<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended June 30, 1996.
--------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period
from to .
---------------- -----------------
Commission file number 0-27976.
GalaGen Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1719104
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Lexington Ave. North
Arden Hills, Minnesota 55126
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(Address of principal executive offices) (Zip Code)
(612) 481-2105
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common stock, $.01 par value--
7,129,377 shares as of July 26, 1996.
<PAGE>
INDEX
GalaGen Inc.
(A Development Stage Company)
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1996 and December 31, 1995...................3
Statements of Operations - Three month periods ended
June 30, 1996 and June 30, 1995, six month periods ended
June 30, 1996 and June 30, 1995, and for the period
November 17, 1987 (inception) through June 30, 1996....................5
Statements of Cash Flows - Six months ended
June 30, 1996 and June 30, 1995 and for the period
November 17, 1987 (inception) through June 30, 1996....................6
Notes to Financial Statements..........................................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations......................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................13
SIGNATURES....................................................................15
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GalaGen Inc.
(A Development Stage Company)
Balance Sheets
June 30, 1996 December 31, 1995
----------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,075,598 $ 509,339
Available-for-sale securities 6,460,894 -
Prepaid and deferred expenses 30,859 81,703
------------- -------------
Total current assets 15,567,351 591,042
Property, plant, & equipment: 379,993 230,484
Less accumulated depreciation (169,811) (149,783)
------------- -------------
Net property, plant, and equipment 210,182 80,701
Deferred financing expenses - 146,487
------------- -------------
Total assets $ 15,777,533 $ 818,230
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses 667,021 1,623,949
------------- -------------
Total current liabilities 667,021 1,623,949
Convertible promissory notes, net of
discount - 8,198,900
Other long-term liabilities 45,000 698,404
Shareholders' equity(deficiency):
Series A Preferred Stock, $.01 par value: - 25,000
Authorized shares - 2,500,000
Issued and outstanding shares - 0 -
June 30, 1996
Series B Preferred Stock, $.01 par value: - 12,347
Authorized shares - 1,300,000
Issued and outstanding shares - 0 -
June 30, 1996
Series C Preferred Stock, $.01 par value: - 5,510
Authorized shares - 551,000
Issued and outstanding shares - 0 -
June 30, 1996
Series E Preferred Stock, $.01 par value: - 3,385
Authorized shares - 5,000,000
Issued and outstanding shares - 0 -
June 30, 1996
Series F-1 Preferred Stock, $.01 par value: - 171
Authorized shares - 34,287
Issued and outstanding shares - 0 -
June 30, 1996
Preferred Stock, $.01 par value: - -
Authorized shares - 15,000,000 pro forma
Issued and outstanding shares - none
Common stock, $.01 par value: 71,294 19,521
Authorized shares - 40,000,000
Issued and outstanding shares
- 7,129,377 - June 30, 1996
Additional paid-in capital 59,125,877 23,812,106
Accumulated deficit (43,105,721) (32,400,329)
Deferred compensation (1,010,701) (1,180,734)
Unrealized gain/(loss) on available-for-
sale securities (15,237) -
------------- -------------
Total shareholders' equity (deficiency) $ 15,065,512 $ (9,703,023)
------------- -------------
Total liabilities and shareholders' equity
(deficiency) $ 15,777,533 $ 818,230
------------- -------------
------------- -------------
3
<PAGE>
SEE ACCOMPANYING NOTES
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
4
<PAGE>
GalaGen Inc.
(A Development Stage Company)
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Period from
For the Three Months Ended For the Six Months Ended November 17, 1987
-------------------------- ------------------------ (inception) to
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $ - $ - $ - $ - $ 1,449,593
Product royalties - - - - 62,747
Research and development revenues - - - 100,000 396,350
---------- ---------- ---------- ---------- ------------
- - - 100,000 1,908,690
Operating costs and expenses:
Cost of goods sold - - - - 3,468,711
Research and development 1,088,862 1,010,539 1,785,721 2,269,165 19,723,637
General and administrative 437,419 401,673 912,670 703,025 13,071,906
---------- ---------- ---------- ---------- ------------
Operating loss (1,526,281) (1,412,212) (2,698,391) (2,872,190) (34,355,564)
Interest income 202,865 1,236 207,945 4,174 359,749
Interest expense (613,899) (116,515) (918,102) (214,435) (2,418,483)
---------- ---------- ---------- ---------- ------------
Net loss before extraordinary gain (1,937,315) (1,527,491) (3,408,548) (3,082,451) (36,414,298)
Extraordinary gain on extinguishment
of debt - - - - 605,421
---------- ---------- ---------- ---------- ------------
Net loss for the period and deficit
accumulated during the development stage (1,937,315) (1,527,491) (3,408,548) (3,082,451) (35,808,877)
Less preferred stock dividends (7,296,844) - (7,296,844) - (7,296,844)
---------- ---------- ---------- ---------- ------------
Net loss applicable to common shareholders $(9,234,159) $(1,527,491) $(10,705,392) $(3,082,451) $(43,105,721)
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Net loss per share applicable to common shareholders:
Primary $ (1.30) $ (.76) $ (1.75) $ (1.52) $ (26.65)
Fully diluted $ (1.30) $ (.33) $ (1.75) $ (.67) $ (18.59)
Weighted average number of common shares outstanding:
Primary 7,129,263 2,021,857 6,105,442 2,021,752 1,617,617
Fully diluted 7,129,263 4,593,793 6,105,442 4,616,826 2,318,910
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
GalaGen Inc.
