construed as an operating expense. Operating Expenses
(including such as are stated above which relate or are applicable to the
Campus) shall include, without limitation, any and all sums for landscaping,
ground and sidewalk maintenance, sanitation control, extermination, cleaning,
lighting, snow removal, parking area and driveway striping and resurfacing, fire
protection, fire safety, policing, security systems, public liability and
property damage insurance, and expenses for the upkeep, maintenance, repair,
replacement and operation of the Campus, all as payable in respect of or
allocable to the Building by virtue of the ownership thereof and/or under and
pursuant to the Declaration (as hereinafter defined). The term "Operating
Expenses" shall not include: (a) the cost of redecorating or special cleaning or
similar services to individual tenant spaces, not provided on a regular basis to
other tenants of the Building; (b) wages or salaries paid to executive personnel
of Landlord not providing full-time service at the Campus; (c) the cost of any
new item (not replacement or upgrading of an existing item) which, by
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standard accounting principles, should be capitalized (except as provided above
or in subparagraph 4.1(ii)(3) below); (d) any charge for depreciation or
interest paid or incurred by Landlord; (e) leasing commissions; (f) Taxes; (g)
any charge for Landlord's income tax, excess profit taxes, franchise taxes or
similar taxes on Landlord's business; or (h) legal fees for the negotiation or
enforcement of leases. If Landlord is not furnishing any particular work or
service (the cost of which, if performed by Landlord, would constitute an
Operating Expense) to a tenant who has undertaken to perform such work or
service in lieu of performance by Landlord, Operating Expenses shall
nevertheless be deemed to include the amount Landlord would reasonably have
incurred if Landlord had in fact performed the work or service at its expense.
The costs of electric consumption and water, sewer and other utility services to
the Demised Premises (including, without limitation, for HVAC usage) are not
included as Operating Expenses of the Building and shall be paid for by Tenant
separately in accordance with Paragraph 5 of this Lease. Notwithstanding the
foregoing, in the event the Landlord now, or in the future, employs oil or gas
to partially fuel the HVAC at the Building, the cost of such oil or gas shall be
included in Operating Expenses.
(2) In determining Operating Expenses for any year, if less than 95%
of the rentable square feet of the Building shall have been occupied by tenants
at any time during such year, Operating Expenses shall be deemed for such year
to be an amount equal to the like expenses which Landlord reasonably determines
would normally be incurred had such occupancy been 95% throughout such year. In
no event shall the total of Taxes and Operating Expenses for any year be deemed
to be less than the Base Amount for Taxes and Operating Expenses.
(3) In the event Landlord shall make a capital expenditure for an
"Essential Capital Improvement", as hereinafter defined in this subsection(3),
during any year, the annual amortization of such expenditure (determined by
dividing the amount of the expenditure by the useful life of the improvement,
but in no event longer than five years), plus any reasonable interest or
financing charges thereon (or, if such improvements are funded from reserves, a
reasonable sum imputed in lieu of such financing charges), shall be deemed an
Operating Expense for each year of such period. As used herein, an "Essential
Capital Improvement" means any of the following: (A) a labor saving device,
energy saving device or other installation, improvement, upgrading or
replacement which reduces or is intended to reduce Operating Expenses as
referred to above, whether or not voluntary or a Government Requirement; or (B)
an installation, improvement, alteration or removal of any improvements
including architectural or communication barriers which are made to the Building
by reason of any Governmental Requirement whether or not such improvements are
structural in nature and whether or not such Governmental Requirement either
existed or was required of the Landlord on the date of execution of this Lease,
if such Governmental Requirement is or will be applicable generally to similar
suburban office buildings in the vicinity of Plymouth Township, or (C) an
installation or improvement which directly enhances the safety of occupants or
tenants in the Building generally, whether or not voluntary or a Governmental
Requirement (as, for example, but without limitation, for general safety, fire
safety or security).
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(iii) "GOVERNMENTAL REQUIREMENTS" shall mean all requirements under
any federal, state or local statutes, rules, regulations, ordinances, or other
requirements of any duly constituted public authority having jurisdiction over
the Building (including, without limitation, the Demised Premises) including,
but not limited to, requirements under applicable Plymouth Township building,
zoning and fire codes and federal, state and local requirements and regulations
governing accessibility by persons with physical disabilities.
(iv) "BASE AMOUNT FOR TAXES AND OPERATING EXPENSES" shall mean the
total of Taxes and Operating Expenses allocable and attributable to calendar
year 1998 for the Building. The Base Amount for Operating Expenses shall be
calculated on the basis of the Building being 95% occupied in accordance with
Paragraph 4.1(ii)(2) hereof. The Base Amount for Taxes and Operating Expenses
shall be adjusted for the calendar year above stated to adjust for average and
reasonable allowances for on-going repairs and maintenance and to exclude from
the Base Amount extraordinary items of Taxes and/or Operating Expenses incurred
in such calendar year.
(v) "TENANT'S PROPORTIONATE SHARE" shall be five and 6305/10000
percent (5.6305%). This is equal to the ratio of the rentable square feet of the
Demised Premises, as set forth above, to the total rentable square feet of space
in the Building.
(vi) "TENANT'S SHARE OF TAXES AND OPERATING EXPENSES" shall mean,
with respect to any calendar year, the product of (A) Tenant's Proportionate
Share, multiplied by, (B) the amount, if any, by which the total of Taxes and
Operating Expenses for such calendar year exceeds the Base Amount for Taxes and
Operating Expenses.
(vii) "TENANT'S ESTIMATED SHARE" shall mean, with respect to any
calendar year, the product of (A) Tenant's Proportionate Share, multiplied by
(B) the amount, if any, by which Landlord's good faith estimate of the total of
Taxes and Operating Expenses for such calendar year exceeds the Base Amount for
Taxes and Operating Expenses.
(viii) "DECLARATION" shall mean the Declaration of Plymouth Meeting
Executive Campus Covenants, Restrictions and Easements, together with all
existing or future amendments, addenda and supplements thereto, executed by
Landlord (or Landlord's predecessor in title to the Campus) and placed of
record, submitting the Campus or portion thereof to a system of reciprocal
easements, restrictions, benefits and burdens for the use and maintenance
thereof by owners and tenants, and to which all such owners and tenants shall be
subject.
4.2. GENERAL ALLOCATION PROCEDURES. Landlord and Tenant acknowledge the
following:
(i) To the extent practicable and known exactly, all Taxes and
Operating Expenses will be accounted for and attributed separately for the
Building and for the three other office buildings which presently comprise the
Campus (the "Other Campus Buildings"). To the extent allocations of an item of
Taxes or Operating Expenses in accordance with the foregoing
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sentence is not practicable and known exactly, allocations will be made between
and among the Building and the Other Campus Buildings proportionately among all
thereof (based upon the respective square footage of each), or equally among all
thereof, or in such other proportions as may reasonably be determined by
Landlord in the exercise of prudent management practices.
(ii) Notwithstanding the foregoing, and to the extent deemed
reasonable by Landlord, all common area and other charge under and as permitted
by the Declaration will be charged and allocated among the Building, the Other
Campus Buildings, and any other building, facility or property subject to the
Declaration, all in accordance with the terms and provisions of the Declaration.
4.3. TENANT'S SHARE OF TAXES AND OPERATING EXPENSES.
(i) For and with respect to each calendar year which occurs
during the term of this Lease (and any renewals or extensions thereof) there
shall accrue, as additional rent, Tenant's Share of Taxes and Operating
Expenses, appropriately prorated for any partial calendar year occurring within
the term.
(ii) Landlord shall furnish to Tenant, on or before December
31 of each calendar year during the term hereof, a statement for the next
succeeding calendar year setting forth Tenant's Estimated Share and the
information on which such estimate is based. On the first day of the new
calendar year, Tenant shall pay to Landlord, on account of Tenant's Estimated
Share, an amount equal to one-twelfth (1/12) of Tenant's Estimated Share, and on
the first day of each succeeding month up to and including the time that Tenant
shall receive a new statement of Tenant's Estimated Share, Tenant shall pay to
Landlord, on account of Tenant's Estimated Share, an amount equal to one-twelfth
(1/12) of the then applicable Tenant's Estimated Share.
(iii) Landlord shall furnish to Tenant, on or before April 30
of each calendar year during the term hereof, a statement (the "Expense
Statement") prepared by Landlord or its agent or accountants setting forth for
the previous calendar year: (A) the actual amount of Taxes and Operating
Expenses for the previous calendar year; (B) the Base Amount for Taxes and
Operating Expenses; (C) the Tenant's Proportionate Share; (D) the Tenant's Share
of Taxes and Operating Expenses; (E) the Tenant's Estimated Share; and (F) a
statement of the amount due to Landlord, or to be credited to Tenant, as a final
adjustment in respect of Tenant's Share of Taxes and Operating Expenses for the
previous calendar year (the "Final Adjustment Amount"). The Final Adjustment
Amount shall be calculated by subtracting the Tenant's Estimated Share from the
Tenant's Share of Taxes and Operating Expenses. On the first day of the first
calendar month (but in no event sooner than ten [10] days) following delivery of
the Expense Statement to Tenant, Tenant shall pay to Landlord the Final
Adjustment Amount calculated as set forth in the Expense Statement. If the Final
Adjustment Amount is a negative quantity, then Landlord shall credit Tenant with
the amount thereof against the next payment of minimum rent due by Tenant
hereunder, except that with respect to the last year of the Lease, if an Event
of Default has not occurred, Landlord shall refund Tenant the amount of such
payment in respect of the Final Expense Adjustment within
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thirty (30) days after Landlord provides the Expense Statement for such final
year of the Lease. In no event, however, shall Tenant be entitled to receive a
credit greater than the payments made by Tenant as payments of Tenant's
Estimated Share for the calender year to which the Final Adjustment Amount
relates.
4.4 DISPUTES. The information set forth on all statements furnished to
Tenant pursuant to this Paragraph 4, including each Expense Statement, and all
documents relating to Tenant's Estimated Share, Tenant's Share of Taxes and
Operating Expenses, the Final Adjustment Amount, and all supportive
documentation and calculations, shall be deemed approved by Tenant unless,
within thirty (30) days after submission to Tenant, Tenant shall notify Landlord
in writing that it disputes the correctness thereof, specifying in detail the
basis for such assertion. Pending the resolution of any dispute, however, Tenant
shall continue to make payments in accordance with the statement or information
as furnished.
4.5. SURVIVAL. Notwithstanding anything herein contained to the
contrary, Tenant understands and agrees that additional rent for increases of
Taxes and Operating Expenses described in this Paragraph 4 are attributable to
and owing for a specific twelve (12) month period, and are generally determined
in arrears. Accordingly, Tenant agrees that, at any time following the
expiration of the term of this Lease, or after default by Tenant with respect to
this Lease, Landlord may bill Tenant for (i) the entire amount of accrued and
uncollected additional rent attributable to increases in Taxes and Operating
Expenses under this Paragraph 4, and (ii) any unpaid charges for usage, services
or other amounts with respect to any period during the term of this Lease; and
the amount of such bill shall be due and payable to Landlord within ten (10)
business days after rendering thereof.
5. SERVICES. Landlord agrees that during the term of the Lease,
Landlord shall provide services as set forth in this Paragraph 5.
5.1. HVAC AND ELECTRICITY. Landlord shall furnish (a) heat,
ventilation and air conditioning (including the labor, maintenance and equipment
necessary to provide the same), (b) electricity and other utilities needed to
operate such systems and (c) electricity for lighting and general power for
office use, each of the foregoing to be paid for by Tenant as follows:
(i) Standard Usage: Business Hours. Tenant shall pay its pro
rata share (based upon Tenant's Proportionate Share, but subject to the last
sentence of this subparagraph) of the cost to the Building (including applicable
sales or use taxes) for the foregoing services during "Business Hours" (as
hereinafter defined) and for "Building Standard Consumption" (as hereinafter
defined). Such payment shall be made by Tenant within ten (10) days after
submission by Landlord of a statement to Tenant setting forth the amount due.
"Business Hours" shall mean Monday through Friday from 8:00 a.m. to 6:00 p.m.
and on Saturday from 8:00 a.m. to 1:00 p.m., Holidays (defined below) excepted.
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving,
Christmas, or any day set aside to celebrate such holidays are "Holidays" under
this Lease. "Building Standard Consumption" shall mean the consumption
necessary, in Landlord's reasonable
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judgement, for use and comfortable occupancy of the Demised Premises when
occupied by the density of people for which the building standard system was
designed with occupants using Standard Office Equipment. "Standard Office
Equipment" shall mean all office equipment normally found in an office facility
but shall not include computer and communication systems, telephone switches and
conference or training rooms (or items similar thereto) which require Additional
Electric Equipment, as hereinafter defined in Paragraph 5.1(v) below, or
additional air conditioning service or systems. In determining Tenant's pro rata
share for the foregoing services for any period, the cost for the foregoing
services shall be deemed for such period to be an amount equal to the like
expenses which Landlord reasonably determines would normally be incurred had the
Building been fully occupied throughout such period.
(ii) Non-Standard Usage; After-Hours. Tenant shall pay the
cost of supplying the Demised Premises with the foregoing services at times
outside of Business Hours or in amounts in excess of Building Standard
Consumption, at such rates as Landlord shall specify from time to time to cover
all of the estimated costs and expenses incurred by Landlord in connection with
supplying the Demised Premises with such service, including without limitation
the costs of labor and utilities associated with such service and including
applicable sales or use taxes thereon, such amounts to be paid by Tenant within
ten (10) days after submission by Landlord of a statement to Tenant setting
forth the amount due. With respect to heat, ventilation and air conditioning
required by Tenant outside of Business Hours, Tenant shall notify Landlord by
12:00 noon on the day such after-hours use is desired, except if such use is
desired for a weekend, in which event Tenant shall notify Landlord no later than
12:00 noon on the Friday immediately preceding such weekend.
(iii) Separate Metering; Survey. Landlord reserves the right,
at Tenant's sole cost, to determine Tenant's charge for electrical usage by
separate meter or electrical engineering survey. At any time after the
installation of separate metering for the Demised Premises (or any part
thereof), or the completion of such survey, Landlord shall furnish to Tenant a
statement setting forth the amount due for Tenant's electric usage (or the part
thereof that is so metered or subject to such survey), and the total amount set
forth in such statement shall be due and payable by Tenant within ten (10) days
after submission to Tenant by Landlord of such statement. In such case, Tenant
shall pay for such consumption based upon the average KWH rate paid by Landlord.
(iv) System Failure. Landlord shall not be responsible for any
failure or inadequacy of the air conditioning system if such failure or
inadequacy results from the occupancy of the Demised Premises by persons in
excess of the density anticipated or for which the system was designed, or if
Tenant uses the Demised Premises in a manner for which it was not designed, or
if Tenant installs or operates machines, appliances or equipment which exceed
the maximum wattage per square foot contemplated by, or generate more heat than
anticipated in, the design of the Demised Premises (as such design standards may
be set forth in Exhibit "F" attached hereto or otherwise established by Landlord
if not so set forth).
(v) Additional Electrical Equipment. Tenant will not install
or use electrically-operated equipment in excess of the design capacity of the
Demised Premises (as such
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design standards may be set forth in Exhibit "F" attached hereto or otherwise
established by Landlord if not so set forth) and Tenant will not install or
operate in the Demised Premises any electrically-operated equipment or machinery
other than that commonly used in a normal office operation without first
obtaining the prior written consent of the Landlord. Landlord may condition any
consent required under this Paragraph 5.1(v) upon the installation of separate
meters (and transformers or electrical panels) for such equipment or machinery
at Tenant's expense and the payment by Tenant of additional rent as compensation
for the additional consumption of electricity occasioned by the operation of
such additional equipment or machinery, at the rates and in the manner set forth
in Paragraph 5.1 (ii) or (iii) above. Landlord shall replace, when and as
requested by Tenant (the cost of which replacement light bulbs and tubes, and
ballasts, plus the labor cost for such replacement, to be chargeable to Tenant)
light bulbs and tubes, and ballasts, within the Demised Premises which are
Building standard (but at Landlord's option such undertaking of Landlord shall
not include bulbs or tubes for any non-Building standard lighting, high hats, or
other specialty lighting of Tenant, which shall be and remain the responsibility
of Tenant).
(vi) Regulatory Compliance. The furnishing of the foregoing
heating, ventilation, air conditioning and electricity services shall be subject
to any statute, ordinance, rule, regulation, resolution or recommendation for
energy conservation which may be promulgated by any governmental agency or
organization which Landlord shall be required to comply with or which Landlord
determines in good faith to comply with.
5.2. WATER AND SEWER. Furnish the Building with water (i) for drinking,
lavatory, toilet and sanitary sewer purposes drawn through fixtures installed by
Landlord, and (ii) necessary for the operation of the Building's fire safety
devices. The cost of usage of such services attributable to the Demised Premises
shall be paid for by Tenant pursuant to a statement furnished by Landlord to
Tenant setting forth the amount due as a result of such usage attributable to
the Demised Premises, and the total amount set forth in such statement shall be
due and payable by Tenant within ten (10) days after submission thereto by
Landlord of such statement.
5.3. ELEVATOR: ACCESS. Provide passenger elevator service to the
Demised Premises during all working days (Saturday, Sunday and Holidays
excepted) from 8:00 a.m. to 6:00 p.m., with one elevator subject to call at all
other times. Tenant and its employees and agents shall have access to the
Demised Premises at all times, subject to compliance with such security measures
as shall be in effect for the Building. Elevator services for freight shall be
supplied in common with service to other tenants and for other Building
requirements at reasonable times during Business Hours for routine deliveries in
the ordinary course of Tenant's business. Unusual or unusually large deliveries
requiring use of the freight elevators shall be scheduled in advance with
Landlord so as not to interfere with the operations of the Building or other
tenants. Freight elevator service outside of Business Hours shall be provided to
Tenant upon reasonable written advance notice, at charges equal to Landlord's
estimated cost for providing such service from time to time, which shall be
payable by Tenant to Landlord not later than ten (10) days after Landlord's bill
therefor.
5.4. JANITORIAL. Provide janitorial service to the Demised Premises as
specified
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on Exhibit "D" annexed hereto. Any and all additional or specialized janitorial
or trash removal service desired by Tenant (i) shall be contracted for by Tenant
directly with Landlord's janitorial agent and the cost and payment thereof shall
be and remain the sole responsibility of Tenant, or (ii) at the option of
Landlord, shall be contracted for by Landlord and paid for by Tenant to Landlord
within ten (10) days after the submission by Landlord of a statement to Tenant
setting forth the amount due. If Landlord shall from time to time reasonably
determine that the use of any cleaning service in the Demised Premises,
including without limitation, removal of refuse and rubbish from the Demised
Premises, is in an amount greater than usually attendant upon the use of such
Demised Premises as offices, the reasonable cost of such additional cleaning
services shall be paid by Tenant to Landlord as additional rent, on demand.
5.5. SECURITY. Landlord provides a security card or code type access
systems for Tenant's convenience. Tenant and Tenant's employees, as well as
other tenants of the Building, will have access to the Building using such
access system. Landlord makes no representation that the access system or any
future system employed at the Building to monitor access to the Building outside
of standard business hours will prevent unauthorized access to the Building or
the Demised Premises, and Tenant acknowledges that no security guards are
provided by Landlord. Accordingly, Tenant agrees that Tenant shall be
responsible for security of the Demised Premises and the security and safety of
Tenant's employees, invitees, officers, directors, contractors, subcontractors
and agents. In furtherance of the foregoing, Landlord assumes no liability or
responsibility for Tenant's personal property whether such are located in the
Demised Premises or elsewhere in the Building or the Campus. Tenant further
acknowledges that Landlord may (but shall have no obligation to) alter current
security measures in the Building, and Tenant agrees that it shall cooperate
fully, and shall cause its employees and invitees to cooperate fully, with any
requests of Landlord in connection with the implementation of any new security
procedures or other arrangements.
5.6. REPAIRS. Make (i) all structural repairs to the Building, (ii) all
repairs to the exterior windows and glass and all repairs to the common areas of
the Building and (iii) all repairs which may be needed to the mechanical,
electrical and plumbing systems in the Demised Premises, excluding repairs to
(or replacement of) any non-building standard fixtures or other improvements in
the Demised Premises installed by Tenant or made by or at the request of Tenant
and requiring unusual or special maintenance. In the event that any repair is
required by reason of the negligence or abuse of Tenant or its agents,
employees, invitees or of any other person using the Demised Premises with
Tenant's consent, express or implied, Landlord may make such repair and add the
cost thereof to the first installment of rent which will thereafter become due,
unless Landlord shall have actually recovered such cost through insurance
proceeds.
5.7. SYSTEM CHANGES. Tenant shall not install any equipment of any kind
or nature whatsoever which would or might necessitate any changes, replacement
or additions to the water, plumbing, heating, air conditioning or the electrical
systems servicing the Demised Premises or any other portion of the Building; nor
install any plumbing fixtures in the Demised Premises; nor use in excess of
normal office use any of the utilities, the common areas of the Building, the
janitorial or trash removal services, or any other services or portions of the
Building without the prior written consent of the Landlord, and in the event
such consent is granted, the cost of any such
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<PAGE> 18
installation, replacements, changes, additions or excessive use shall be paid
for by Tenant, in advance in the case of any installations replacements and
additions, and promptly upon being billed therefor in the case of charges in
excessive use.
5.8. DIRECTORY. Landlord shall maintain a directory of office tenants
in the lobby area of the Building, on which shall be listed the name of Tenant.
In the event Landlord permits Tenant to add more names to the directory (which
Landlord may grant or deny in its sole discretion), Tenant shall pay the actual
cost of lobby directory signage over an allowance of one (1) directory space per
Tenant.
5.9. LIMITATION REGARDING SERVICES. It is understood that Landlord does
not warrant that any of the services referred to in this Paragraph 5 will be
free from interruption from causes beyond the control of Landlord. Landlord
reserves the right, without any liability to Tenant, and without being in breach
of any covenant of this Lease, to interrupt or suspend service of any of the
heating, ventilating, air-conditioning, electric, sanitary, elevator or other
Building systems serving the Demised Premises, or the providing of any of the
other services required of Landlord under this Lease, whenever and for so long
as may be necessary by reason of accidents emergencies, strikes or the making of
repairs or changes which Landlord is required by this Lease or by law to make or
in good faith deems advisable, or by reason of difficulty in securing proper
supplies of fuel, steam, water, electricity, labor or supplies, or by reason of
any other cause beyond Landlord's reasonable control, including without
limitation, mechanical failure and governmental restrictions on the use of
materials or the use of any of the Building systems. In each instance, however,
Landlord shall exercise commercially reasonable diligence to eliminate the cause
of interruption and to effect restoration of service, and shall give Tenant
reasonable notice, when practicable, of the commencement and anticipated
duration of such interruption. Tenant shall not be entitled to any diminution or
abatement of rent or other compensation nor shall this Lease or any of the
obligations of the Tenant be affected or reduced by reason of the interruption,
stoppage or suspension of any of the Building systems or services arising out of
the causes set forth in this Paragraph.
6. CARE OF DEMISED PREMISES. Tenant agrees, on behalf of itself, its
employees and agents, that during the term of this Lease, Tenant shall comply
with the covenants and conditions set forth in this Paragraph 6.
6.1. INSURANCE AND GOVERNMENTAL REQUIREMENTS. At all times during the
term of this Lease and any extension or renewal hereof, Tenant, at its cost,
shall comply with, and shall promptly correct any violations of, (i) all
requirements of any insurance underwriters, or (ii) any Governmental
Requirements relating to Tenant's use and occupancy of the Demised Premises.
Tenant shall indemnify, defend and hold Landlord harmless from and against any
and all loss, damages, claims of third parties, cost of correction, expenses
(including attorney's fees and cost of suit or administrative proceedings) or
fines arising out of or in connection with Tenant's failure to comply with
Governmental Requirements. The provisions of this Paragraph 6.1 shall survive
the expiration or termination of this Lease.
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<PAGE> 19
6.2. ACCESS. Tenant shall give Landlord, its agents and employees,
access to the Demised Premises at all reasonable times upon reasonable prior
verbal or written notice from Landlord, and at any time in the case of an
emergency, without charge or diminution of rent, to enable Landlord (i) to
examine the same and to make such repairs, additions and alterations as Landlord
may be permitted to make hereunder or as Landlord may deem advisable for the
preservation of the integrity, safety and good order of the Building or any part
thereof; and (ii) upon reasonable notice, to show the Demised Premises to
prospective mortgagees and purchasers and to prospective tenants. If
representatives of Tenant shall not be present on the Demised Premises to permit
entry upon the Demised Premises by Landlord or its agents or employees, at any
time when such entry by Landlord is necessary or permitted hereunder, Landlord
may enter the Demised Premises by means of a master key (or, in the event of any
emergency, forcibly) without any liability whatsoever to Tenant and without such
entry constituting an eviction of Tenant or a termination of this Lease.
Landlord shall not be liable by reason of any injury to or interference with
Tenant or Tenant's business arising from the making of any repairs, alterations,
additions or improvements in or to the Demised Premises or the Building or to
any appurtenance or any equipment therein.
6.3. CONDITION. Tenant shall keep the Demised premises and all
improvements, installations and systems therein in good order and condition and
repair all damage to the Demised Premises and replace all interior glass broken
by Tenant, its agents, employees or invitees, with glass of the same quality as
that broken, except for glass broken by fire and extended coverage type risks,
and Tenant shall commit no waste in the Demised Premises. If the Tenant refuses
or neglects to make such repairs, or fails to diligently prosecute the same to
completion, after written notice from Landlord of the need therefor, Landlord
may make such repairs at the expense of Tenant and such expense shall be
collectible as additional rent. Any such repairs and any labor performed or
materials furnished in, on or about the Demised Premises shall be performed and
furnished by Tenant in strict compliance with all applicable laws, regulations,
ordinances and requirements of all duly constituted authorities or governmental
bodies having jurisdiction over the Building, and any reasonable regulations
imposed by Landlord pertaining thereto. Without limitation of the foregoing,
Landlord shall have the right to designate any and all contractors and
suppliers to furnish materials and labor for such repairs.
6.4. SURRENDER. Upon the termination of this Lease in any manner
whatsoever, Tenant shall remove Tenant's goods and effects and those of any
other person claiming under Tenant, and quit and deliver up the Demised Premises
to Landlord peaceably and quietly in as good order and condition as at the
inception of the term of this Lease or as the same hereafter may be improved by
Landlord or Tenant, reasonable use and wear thereof, damage from fire and other
insured casualty and repairs which are Landlord's obligation excepted. Goods and
effects not removed by Tenant at the termination of this Lease, however
terminated, shall be considered abandoned and Landlord may dispose of and/or
store the same as it deems expedient, the cost thereof to be charged to Tenant.
6.5. SIGNS. Tenant shall not place signs on or about any part of the
Building, or on the outside of the Demised Premises or on the exterior doors,
windows or walls of the Demised
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Premises, except on doors and then only of a type and with lettering and text
approved by Landlord.
6.6. CARE: INSURANCE. Tenant shall not overload, damage or deface the
Demised Premises or do any act which might make void or voidable any insurance
on the Demised Premises or the Building or which may render an increased or
extra premium payable for insurance (and without prejudice to any right or
remedy of Landlord regarding this subparagraph, Landlord shall have the right to
collect from Tenant, upon demand, any such increase or extra premium).
6.7. ALTERATIONS: ADDITIONS. Tenant shall not make any alteration of or
addition to the Demised Premises without the prior written approval of Landlord
(except for work of a decorative nature). Such approval shall not be
unreasonably withheld for nonstructural interior alteration, provided that (i)
no Building systems, structure, or areas outside of the Demised Premises are
affected by such proposed alteration, and (ii) reasonably detailed plans and
specifications for construction of the work, including but not limited to any
and all alterations having any impact on or affecting any electrical systems,
plumbing, HVAC, sprinkler system and interior walls and partitions, are
furnished to Landlord in advance of commencement of any work. All such
alterations and additions, as well as all fixtures, equipment, improvements and
appurtenances installed in and affixed to the Demised Premises at the inception
of this Lease term (but excluding Tenant's trade fixtures and modular furniture
systems) shall, upon installation, become and remain the property of Landlord.
All such alterations and additions shall be maintained by Tenant in the same
manner and order as Tenant is required to maintain the Demised Premises
generally and, upon termination of the term hereof, shall be removed without
damage to the Demised Premises upon surrender. All alterations and additions by
Tenant shall be performed in accordance with the plans and specifications
therefor submitted to and approved by Landlord, in a good and workerlike manner
and in conformity with all Governmental Requirements. In addition, all such
alterations and additions shall be performed in strict compliance with the
requirements governing work by Tenant's contractors as set forth in Exhibit "F"
hereto.
6.8. MECHANICS' LIENS. Tenant, within ten (10) days after notice from
Landlord, (i) shall discharge (by bonding or otherwise) any mechanics' lien for
material or labor claimed to have been furnished to the Demised Premises on
Tenant's behalf (except for work contracted for by Landlord), (ii) shall deliver
to Landlord satisfactory evidence thereof, and (iii) shall indemnify and hold
harmless Landlord from any loss incurred in connection therewith.
6.9. VENDING MACHINES. Tenant shall not install or authorize the
installation of any coin-operated vending machines within the Demised Premises,
except machines for the purpose of dispensing coffee, snack foods and similar
items to the employees of Tenant for consumption upon the Demised Premises, the
installation and continued maintenance and repair of which shall be at the sole
cost and expense of Tenant.
6.10. RULES AND REGULATIONS. Tenant shall observe the rules and
regulations annexed hereto as Exhibit "E", as the same may from time to time be
amended by Landlord for the general safety, comfort and convenience of Landlord,
occupants and tenants of the Building.
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6.11. ENVIRONMENTAL COMPLIANCE. Tenant shall not transport, use, store,
maintain, generate, manufacture, handle, dispose, release Or discharge any
"Waste" (as defined below) upon or about the Building, or permit Tenant's
employees, agents, contractors, and other occupants of the Demised Premises to
engage in such activities upon or about the Building or the Demised Premises.
However, the foregoing provisions shall not prohibit the transportation to and
from, and use, storage, maintenance and handling within, the Demised Premises of
substances customarily used in offices (or such other business or activity
expressly permitted to be undertaken in the Demised Premises pursuant to the
terms of this Lease), provided: (a) such substance Shall be used and maintained
only in such quantities as are reasonably necessary for such permitted use of
the Demised Premises, strictly in accordance with applicable Governmental
Requirements and the manufacturers' instructions therefor, (b) such substances
shall not be disposed of, released or discharged in the Building, and shall be
transported to and from the Demised Premises in compliance with all applicable
Governmental Requirements, and as Landlord shall reasonably require, (c) if any
applicable Governmental Requirements or Landlord's trash removal contractor
requires that any such substances be disposed of separately from ordinary trash,
Tenant shall make arrangements at Tenant's expense for such disposal directly
with a qualified and licensed disposal company at a lawful disposal site
(subject: to scheduling and approval by Landlord), and shall ensure that
disposal occurs frequently enough to prevent unnecessary storage of such
substances in the Demised Premises, and (d) any remaining such substances shall
be completely, properly and lawfully removed from the Building upon expiration
or earlier termination of this Lease.
(i) Tenant shall promptly notify Landlord of: (a) any enforcement,
cleanup or other regulatory action taken or threatened by any governmental or
regulatory authority with respect to the presence of any Waste on the Demised
Premises or the migration thereof from or to the Building, (b) any demands or
claims made or threatened by any party against Tenant or the Demised Premises
relating to any loss or injury resulting from any Waste, (c) any release,
discharge or nonroutine, improper or unlawful disposal or transportation of any
Waste on or from the Demised Premises, and (d) any matters where Tenant is
required by any Governmental Requirement to give a notice to any governmental or
regulatory authority respecting any Waste on the Demised Premises. Landlord
shall have the right (but not the obligation) to join and participate as a party
in any legal proceedings or actions affecting the Demised Premises initiated in
connection with any environmental, health or safety Governmental Requirement. At
such times as Landlord may reasonably request, Tenant shall provide Landlord
with a written list identifying any Waste then used, stored, or maintained upon
the Demised Premises and the use and approximate quantity of each such material.
Tenant shall also furnish Landlord with a copy of any material safety data sheet
("MSDS") issued by the Manufacturer therefor as well as any written information
concerning the removal, transportation and disposal of the same, and such other
information as Landlord may reasonably require or as may be required by
Governmental Requirement. The term "Waste" for purposes hereof shall mean any
hazardous or radioactive material, polychlorinated biphenyls, friable asbestos
or other hazardous or medical waste substances as defined by the Comprehensive
Environmental Response, Compensation and Liability Act. as amended, or by any
other federal, state or local law, statute, rule, regulation Or order (including
any Governmental Requirements) concerning environmental matters, or any matter
which would trigger any employee or community
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<PAGE> 22
"right-to-know" requirements adopted by any such body, or for which any such
body has adopted any requirements for the preparation or distribution of an
MSDS.
(ii) If any Waste is released, discharged or disposed of by
Tenant or any other occupant of the Demised Premises, or their employees, agents
or contractors, in or about the Building in violation of the foregoing
provisions, Tenant shall immediately, properly and in compliance with applicable
Governmental Requirements clean up and remove the Waste from the Building and
clean or replace any affected property at the Building (whether or not owned by
Landlord), at Tenant's expense. Such clean up and removal work shall be subject
to Landlord's prior written approval (except in emergencies), and shall include,
without limitation, any testing, investigation, and the preparation and
implementation of any remedial action plan required by any governmental body
having jurisdiction or reasonably required by Landlord. If Tenant shall fail to
comply with the provisions of this Paragraph within five (5) days after written
notice by Landlord, or such shorter time as may be required by any Governmental
Requirement or in order to minimize any hazard to any person or property,
Landlord may (but shall not be obligated to) arrange for such compliance
directly or as Tenant's agent through contractors or other parties selected by
Landlord, at Tenant's expense (without limiting Landlord's other remedies under
this Lease or applicable Governmental Requirement). If any Waste is released,
discharged or disposed of on or about the Building and such release, discharge,
or disposal is not caused by Tenant or other occupants of the Demised Premises,
or their employees, agents or contractors, such release, discharge or disposal
shall be deemed casualty damage under Paragraph 8 to the extent that the Demised
Premises or common areas serving the Demised Premises are affected thereby; in
such case, Landlord and Tenant shall have the obligations and rights respecting
such casualty damage provided under Paragraph 8.
7. SUBLETTING AND ASSIGNING.
7.1. GENERAL RESTRICTIONS. Tenant shall not assign this Lease or sublet
all or any portion of the Demised Premises (either a sublease or an assignment
hereinafter referred to as a "Transfer") without first obtaining Landlord's
prior written consent thereto, which shall not be unreasonably withheld,
conditioned or delayed. By way of example and without limitation, the parties
agree it shall be reasonable for Landlord to withhold consent: (1) if the
proposed use within the Demised Premises conflicts with the use provision set
forth herein or is incompatible, inconsistent, or unacceptable with the
character, use and image of the Building or the tenancy at the Building in
Landlord's reasonable opinion, or conflicts with exclusive use rights granted to
another tenant of the Building; (2) if the business reputation and experience of
the proposed transferee is not sufficient, in Landlord's reasonable opinion, for
it to operate a business of the type and quality permitted under this Lease; or
(3) if the document creating the Transfer is not reasonably acceptable to
Landlord; or (4) the nature of the fixtures and improvements to be performed or
installed are not consistent with general office use and the terms of this
Lease; or (5) if the proposed transferee is an existing tenant of Landlord
(except if Landlord has no other available space) or is currently negotiating or
has negotiated within the prior twelve (12) months with Landlord for other space
in the Building; or (6) if the proposed user is a governmental or
quasi-governmental agency; or (7) if the proposed transferee will be using or
if Landlord has
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<PAGE> 23
reasonable cause to believe that it is likely to use Waste at the Demised
Premises other than those types of Waste normally used in general office
operations in compliance with applicable Governmental Requirements; or (8) if
Landlord has reasonable cause to believe that the proposed transferee's assets,
business or inventory would be subject to seizure or forfeiture under any laws
related to criminal or illegal activity. If Landlord consents to a Transfer,
such consent, if given, will not release Tenant from its obligations hereunder
and will not be deemed a consent to any further Transfer. Tenant shall furnish
to Landlord, in connection with any request for such consent, reasonably
detailed information as to the identity and business history of the proposed
assignee or subtenant, as well as the proposed effective date of the Transfer
and, prior to the execution thereof, a complete set of the final documentation
governing such Transfer, all of which shall be satisfactory to Landlord in form
and substance. If Landlord consents to any such Transfer, the effectiveness
thereof shall nevertheless be conditioned on the following: (i) receipt by
Landlord of a fully executed copy of the full documentation governing the
Transfer, in the form and substance approved by Landlord, (ii) any sublessee
shall acknowledge that its rights arise through and are limited by the Lease,
and Shall agree to comply with the Lease (with such exceptions as may be
consented to by Landlord), and (iii) any assignee shall assume in writing all
obligations Of Tenant hereunder from and after the effective date of such
Transfer. Tenant shall not advertise or otherwise disseminate any information
regarding the Building or the Demised Premises (including, without limitation,
rental rates or other terms upon which Tenant intends to Transfer) to potential
assignees and/or subtenants without in each instance obtaining Landlord's prior
written approval and consent as to the specific form and content of any such
advertisement, statement, offering or other information (including, without
limitation, approval of rental rates and terms). Landlord's acceptance of any
name for listing on the Building Directory will not be deemed, nor will it
substitute for, Landlord's consent, as required by this Lease, to any Transfer,
or other occupancy of the Demised Premises. Tenant shall not mortgage or
encumber this Lease.
7.2. DEFINITIONS. For purposes hereof, an Transfer shall include any
direct or indirect transfer of fifty percent (50%) or more of the voting stock
of a corporate Tenant, or fifty percent (50%) or more of the interests in
partnership profits of a partnership Tenant in any single or related series of
transactions.
7.3. PROCEDURE FOR APPROVAL OF TRANSFER. If Tenant wishes to request
Landlord's consent to a Transfer, Tenant shall submit such request to Landlord,
in writing, together with reasonably detailed financial information and
information as to the identity and business information and business history of
the proposed assignee or subtenant, as well as the proposed effective date of
the Transfer and the area or portion of the Demised Premises which Tenant wishes
to Transfer (the "Transfer Space"). If Landlord fails to respond or request
additional information from Tenant within twenty (20) days after receipt of
Tenant's proper request for approval, Tenant shall submit an additional request
to Landlord, setting forth the same information and further notifying Landlord
on such request that Landlord's failure to respond or request additional
information from Tenant within an additional ten (10) business days shall be
deemed an approval. If Landlord fails to respond or request additional
information from Tenant within such additional ten (10) business days, such
failure to so respond shall be deemed a consent
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<PAGE> 24
to the Transfer. If Landlord requests additional information, Landlord shall
respond within ten (10) business days after receipt of all requested
information, and Landlord's failure to do so shall be deemed a consent to the
Transfer. If Landlord consents to any such Transfer, such consent shall be given
on Landlord's form of consent, which shall be executed by Tenant and the
assignee or subtenant of Tenant. It shall nevertheless be a condition to the
deemed effectiveness thereof that Landlord be furnished a fully executed copy of
the Transfer, in form and substance approved by Landlord. It shall not be
unreasonable for Landlord to object to Transfer document provisions which, inter
alia, attempt to make Landlord a party to the Transfer document or impose any
obligation on Landlord to the subtenant.
7.4. RECAPTURE. Upon receipt of Tenant's request for consent to a
proposed Transfer, Landlord may elect to recapture the Transfer Space.
Landlord's election to recapture must be in writing and delivered to Tenant
within twenty (20) days of Landlord's receipt of Tenant's request for permission
to Transfer all or a portion of the Demised Premises. Landlord's recapture shall
be effective as of the date which is thirty (30) days after Landlord's election
to recapture (the "Effective Date") the Transfer Space and as of the Effective
Date and with respect to the Transfer Space, this Lease shall be terminated and
Tenant shall be released under this Lease, subject to any continuing liabilities
or obligations of Tenant which remain delinquent or uncured with respect to the
period prior to the Effective Date.
7.5. CONDITIONS. In the event Landlord consents to a Transfer of all
or any portion of the Demised Premises, Landlord may condition its consent,
inter alia, on agreement by Tenant and its assignee and/or sublessee, as the
case may be, that seventy-five (75%) percent of any rental payable under such
Transfer arrangement which exceeds the amount of rental payable hereunder be
payable to Landlord (after deduction by Tenant for the reasonable and necessary
costs associated with such Transfer amortized over the remaining term of the
Lease) as consideration of the granting of such consent. Nothing herein shall,
however, be deemed to be a consent by Landlord of any Transfer or a waiver of
Landlord's right not to consent to any Transfer. Any purported Transfer not in
accordance with the terms hereof shall at Landlord's option, to be exercised at
any time after Landlord becomes aware of any such purported Transfer, be void,
and may at Landlord's option be treated as an event of default hereunder.
7.6. SPECIAL CONDITIONS FOR TRANSFERS TO AFFILIATES OF TENANT.
Notwithstanding anything to the contrary set forth above, Tenant shall be
permitted without Landlord's prior written consent, and subject to the terms of
this subparagraph 7.6, to Transfer all or a portion of the Demised Premises to
an "Affiliate" of Tenant. For purposes of this subparagraph, Affiliate shall
mean; (i) a corporation which owns fifty percent (50%) of the outstanding common
stock of Tenant, or (ii) a corporation which has fifty percent (50%) of its
common stock owned by Tenant, or (iii) a partnership which owns fifty percent
(50%) of the common stock of Tenant, or (iv) a partnership which has fifty
percent (50%) or more of its interest in partnership profits owned by Tenant,
(iv) or an entity which is the surviving entity in a merger pursuant to state
corporation or partnership law with the Tenant. The effectiveness of such
Transfer to an Affiliate of Tenant shall nevertheless be conditioned on the
following: (a) Landlord receiving a fully
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<PAGE> 25
]
executed copy of the full documentation governing the Transfer, in the form and
substance approved by Landlord, and (b) such sublessee shall acknowledge that
its rights arise through and are limited by the Lease, and shall agree to comply
with the Lease (with such exceptions as may be consented to by Landlord), and
(c) a written acknowledgement by Tenant evidencing that Tenant is not released
from its obligations under this Lease.
8. FIRE OR OTHER CASUALTY. In case of damage to the Demised Premises or
those portions of the Building providing access or essential services thereto,
by fire or other casualty, Landlord shall, at its expense, cause the damage to
be repaired to a condition as nearly as practicable to that existing prior to
the damage, with reasonable speed and diligence, subject to delays which may
arise by reason of adjustment of loss under insurance policies, Governmental
Regulations, and for delays beyond the control of Landlord, including a "force
majeure". Landlord shall not, however, be obligated to repair, restore, or
rebuild any of Tenant's property or any alterations or additions made by Tenant.
Landlord shall not be liable for any inconvenience or annoyance to Tenant, or
Tenant's visitors, or injury to Tenant's business resulting in any way from
such damage or the repair thereof except, to the extent and for the time that
the Demised Premises are thereby rendered untenantable, the rent shall
proportionately abate. In the event the damage shall involve the Building
generally and shall be so extensive that Landlord shall decide, at its sole
discretion, not to repair or rebuild the Building, or if the casualty shall not
be of a type insured against under standard fire policies with extended type
coverage, or if the holder of any mortgage, deed of trust or similar security
interest covering the Building shall not permit the application of adequate
insurance proceeds for repair or restoration, this Lease shall, at the sole
option of Landlord, exercisable by written notice to Tenant given within sixty
(60) days after Landlord is notified of the casualty and to the extent thereof,
be terminated as of a date specified in such notice (which shall not be more
than ninety [90] days thereafter), and the rent (taking into account any
abatement as aforesaid) shall be adjusted to the termination date and Tenant
shall thereupon promptly vacate the Demised Premises. Notwithstanding the
foregoing, in the event Landlord does not repair or rebuild the Demised Premises
and the Building to a condition such that Tenant may operate its business in a
manner substantially similar to that which existed prior to the date of the
casualty within two hundred (200) days of the date of the casualty, then Tenant
shall be permitted, upon ten days notice to Landlord, to terminate this Lease
and neither party shall thereafter have any further obligation to the other.
9. REGARDING INSURANCE AND LIABILITY.
9.1. DAMAGE IN GENERAL. Tenant agrees that Landlord and its Building
manager and their respective partners, officers, employees and agents shall not
be liable to Tenant, and Tenant hereby releases such parties, for any personal
injury or damage to or loss of personal property in the Demised Premises from
any cause whatsoever unless such damage, loss or injury is the result of the
gross negligence or willful misconduct of Landlord, its Building manager, or
their partners, officers, employees or agents, and Landlord and its Building
manager and their partners, officers or employees shall not be liable to Tenant
for any such damage or loss whether or not the result of their gross negligence
or willful misconduct to the extent Tenant is compensated therefor by Tenant's
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<PAGE> 26
insurance or would have been compensated therefor under commonly available
commercial policies, and Landlord shall in no event be liable to Tenant for any
consequential damages.
9.2. INDEMNITY. Tenant shall defend, indemnify and save harmless
Landlord and its agents and employees against and from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including
reasonable attorneys' fees, which may be imposed upon or incurred by or asserted
against Landlord and/or its agents or employees by reason of any of the
following which shall occur during the term of this Lease, or during any period
of time prior to the Commencement Date hereof or after the expiration date
hereof when Tenant may have been given access to or possession of all or any
part of the Demised Premises:
(i) any work or act done in, on or about the Demised Premises
or any part thereof at the direction of Tenant, its agents, contractors,
subcontractors, servants, employees, licensees or invitees, except if such work
or act is done or performed by Landlord or its agents or employees;
(ii) any negligence or other wrongful act or omission on the
part of Tenant or any of its agents, contractors, subcontractors, servants,
employees, subtenants, licensees or invitees;
(iii) any accident, injury or damage to any person or property
occurring in, on or about the Demised Premises or any part thereof, unless
caused by the gross negligence or willful misconduct of Landlord, its employees
or agents; and
(iv) any failure on the part of Tenant to perform or comply
with any of the covenants, agreements, terms, provisions, conditions or
limitations contained in this Lease on its part to be performed or complied
with.
9.3. TENANT'S INSURANCE. At all times during the term hereof, Tenant
shall maintain in full force and effect with respect to the Demised Premises and
Tenants use thereof, comprehensive public liability insurance, naming Landlord
and Landlord's agent as an additional insured, covering injury to persons in
amounts at least equal to $2,000,000.00 per person and $2,000,000.00 per
accident, and damage to property of at least $500,000.00. Each such policy shall
provide that it shall not be cancelable without at least thirty (30) days prior
written notice to Landlord and to any mortgagee named in an endorsement thereto
and shall be issued by an insurer and in a form satisfactory to Landlord. Tenant
shall lodge with Landlord duplicate originals or certificates of such insurance,
in a form acceptable to Landlord, at or prior to the commencement date of the
term hereof, together with evidence of paid-up premiums, and shall lodge with
Landlord renewals thereof at least fifteen (15) days prior to expiration. In
addition to the foregoing, Tenant Shall also be responsible, at Tenant's own
cost, to keep and maintain (i) insurance in respect of and covering Tenant's own
furniture, furnishings, equipment and other personal property, all insured for
the replacement cost thereof, against all risks and hazards, including but not
limited to sprinkler and leakage damage, and theft and (ii) workers'
compensation insurance with respect to and covering
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all employees of Tenant. Tenant shall also carry, at Tenant's own cost and
expense, such other insurance, in amounts and for coverages and on such other
terms as Landlord may from time to time deem commercially reasonable and
appropriate. Tenant assumes all risk of loss of any or all of its personal
property.
9.4. WAIVER OF SUBROGATION. Each party hereto hereby waives any and
every claim which arises or which may arise in its favor and against the other
party hereto during the term of this Lease or any extension or renewal thereof
for any and all loss of, or damage to, any of its property located within or
upon or constituting a part of the Building, to the extent that such loss or
damage is recovered under an insurance policy or policies and to the extent such
policy or policies contain provisions permitting such waiver of claims. Each
party agrees to request its insurers to issue policies containing such
provisions and if any extra premium is payable therefor, the party which would
benefit from the provision shall have the option to pay such additional premium
in order to obtain such benefit.
9.5. LIMITATION ON PERSONAL LIABILITY. Anything in this Lease,
either expressed or implied, to the contrary notwithstanding, Tenant
acknowledges and agrees that each of the covenants, undertakings and agreements
herein made on the part of Landlord, while in form purporting to be covenants,
undertakings and agreements of Landlord, are, nevertheless, made and intended
not as personal covenants, undertakings and agreements of Landlord, or for the
purpose of binding Landlord personally or the assets of Landlord, except
Landlord's interest in the Building; and that no personal liability or personal
responsibility is assumed by, nor shall at any time be asserted or enforceable
against Landlord, any partner of Landlord, any parent, subsidiary or partner of
Landlord or any partner of Landlord, or any of their respective heirs, personal
representatives, successors and assigns, or officers or employees on account of
this Lease or on account of any covenant, undertaking or agreement of Landlord
in this Lease contained, all such personal liability and personal
responsibility, if any, being expressly waived and released by Tenant.
9.6. SUCCESSORS IN INTEREST TO LANDLORD, MORTGAGEES. The term
"Landlord" as used in this Lease means the fee owner of the Building, or, if
different, the party holding and exercising the right, as against all others
(except space tenants of the Building) to possession of the entire Building.
Landlord as above-named represents that it is the holder of such rights as of
the date hereof. In the event of the voluntary or involuntary transfer of such
ownership or right to a successor-in-interest of Landlord, Landlord shall be
freed and relieved of all liability and obligation hereunder which shall
thereafter accrue and Tenant shall look solely to such successor-in-interest for
the performance of the covenants and obligations of the Landlord hereunder which
shall thereafter accrue. The liability of any such successor in interest to
Landlord under or with respect to this Lease shall be strictly limited to and
enforceable only out of its or their interest in the Building and Land, and
shall not be enforceable out of any other assets. No mortgagee or ground lessor
which shall succeed to the interest of Landlord hereunder (either in terms of
ownership or possessory rights) shall: (i) be liable for any previous act or
omission of a prior Landlord, (ii) be subject to any rental offsets or defenses
against a prior Landlord, (iii) be bound by any amendment of this Lease made
without its written consent, (iv) be bound by payment by Tenant of rent in
advance in excess
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of one (1) month's rent, (v) be liable for any construction of the improvements
to be made to the Demised Premises, or for any allowance or credit to Tenant for
rent, construction costs or other expenses, or (vi) be liable for any security
deposit not actually received by it. Subject to the foregoing, the provisions
hereof shall be binding upon and inure to the benefit of the successors and
assigns of Landlord.
9.7. SURVIVAL. The provisions of this Paragraph 9 shall survive
termination of this Lease.
10. EMINENT DOMAIN. If the whole or a substantial part of the Building
shall be taken or condemned for public or quasi-public use under any statute or
by right of eminent domain or private purchase in lieu thereof by any competent
authority, Tenant shall have no claim against Landlord and shall not have any
claim or right to any portion of the amount that may be awarded as damages or
paid as a result of any such condemnation or purchase; and all right of the
Tenant to damages therefor are hereby assigned by Tenant to Landlord. The
foregoing shall not, however, deprive Tenant of any separate award for moving
expenses, business dislocation damages or for any other award which would not
reduce the award payable to Landlord. Upon the date the right to possession
shall vest in the condemning authority, this Lease shall, at the option of
Landlord or (only in the case of condemnation or taking of the entire Building
or such partial taking as results in the untenantability of the Demised
Premises) at the option of Tenant, cease and terminate with rent adjusted to
such date and Tenant shall have no claim against Landlord for the value of any
unexpired term of this Lease.
11. INSOLVENCY. Each of the following shall constitute an event of default
by Tenant under this Lease, upon the occurrence of any such event of default
Landlord shall have, without need of any notice, the rights and remedies
enunciated in Paragraph 13 of this Lease for events of default hereunder: (i)
the commencement of levy, execution or attachment proceedings against Tenant,
any principal (which shall be defined as any individual or entity having a
direct or indirect ownership interest in Tenant of more than 25%) thereof or any
partner therein or any surety or guarantor thereof (hereinafter a "Surety") or
any of the assets of Tenant, or the application for or appointment of a
liquidator, receiver, custodian, sequester, conservator, trustee, or other
similar judicial officer; or (ii) the insolvency, under either the bankruptcy or
equity definition, of Tenant or any principal thereof or partner therein or any
Surety; or (iii) the assignment for the benefit of creditors, or the admission
in writing of an inability to pay debts generally as they become due, or the
ordering of the winding-up or liquidation of the affairs of Tenant or any
principal thereof or partner therein or any Surety; or (iv) the commencement of
a case by or against Tenant or any principal thereof or partner therein or any
Surety under any insolvency, bankruptcy, creditor adjustment, debtor
rehabilitation or similar laws, state or federal, or the determination by any of
them to request relief under any insolvency, bankruptcy, creditor adjustment,
debtor rehabilitation or similar proceeding, state or federal, including,
without limitation, the consent by any of them to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequester or
similar official for it or for any of its respective property or assets (unless,
in the case of involuntary proceedings, the same shall be dismissed within
thirty [30] days after institution).
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12. DEFAULT.
12.1. EVENTS OF DEFAULT. If Tenant shall fail to take possession of
the Demised Premises on the Commencement Date, or if Tenant fails to pay rent or
any other sums payable to Landlord hereunder when due and such default shall
continue for five (5) days after it is due, or if Tenant shall fail to perform
or observe any of the other covenants, terms or conditions contained in this
Lease within fifteen (15) days (or such longer period as is reasonably required
to correct any such default, provided Tenant promptly commences and diligently
continues to effectuate a cure [but in any event within thirty (30) days]) after
written notice thereof by Landlord; provided, however, that Landlord shall not
be required to give any such notice more than once within any twelve (12) month
period, and provided that the events hereinafter enumerated shall be deemed
events of default under this Lease without any notice, grace or cure period: (a)
if any of the events specified in Paragraph 11 occur, or (b) if Tenant fails to
take actual bona-fide occupancy of the Demised. Premises or manifests an
intention not to take actual, bona-fide occupancy of the Demised Premises, or if
Tenant vacates or abandons the Demised Premises during the term hereof or
removes or manifests an intention to remove any of Tenant's goods or property
therefrom other than in the ordinary and usual course of Tenant's business, or
(c) if any corporate surety or guarantor of this Lease merges with another
entity, or liquidates or dissolves or changes control or if any surety or
guarantor of this Lease fails to comply with all of the provisions of its
suretyship or guaranty agreement, then, and in any of such cases
(notwithstanding any former breach of covenant or waiver thereof in a former
instance) (each of the foregoing an "Event of Default"), Landlord, in addition
to all other rights and remedies available to it by law or equity or by any
other provisions hereof, may at any time thereafter.
(i) upon three (3) days' notice to Tenant, declare to be
immediately due and payable, on account of the rent and other charges herein
reserved for the balance of the term of this Lease (taken without regard to any
early termination of such term on account of an Event of Default), a sum equal
to the Accelerated Rent Component (as hereinafter defined), in which event
Tenant shall remain liable to Landlord as hereinafter provided; and/or
(ii) whether or not Landlord has elected to recover the
Accelerated Rent Component, terminate this Lease on at least five (5) days'
notice to Tenant and, on the date specified in such notice, this Lease and the
term hereby demised and all rights of Tenant hereunder shall expire and
terminate and Tenant shall thereupon quit and surrender possession of the
Demised Premises to Landlord in the condition elsewhere herein required in
which event Tenant shall remain liable to Landlord as herein provided.
12.2. ACCELERATED RENT COMPONENT. For purposes hereof, the
"Accelerated Rent Component" shall mean the aggregate of:
(i) all rent and other charges, payments, costs and expenses
due from Tenant to Landlord and in arrears at the time of the election of
Landlord to recover the Accelerated Rent Component;
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(ii) the minimum rent reserved for the then entire unexpired
balance of the term of this Lease (taken without regard to any early termination
of the term by virtue of an Event of Default), plus all other charges, payments,
costs and expenses herein agreed to be paid by Tenant up to the end of such term
which shall be capable of precise determination at the time of Landlord's
election to recover the Accelerated Rent Component; and
(iii) Landlord's good faith estimate of all charges, payments,
costs and expenses herein agreed to be paid by Tenant up to the end of such term
which shall not be capable of precise determination as aforesaid (and for such
purposes no estimate of any component of additional rent to accrue pursuant to
the provisions of Paragraph 4 hereof shall be less than the amount which would
be due if each such component continued at the highest monthly rate or amount in
effect during the twelve [12] months immediately preceding the Event of
Default).
12.3. RE-ENTRY. In any case in which this Lease shall have been
terminated, or in any case in which Landlord shall have elected to recover the
Accelerated Rent Component and any portion of such sum shall remain unpaid,
Landlord may, without further notice, enter upon and repossess the Demised
Premises, by force, summary proceedings, ejectment or otherwise, and may
dispossess Tenant and remove Tenant and all other persons and property from the
Demised Premises and may have, hold and enjoy the Demised Premises and the rents
and profits therefrom. Landlord may, in its own name, as agent for Tenant, if
this Lease has not been terminated, or in its own behalf, if this Lease has been
terminated, relet the Demised Premises or any part thereof for such term or
terms (which may be greater or less than the period which would otherwise have
constituted the balance of the term of this Lease) and on such terms, conditions
and provisions (which may include concessions or free rent) as Landlord in its
sole discretion may determine. Landlord may, in connection with any such
reletting, cause the Demised Premises to be redecorated, altered, divided,
consolidated with other space or otherwise changed or prepared for reletting. At
Landlord's option, such reletting shall or shall not be deemed a surrender and
acceptance of the Demised Premises.
12.4. CONTINUING LIABILITY. Tenant shall, with respect to all
periods of time up to and including the expiration of the term of this Lease (or
what would have been the expiration date in the absence of default or breach)
remain liable to Landlord as follows:
(i) In the event of termination of this Lease on account of an
Event of Default, Tenant shall remain liable to Landlord for damages equal to
the rent and other charges payable under this Lease by Tenant as if this Lease
were still in effect, less the net proceeds of any reletting after deducting all
costs incident thereto (including without limitation all repossession costs,
brokerage and management commission, operating and legal expenses and fees,
alteration costs and expenses of preparation for reletting, and interest
relating thereto) and to the extent such damages shall not have been recovered
by Landlord by virtue of payment by Tenant of the Accelerated Rent Component
(but without prejudice to the right of Landlord to demand and receive the
Accelerated Rent Component), such damages shall be payable to Landlord monthly
upon presentation to Tenant of a bill for the amount due.
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(ii) In the event and so long as this Lease shall not have
been terminated after an Event of Default, the rent and all other charges
payable under this Lease shall be reduced by the net proceeds of any reletting
by Landlord (after deducting all costs incident thereto as above set forth) and
by any portion of the Accelerated Rent Component paid by Tenant to Landlord, and
any amount due to Landlord shall be payable monthly upon presentation to Tenant
of a bill for the amount due.
12.5. CREDIT. In the event Landlord, after an Event of Default,
shall recover the Accelerated Rent Component from Tenant and it shall be
determined at the expiration of the term of this Lease (taken without regard to
early termination for an Event of Default) that a credit is due Tenant because
the net proceeds of reletting, as aforesaid, plus the amounts paid to Landlord
by Tenant exceed the aggregate of rent and other charges accrued in favor of
Landlord to the end of such term, Landlord shall retain such excess.
12.6. NO DUTY TO RELET. Landlord shall in no event be responsible or
liable for any failure to relet the Demised Premises or any part thereof, or for
any failure to collect any rent due upon a reletting, except to the extent of
Landlord's obligations under law. Without limiting the foregoing general
statement of Landlord's rights in such regard, Landlord shall have no obligation
to relet all or any portion of the Demised Premises in preference or priority to
any other space Landlord may have available for rent or lease elsewhere in the
Building or otherwise.
12.7. CONFESSION OF JUDGMENT. LANDLORD SHALL HAVE THE FOLLOWING
RIGHTS TO CONFESS JUDGMENT AGAINST TENANT AND ALL PERSONS CLAIMING THROUGH
TENANT, FOR POSSESSION OF THE DEMISED PREMISES:
(i) WHEN THIS LEASE SHALL BE TERMINATED BY REASON OF A DEFAULT
BY TENANT OR ANY OTHER REASON WHATSOEVER, EITHER DURING THE ORIGINAL TERM OF
THIS LEASE OR ANY RENEWAL OR EXTENSION THEREOF, AND ALSO WHEN THE TERM HEREBY
CREATED OR ANY EXTENSION THEREOF SHALL HAVE EXPIRED, IT SHALL BE LAWFUL FOR ANY
ATTORNEY TO APPEAR FOR TENANT IN ANY AND ALL SUITS OR ACTIONS WHICH MAY BE
BROUGHT FOR POSSESSION AND/OR EJECTMENT; AND AS ATTORNEY FOR TENANT TO CONFESS
JUDGMENT IN EJECTMENT AGAINST TENANT AND ALL PERSONS CLAIMING UNDER TENANT FOR
THE RECOVERY BY LANDLORD OF POSSESSION OF THE DEMISED PREMISES, FOR WHICH THIS
LEASE SHALL BE LANDLORD'S SUFFICIENT WARRANT. UPON SUCH CONFESSION OF JUDGMENT
FOR POSSESSION, IF LANDLORD SO DESIRES, A WRIT OF EXECUTION OR OF POSSESSION MAY
ISSUE FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDINGS WHATSOEVER. IF FOR ANY
REASON AFTER SUCH ACTION SHALL HAVE BEEN COMMENCED, THE SAME SHALL BE DETERMINED
AND THE POSSESSION OF THE DEMISED PREMISES SHALL REMAIN IN OR BE RESTORED TO
TENANT, THEN LANDLORD SHALL HAVE THE RIGHT UPON ANY SUBSEQUENT OR CONTINUING
DEFAULT OR DEFAULTS, OR AFTER EXPIRATION OF
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THE LEASE, OR UPON THE TERMINATION OF THIS LEASE AS HEREINBEFORE SET FORTH, TO
BRING ONE OR MORE FURTHER ACTIONS AS HEREINBEFORE SET FORTH TO RECOVER
POSSESSION OF THE DEMISED PREMISES.
(ii) In any action of ejectment, Landlord shall cause to be
filed in such action an affidavit made by Landlord or someone acting for
Landlord setting forth the facts necessary to authorize the entry of judgment,
of which facts such affidavit shall be conclusive evidence. If a true copy of
this Lease shall be filed in such action (and the truth of the copy as asserted
in the affidavit of Landlord shall be sufficient evidence of same), it shall not
be necessary to file the original Lease as a warrant of attorney, any rule of
court, custom or practice to the contrary notwithstanding.
(iii) Tenant expressly agrees, to the extent not prohibited by
law, that any judgment, order or decree entered against it by or in any court or
magistrate by virtue of the powers of attorney contained in this Lease shall be
final, and that Tenant will not take an appeal, certiorari, writ of error,
exception or objection to the same, or file a motion or rule to strike off or
open or to stay execution of the same, and releases to Landlord and to any and
all attorneys who may appear for Tenant all errors in such proceedings and all
liability therefor.
(iv) The right to enter judgment against Tenant and to enforce
all of the other provisions of this Lease herein provided for, at the option of
any assignee of this Lease, may be exercised by any assignee of Landlord's
right, title and interest in this Lease in Tenant's own name, notwithstanding
the fact that any or all assignments of such right, title and interest may not
be executed and/or witnessed in accordance with the Act of Assembly of May 28,
1715, 1 Sm. L. 94, and all supplements and amendments thereto that have been or
may hereafter be passed. Tenant hereby expressly waives the requirements of such
Act of Assembly and any and all laws regulating the manner and/or form in which
such assignments shall be executed and witnessed.
(vi) Tenant acknowledges that it has been represented by
counsel in connection with the negotiation of this Lease, the it has read and
discussed with such counsel the provisions herein relating to confession of
judgment, and that it understands the nature and consequences of such
provisions.
12.8. BANKRUPTCY. Nothing contained in this Lease shall limit or
prejudice the right of Landlord to prove for and obtain as damages incident to a
termination of this Lease, in any bankruptcy, reorganization or other court
proceedings, the maximum amount allowed by any statute or rule of law in effect
when such damages am to be proved.
12.9. WAIVER OF DEFECTS. Tenant hereby waives all errors and defects
of a procedural nature in any proceedings brought against it by Landlord under
this Lease. Tenant further waives the right to trial by jury and any notices to
quit as may be specified in the Landlord and Tenant Act of Pennsylvania, Act of
April 6, 1951 (68 P.S.C.A. Section 250.101 et seq.), as the same may have been
or may hereafter be amended, and agrees that the notices provided in this Lease
shall
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be sufficient in any case where a longer period may be statutorily specified.
12.10. NON-WAIVER BY LANDLORD. The failure of Landlord to insist in
any one or more instances upon the strict performance of any one or more of the
agreements, terms, covenants, conditions or obligations of this Lease, or to
exercise any right, remedy or election herein contained, shall not be
construed as a waiver or relinquishment in the future of such performance or
exercise, but the same shall continue and remain in full force and effect with
respect to any subsequent breach, act or omission.
12.11. PARTIAL PAYMENT. No payment by Tenant or receipt by Landlord
of a lesser amount than the correct Minimum Rent or additional rent due
hereunder shall be deemed to be other than a payment on account, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed to effect or evidence an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance or pursue any other remedy in this Lease or at law provided.
12.12. OVERDUE PAYMENTS. If rent or any other sum due from Tenant to
Landlord shall be overdue for more than five (5) days, it shall thereafter,
until paid, bear interest at the higher of (i) five percent (5%) above the prime
rate published in the Wall Street Journal, if available (and, if not available,
then such comparable substitute rate as may be selected by Landlord), from time
to time, and (ii) the rate of eighteen percent (18%) per annum (or, if lower,
the highest legal rate).
12.13. CUMULATIVE REMEDIES. No right or remedy herein conferred upon
or reserved to Landlord is intended to be exclusive of any other right or remedy
herein or by law provided, but each shall be cumulative and in addition to every
other right or remedy given herein or now or hereafter existing at law or in
equity or by statute.
13. SUBORDINATION.
13.1. GENERAL. This Lease is and shall be subject and subordinate to
all ground or underlying leases of the entire Building (or of the entire Campus)
and to all mortgages, deeds of trust and similar security documents which may
now or hereafter be secured upon the Building (or upon the Campus), and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
shall be required by any lessor or mortgagee, but in confirmation of such
subordination, Tenant shall execute, within ten (10) days after request, any
certificate that Landlord may reasonably require acknowledging such
subordination. Notwithstanding the foregoing, the party holding the instrument
to which this Lease is subordinate shall have the right to recognize and
preserve this Lease in the event of any foreclosure sale or possessory action,
and in such case, this Lease shall continue in full force and effect at the
option of the party holding the superior lien and Tenant shall attorn to such
party and shall execute, acknowledge and deliver any instrument that has for its
purpose and effect the confirmation of such attornment. If Landlord shall so
request, Tenant shall send to any mortgagee or ground lessor of the Building
designated by Landlord, a copy of any notice given by
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Tenant to Landlord alleging a material breach by Landlord in its obligations
under this Lease.
13.2. RIGHTS OF MORTGAGEE. In the event of any act or omission of
Landlord which would give Tenant the right, immediately or after lapse of a
period of time, to cancel or terminate this Lease, or to claim a partial or
total eviction, Tenant shall not exercise such right (i) until it has given
written notice of such act or omission to the holder of each such mortgage and
ground lease whose name and address shall previously have been furnished to
Tenant in writing, and (ii) until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notice (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled, under this Lease or otherwise, after similar notice, to
effect such remedy plus an additional period of time of thirty (30) days for a
monetary default, or for any other default, the number of days reasonably
required for the holder of each such mortgage and ground lease to obtain
possession of the Building and to cure such default (but in no event less than
an additional thirty (30) day period)).
13.3. MODIFICATIONS. If, in connection with obtaining, continuing or
renewing financing for which the Building, Land or the Demised Premises or any
interest therein represents collateral in whole or in part, a banking, insurance
or other lender shall request reasonable modifications of this Lease as a
condition of such financing, Tenant will not unreasonably withhold, delay,
condition or defer its consent thereto, provided that such modifications do not
increase the monetary obligations of Tenant hereunder or adversely affect to a
material degree Tenant's leasehold interest hereby created.
14. NOTICES. All notices and other communications hereunder, to be
effective, must be in writing (whether or not a writing is expressly required
hereby), and must be either (i) hand delivered, or (ii) sent by a recognized
national overnight courier service, fees prepaid, or (iii) sent by United
States registered or certified mail, return receipt requested, postage prepaid,
or (iv) sent by facsimile transmission (with a confirmation copy to follow by
any of the methods of delivery set forth above); in all of the foregoing cases
to the following respective addresses:
14.1. IF TO LANDLORD:
Plymouth Campus Associates
c/o The Rubenstein Company
4100 One Commerce Square
2005 Market Street
Philadelphia, Pennsylvania 19103
Attention: Mark E. Rubenstein
FAX: (215) 563-4110
14.2. IF TO TENANT:
Prior to the Commencement Date:
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Michael Dougherty
Magainin Pharmaceutical
5110 Campus Drive
Plymouth Meeting, PA 19462
Following the Commencement Date:
Michael Dougherty
Magainin Pharmaceutical
Plymouth Meeting Executive Campus, Suite 270
620 West Germantown Pike
Plymouth Meeting, Pennsylvania 19462
or at such other address or to the attention of such other person as either
party may hereafter give the other for such purpose. Notices will be deemed to
have been given (a) when so delivered (by hand delivery, courier service or
facsimile transmission as aforesaid), or (b) three days after being so mailed
(by registered or certified mail as aforesaid).
15. HOLDING OVER. Should Tenant continue to occupy the Demised Premises
after expiration of the Term of this Lease or any renewal or renewals thereof,
or after a forfeiture or other termination thereof, such tenancy shall (without
limitation on any of Landlord's rights or remedies therefor) be one at
sufferance from month to month at a minimum monthly rent equal to one hundred
fifty percent (150%) the greater of (i) the sum of minimum rent and additional
rent payable for the last month of the term of this Lease or, (ii) the fair
market rental value at the time of such holdover, and, in addition to either of
the foregoing, all other charges payable with respect to such last month of this
Lease and all damages suffered or incurred by Landlord as a result of or arising
from such holdover tenancy. Nothing contained herein shall grant Tenant the
right to holdover after the term of this Lease has expired.
16. RESERVATIONS IN FAVOR OF LANDLORD. (i) All walls, windows and doors
bounding the Demised Premises (including exterior Building walls, core corridor
walls and doors and any core corridor entrance), except the inside surfaces
thereof, (ii) any terraces or roofs adjacent to the Demised Premises, and (iii)
any space in or adjacent to the Demised Premises used for shafts, pipes,
conduits, fan rooms, ducts, electric or other utilities, sinks or other Building
facilities, and the use thereof, as well as reasonable access thereto through
the Demised Premises for the purposes of operation, maintenance, decoration and
repair, are reserved to Landlord.
17. COMPLETION OF IMPROVEMENTS: DELAY IN POSSESSION.
17.1. LANDLORD IMPROVEMENTS. As a general matter, the Demised
Premises will be delivered to Tenant at the Commencement Date in its present "AS
IS/WHERE IS" condition, subject, nevertheless, to any further or additional wear
and tear between the date hereof and the Commencement Date, and further subject
nevertheless to the remaining provisions of this Paragraph
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17. Landlord, at Landlord's own cost, shall furnish, install and otherwise
provide and be responsible for the installation of the following: (a) the
construction of a Demising Wall between the Demised Premises and the adjacent
space, (b) clean and shampoo the carpeting in the Demised Premises, and (c)
install a sink in the Demised Premises at the location requested by Tenant.
17.2. TENANT IMPROVEMENTS. INTENTIONALLY DELETED
17.3. PERFORMANCE OF LANDLORD AND TENANT IMPROVEMENTS.
INTENTIONALLY DELETED
17.4. ACCEPTANCE. Tenant represents that the Building, Land, and
the Demised Premises, the street or streets, sidewalks, parking areas, curbs and
access ways adjoining them, and the present uses and non-uses thereof, have been
examined by Tenant, and Tenant accepts them in the condition or state in which
they now are, or any of them now is, without relying on any representation,
covenant or warranty, express or implied, by Landlord, except as may be
expressly contained herein with respect to Landlord Improvements to be
constructed in the Demised Premises. Tenant's occupancy of the Demised Premises
shall constitute acceptance of the Landlord Improvements, as set forth in this
paragraph. The provisions of this paragraph shall survive the termination of
this Lease.
17.5. DELAY IN POSSESSION. If Landlord shall be unable to
deliver possession of the Demised Premises to Tenant on the date specified for
commencement of the term hereof (i) because a certificate of occupancy has not
been procured, or (ii) because of the holding over or retention of possession of
any tenant or occupant, or (iii) if repairs, improvements or decoration of the
Demised Premises, or of the Building, are not completed, or (iv) because of the
operation of a "force majeure" (which shall mean any delay in performance
hereunder caused by any event beyond the control of Landlord including without
limitation, labor disputes, civil commotion, war, war-like operations, invasion,
rebellion, hostilities, military power, sabotage, governmental regulations or
controls, fire or other casualty, inability to obtain material or services or
acts of God), or (v) for any other reason, then in any such case Landlord shall
not be subject to any liability to Tenant. Under such circumstances, except for
delays resulting from actions or omissions by Tenant, the rent reserved and
covenanted to be paid herein shall not commence until possession of the Demised
Premises is given or the Demised Premises are available for occupancy by Tenant,
and no such failure to give possession shall in any other respect affect the
validity of this Lease or any obligation of the Tenant hereunder (except as to
the date of commencement of accrual of rent).
18. COMMUNICATION AND COMPUTER LINES. Tenant may install, maintain,
replace, remove or use any communications or computer wires, cables and related
devices (collectively the "Lines") at the Building in or serving the Demised
Premises, provided: (a) Tenant shall obtain Landlord's prior written consent,
use an experienced and qualified contractor approved in writing by Landlord, and
comply with all of the other provisions of Paragraph 6.7, (b) any such
installation, maintenance, replacement, removal or use shall comply with all
Governmental Requirements applicable thereto and good work practices including,
but not limited to, the national electrical codes
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and all requirements of the National Fire Protection Agency and shall not
interfere with the use of any then existing Lines at the Building, (c) an
acceptable number of spare Lines and space for additional Lines shall be
maintained for existing and future occupants of the Building, as determined in
Landlord's reasonable opinion, (d) if Tenant at any time uses any equipment that
may create an electromagnetic field exceeding the normal insulation ratings of
ordinary twisted pair riser cable or cause radiation higher than normal
background radiation, the Lines therefor (including riser cables) shall be
appropriately insulated to prevent such excessive electromagnetic fields or
radiation, (e) as a condition to permitting the installation of new Lines,
Landlord may require that Tenant remove existing Lines located in or serving the
Demised Premises, (f) Tenant's rights shall be subject to the rights of any
regulated telephone company, and (g) Tenant will pay all costs in connection
therewith, and Landlord reserves the right to require that Tenant remove any
Lines located in or serving the Demised Premises which are installed in
violation of these provisions, or which are at any time in violation of any
Governmental Requirements or represent a dangerous or potentially dangerous
condition (whether such Lines were installed by Tenant or any other party),
within three (3) days after written notice.
18.1. LANDLORD RESERVATION. Landlord may (but shall not have the
obligation to): (i) install new Lines at the Building (ii) create additional
space for Lines at the Building, and (iii) reasonably direct, monitor and/or
supervise the installation, maintenance, replacement and removal of, the
allocation and periodic re-allocation of available space (if any) for, and the
allocation of excess capacity (if any) on, any Lines now or hereafter installed
at the Building by Landlord, Tenant or any other party (but Landlord shall have
no right to monitor or control the information transmitted through such Lines).
Such rights shall not be in limitation of other rights that may be available to
Landlord by Governmental Requirements or otherwise. If Landlord exercises any
such rights, Landlord may charge Tenant for the costs attributable to Tenant, or
may include those costs and all other costs in Operating Expenses (including
without limitation, costs for acquiring and installing Lines and risers to
accommodate new Lines and spare Lines, any associated computerized system and
software for maintaining records of Line connections, and the fees of any
consulting engineers and other experts); provided, any capital expenditures
included in Operating Expenses hereunder shall be amortized (together with
reasonable finance charges) over the useful life of such item (but in no event
longer than five years).
18.2. REMOVAL OF LINES. Notwithstanding anything to the contrary
contained in Paragraph 6.4, Landlord reserves the right to require that Tenant
remove any or all Lines installed by or for Tenant within or serving the Demised
Premises upon termination of this Lease, provided Landlord notifies Tenant prior
to or within thirty (30) days following such termination. Any Lines not required
to be removed pursuant to this Paragraph shall, at Landlord's option, become the
Property of Landlord (without payment by Landlord). If Tenant fails to remove
such Lines as required by Landlord, or violates any other provision of this
Paragraph, Landlord may, after twenty (20) days written notice to Tenant, remove
such Lines or remedy such other violation, at Tenant's expense (without
limiting Landlord's other remedies available under this Lease or applicable
Governmental Requirements). Tenant shall not, without the prior written consent
of Landlord in each instance, grant to any third party a security interest or
lien in or on the Lease, and any such
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<PAGE> 38
security interest or lien granted without Landlord's written consent shall be
null and void. Except to the extent arising from the intentional or negligent
acts of Landlord or Landlord's agents or employees, Landlord shall have no
liability for damages arising from, and Landlord does not warrant that the
Tenant's use of any Lines will be free from the following (collectively called
"Line Problems"): (x) any eavesdropping or wire-tapping by unauthorized
parties, (y) any failure of any Lines to satisfy Tenant's requirements, or (z)
any shortages, failures, variations, interruptions, disconnections, loss or
damage caused by the installation, maintenance, replacement, use or removal of
Lines by or for other tenants or occupants at the Building, by any failure of
the environmental conditions or the power supply for the Building to conform to
any requirements for the Lines or any associated equipment, or any other
problems associated with any Lines by any other cause. Under no circumstances
shall any Line Problems be deemed an actual or constructive eviction of Tenant,
render Landlord liable to Tenant for abatement of Rent, or relieve Tenant from
performance of Tenant's obligations under this Lease. Landlord in no event shall
be liable for damages by reason of loss of profits, business interruption or
other consequential damage arising from any Line Problems.
18.3. COMMUNICATION CONTRACTORS. Landlord has informed Tenant
that certain office and communication services may be offered to tenants of the
Building by an entity which may or may not be related to or under contract with
Landlord ("Supplier"). Tenant shall be permitted to contract with Supplier for
the provision of any or all of such services on such terms and conditions as
Tenant and Supplier may agree. Tenant shall also be permitted to obtain office
and communication services from any other reputable person or entity in the
business of providing the same (hereinafter referred to as "Separate Supplier"),
provided that Landlord shall not be required thereby to make any alterations in
or to any part of the Building or the use of any facilities or equipment of the
Building, and provided further that no such services provided by a Separate
Supplier, or any equipment or facilities used or to be used in connection
therewith, shall be incompatible in any respect with, or shall interfere with or
otherwise impair or adversely affect the operation, reliability or quality of
any Building Systems or any services, equipment or facilities used or operated
by Supplier or any tenant in the Building. Tenant acknowledges and agrees that:
(a) Landlord has made no warranty or representation to Tenant with respect to
the availability of any such services, whether provided by Supplier or any
Separate Supplier, or the quality, reliability or suitability thereof; (b)
neither Supplier nor any Separate Supplier is acting as the agent or
representative of Landlord in the provision of such services, and Landlord shall
have no liability or responsibility for any failure or inadequacy of such
services, or any equipment or facilities used in the furnishing thereof, or any
act or omission of Supplier or any Separate Supplier or their agents, employees,
representatives, officers or contractors; (c) if Tenant so contracts for such
services with Supplier or Separate Supplier, Landlord shall have no
responsibility or liability for the installation, alteration, repair,
maintenance, furnishing, operation, adjustment or removal of any such services,
equipment, or facilities; and (d) any contract or other agreement between Tenant
and Supplier or any Separate Supplier shall be independent of this Lease, the
obligations of Tenant hereunder, and the rights of Landlord hereunder, and,
without limiting the foregoing, no default or failure of Supplier or any
Separate Supplier with respect to any such contract or agreement relating
thereto, shall have any effect on this Lease or give to Tenant any offset or
defense to the full and timely performance
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<PAGE> 39
of its obligations hereunder, entitle Tenant to any abatement of rent or any
other payment required to be made by Tenant hereunder or constitute any actual
or constructive eviction of Tenant or otherwise give rim to any other claim of
any nature against Landlord. If Tenant does not contract for such office and
communication services with a Supplier or Separate Supplier, this subparagraph
shall be deemed of no force or effect under this Lease.
19. LANDLORD'S RELIANCE. Landlord has executed the Lease in reliance
upon certain financial information which his been submitted by Tenant to
Landlord prior to the execution of the Lease (the "Financial Information"). From
time to time, upon five (5) days written request by Landlord, Tenant will submit
to Landlord current financial information, in detail reasonably satisfactory to
Landlord, in order for Landlord to determine properly Tenant's then financial
condition. As a material inducement to Landlord to enter into this Lease, Tenant
(and each party executing this Lease on behalf of Tenant individually)
represents and warrants to Landlord that: (i) the Financial Information is
complete, true and correct and a presents a fair representation of Tenant's
financial condition at the time of signing of this Lease, (ii) Tenant and the
party executing on behalf of Tenant are fully and properly authorized to execute
and enter into this Lease on behalf Tenant and to deliver the same to Landlord;
(iii) the execution, delivery and full performance of this Lease by Tenant do
not and shall not constitute a violation of any contract, agreement,
undertaking, judgment, law, decree, governmental or court order or other
restriction of any kind to which Tenant is a party or by which Tenant may be
bound; (iv) Tenant has executed this Lease free from fraud, undue influence,
duress, coercion or other defenses to the execution of this Lease; (v) this
Lease constitutes a valid and binding obligation of Tenant, enforceable against
Tenant in accordance with its terms; (vi) each individual executing this Lease
on behalf of Tenant is legally competent, has attained the age of majority and
has full capacity to enter into this Lease; and (vii) if Tenant is a corporation
or a partnership (a) Tenant is duly organized, validly existing and in good
standing under the laws of the state of its organization and has full power and
authority to enter into this Lease, to perform its obligations under this Lease
in accordance with its terms, and to transact business in Pennsylvania; (b) the
execution of this Lease by the individual or individuals executing it on behalf
of Tenant, and the performance by Tenant of its obligations under this Lease,
have been duly authorized and approved by all necessary corporate or Partnership
action, as the case may be; and (c) the execution, delivery and performance of
this Lease by Tenant is not in conflict with Tenant's bylaws or articles of
incorporation, agreement of partnership, or other charters, agreements, rules or
regulations governing Tenant's business as any of the foregoing may have been
supplemented, modified, amended, or altered in any manner.
20. PRIOR AGREEMENTS: AMENDMENTS. This lease constitutes the entire
agreement between the parties relating to the subject matter contained herein.
Neither party hereto has made any representations or promises except as
contained herein or in some further writing signed by the party making such
representation or promise, which, by its express terms, is intended to
supplement the terms hereof. Without limiting the foregoing, this Lease
supersedes all prior negotiations, agreements, informational brochures, letters,
promotional information, proposals, and other statements and materials made or
furnished by Landlord or its agents. No agreement
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<PAGE> 40
hereinafter made shall be effective to change, modify, discharge, waive
obligations under, or effect an abandonment of this Lease, in whole or in part,
unless such agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge, waiver or abandonment is
sought. Notwithstanding the foregoing, no warranty, representation, covenant,
writing, document, instrument, amendment, modification, agreement or like
instrument shall be binding upon or enforceable against Landlord unless executed
by Landlord.
21. Captions. The captions of the paragraphs and subparagraphs in this
Lease are inserted and included solely for convenience and shall not be
considered or given any effect in construing the provisions hereof.
22. Landlord's Right to Cure. Landlord may (but shall not be obligated
to), on five (5) days' notice to Tenant (except that no notice need be given in
case of emergency), cure on behalf of Tenant any default hereunder by Tenant,
and the cost of such cure (including any attorney's fees incurred) shall be
deemed additional rent payable upon demand.
23. Estoppel Statement. Tenant shall from time to time, within ten (10)
days after request by Landlord, execute, acknowledge and deliver to Landlord, or
to any third party designated by Landlord, a statement certifying that this
Lease is unmodified and in full force and effect (or that the same is in full
force and effect as modified, listing any instruments of modification),
confirming the rents and other charges under this Lease and the dates to which
rent and other charges have been paid, and certifying whether or not, to the
best of Tenant's knowledge, Landlord is in default hereunder or whether Tenant
has any claims or demands against Landlord (and, if so, the default, claim
and/or demand shall be specified) and such other reasonable information as
Landlord shall require, in the form set forth in Exhibit "G" hereto or such
similar form as may be required by any subsequent mortgagee or third party. To
the extent such estoppel statement is not received from Tenant in a timely
manner in accordance with this Paragraph, Landlord shall be entitled to furnish
to any third party to whom such estoppel statement would have been delivered
Landlord's good faith statement to the effect requested from Tenant, and Tenant
shall be bound by, and deemed to have delivered, such Landlord's estoppel
statement with respect to this Lease. Any such estoppel statement may be relied
upon by Landlord, any mortgagees, auditors, insurance carriers and prospective
purchasers.
24. Relocation of Tenant. Landlord, at its sole expense, upon not less
than sixty (60) days prior written notice to Tenant (the "Relocation Notice"),
may require Tenant to relocate from the Demised Premises to other premises of
comparable size within the Campus in order to permit Landlord to consolidate the
Demised Premises with other adjoining space leased or to be leased to another
tenant in or coming into the Building; provided, however, that in the event of
delivery of any such Relocation Notice, Tenant, by written notice to Landlord
given not later than thirty (30) days following Tenant's receipt of the
Relocation Notice, may elect not to relocate to such other premises, and in lieu
thereof, may terminate this Lease and Tenant shall thereafter vacate the Demised
Premises no later than thirty (30) days after the expiration of such thirty (30)
day period. In the event of any such relocation, Landlord shall: (i) pay all the
expenses of preparing
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<PAGE> 41
and decorating the new premises so that such premises will be substantially
similar to the Demised Premises; (ii) pay the expense of moving Tenant's
furniture, furnishings, equipment, files and other personal property to the new
premises; and (iii) pay the reasonable costs of replacing existing stocks of
Tenant's letterhead, envelopes, billing statements and other stationary having
Tenant's address thereon. Use and occupancy by Tenant of the new premises shall
be under and pursuant to the same terms, conditions and provisions of this Lease
and Tenant shall execute any and all amendments to this Lease as Landlord shall
deem necessary to effectuate the provisions of this Paragraph.
25. BROKER. Tenant represents and warrants that it has not dealt with any
broker or agent in the negotiation for or the obtaining of this Lease, other
than Jackson-Cross Company ("Agent"), and agrees to indemnify, defend and hold
Landlord harmless from any and all cost or liability for compensation claimed by
any such broker or agent, other than Agent, employed or engaged by it or
claiming to have been employed or engaged by it. Agent is entitled to a leasing
commission in connection with the making of this Lease, and Landlord shall pay
such commission to Agent pursuant to a separate agreement between Landlord and
Agent.
26. MISCELLANEOUS.
26.1. CERTAIN INTERPRETATIONS. The word "Tenant" as used in this
Lease shall be construed to mean tenants in all cases whether there is more than
one tenant (and in such case the liability of such tenants shall be joint and
several), and the necessary grammatical changes required to make the provisions
hereof apply to corporations, partnerships or individuals, men or women, shall
in all cases be assumed as though in each case fully expressed. Each provision
hereof shall extend to and shall, as the case may require, bind and inure to the
benefit of Tenant and its successors and assigns, provided that this Lease shall
not inure to the benefit of any assignee or successor of Tenant except upon the
express written consent of Landlord as herein provided.
26.2. PARTIAL INVALIDITY. If any of the provisions of this Lease,
or the application thereof to any person or circumstances, shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or to which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
26.3. GOVERNING LAW. This Lease shall be governed in all respects
by the laws of the Commonwealth of Pennsylvania.
26.4. LIGHT AND AIR. This Lease does no grant any legal rights to
"light and/or air" outside the Demised Premises nor any particular view or
cityscape visible from the Demised Premises.
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<PAGE> 42
26.5. RECORDING. Neither this Lease nor any memorandum of lease
or short form lease shall be recorded by Tenant and Tenant shall remove
immediately upon request by Landlord any improperly recorded copy of this Lease
or memorandum of Lease.
27. QUIET ENJOYMENT. Upon payment by Tenant of the rent and other sums
provided herein and Tenant's observance and performance of the covenants, terms
and conditions of this Lease to be observed and performed by Tenant, Tenant
shall peaceably hold and quietly enjoy the Demised Premises for the term of this
Lease without hindrance or obstruction by Landlord or any other person claiming
by, through or under Landlord, subject to the terms and conditions of this
Lease, and to any mortgage or ground lease which is superior to this Lease.
28. CONFIDENTIALITY. TENANT ACKNOWLEDGES AND AGREES THAT THE TERMS OF THIS
LEASE AND THE NEGOTIATIONS WHICH LED TO THE EXECUTION OF THIS LEASE ARE
CONFIDENTIAL IN NATURE. TENANT COVENANTS THAT, EXCEPT AS MAY BE REQUIRED BY LAW
OR BY ANY LENDER IN CONNECTION WITH CURRENT OR PROPOSED FINANCING FOR TENANT,
TENANT SHALL NOT COMMUNICATE THE TERMS OR ANY OTHER ASPECT OF THIS TRANSACTION
WITH, AND WILL NOT DELIVER ALL OR ANY PORTION OF THIS LEASE TO, ANY PERSON OR
ENTITY OTHER THAN LANDLORD.
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<PAGE> 43
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have caused this Lease to be executed by their duly authorized
representatives the day and year first above written.
WITNESS: LANDLORD:
PLYMOUTH CAMPUS ASSOCIATES
BY: The Rubenstein Company, L.P.
General Partner
/s/ XXX By: /s/ XX
- -------------------- ------------------------------------------
Authorized Signature
WITNESS: TENANT:
MAGAININ PHARMACEUTICALS INC
/s/ Barbara L. Lehman By: /s/ M.R. Dougherty
- --------------------- ------------------------------------------
Authorized Signature M.R. Dougherty EVP, CFO
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<PAGE> 1
EXHIBIT 23
We consent to the incorporation by reference in the Registration Statements
on Forms S-8 (Registration Nos. 33-52882, 33-61530, 33-71984, 33-82196, 33-96426
and 333-10889) and Forms S-3 (Registration Nos. 33-69544, 33-99528, 333-09927,
333-14555 and 333-38271), of our report dated February 6, 1998 on the financial
statements included in the annual report on Form 10-K of Magainin
Pharmaceuticals Inc. as at and for the year ended December 31, 1997.
Richard A. Eisner & Company, LLP
New York, New York
March 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000880431
<NAME> MAGAININ PHARMACEUTICALS INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 487
<SECURITIES> 38,574
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,551
<PP&E> 5,772
<DEPRECIATION> 2,948
<TOTAL-ASSETS> 42,444
<CURRENT-LIABILITIES> 6,478
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 34,826
<TOTAL-LIABILITY-AND-EQUITY> 42,444
<SALES> 0
<TOTAL-REVENUES> 10,088
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> (14,381)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,381)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,381)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