(A Development Stage Company)
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Period from
For the Six Months Ended November 17, 1987
------------------------ (inception) to
June 30, 1996 June 30, 1995 June 30, 1996
-----------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(10,705,392) $ (3,082,451) $(43,105,721)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 213,157 48,448 1,734,306
Preferred stock dividend 7,296,844 - 7,296,844
Interest expense 768,064 - 768,064
Extraordinary gain - - (605,421)
Equity issued for services - 311,078 3,115,224
Changes in operating assets and liabilities (1,457,226) 1,567,936 612,034
------------ ------------ ------------
Net cash used in operating activities $ (3,884,553) $ (1,154,989) $(30,184,670)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of plant, property and equipment, net (149,509) (21,097) (2,136,039)
Purchase of available-for-sale securities (29,044,635) - (29,044,635)
Sale and maturities of available-for-sale securities 22,583,741 - 22,583,741
------------ ------------ ------------
Net cash from investing activities $ (6,610,403) $ (21,097) $ (8,596,933)
FINANCING ACTIVITIES:
Proceeds from equity offering 19,067,619 125,197 32,745,185
Proceeds from notes 500,000 700,000 15,618,420
Payment of notes, including interest (506,404) (506,404)
------------ ------------ ------------
Net cash used in financing activities $ 19,061,215 $ 825,197 $ 47,857,201
------------ ------------ ------------
Increase (decrease) in cash 8,566,259 (350,889) 9,075,598
Cash and cash equivalents at beginning of period 509,339 430,153 -
------------ ------------ ------------
Cash and cash equivalents at end of period $ 9,075,598 $ 79,264 $ 9,075,598
------------ ------------ ------------
------------ ------------ ------------
SCHEDULE OF NON CASH INVESTING AND FINANCING
ACTIVITIES:
Deferred compensation for employee options - - 1,657,000
Value of convertible debt warrants - 9,333 114,333
Conversion of convertible promissory notes plus
related accrued interest, net of financing costs 9,469,075 9,469,075
SEE ACCOMPANYING NOTES.
</TABLE>
6
<PAGE>
GalaGen Inc. (A Development Stage Company)
Notes to Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal, recurring accruals) considered
necessary for fair presentation have been included. Operating results
for the six month period ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996. These financial statements should be read in
conjunction with the audited financial statements and accompanying notes
for the fiscal year ended December 31, 1995, contained in the Company's
Prospectus dated March 27, 1996.
2. CASH AND CASH EQUIVALENTS
Cash equivalents include short-term highly liquid investments
purchased at cost, which approximates market, with original maturities
of three months or less.
3. INVESTMENTS
Investments in debt securities with a remaining maturity of more
than 90 days at the date of purchase are classified as marketable
securities. Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Debt securities are classified as available-
for-sale as of June 30, 1996. The Company considers the net unrealized
gain (loss) on these investments to be temporary, and as such has
recorded it through shareholders' equity. The amortized cost and
estimated market value of investments are as follows:
<TABLE>
<CAPTION>
Amortized Cost Gross Gross Estimated
Unrealized Gains Unrealized Losses Market Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of June 30, 1996
Commercial paper $ 967,272 $ 0 $ 0 $ 967,272
U.S. Government agency securities 990,539 0 (126) 990,413
U.S. Treasury securities 2,487,372 0 0 2,487,372
Investment grade debt securities 2,030,948 0 (15,111) 2,015,837
---------------- ---------------- ---------------- ----------------
$ 6,476,131 $ 0 $ (15,237) $ 6,460,894
The amortized cost and estimated market value of investments by contractual maturity are as follows:
Amortized Cost Gross Gross Estimated
Unrealized Gains Unrealized Losses Market Value
----------------------------------------------------------------------------
As of June 30, 1996
Due in one year or less $ 4,445,183 $ 0 $ (126) $ 4,445,057
Due after one year through two years 2,030,948 0 (15,111) 2,015,837
---------------- ---------------- ---------------- ----------------
$ 6,476,131 $ 0 $ (15,237) $ 6,460,894
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation
and amortization are provided for on the straight line method. At June
30, 1996 construction in progress consisted of leasehold improvements in
connection with the Company's pilot plant manufacturing facility (see
Note 5 of Notes to Financial Statements below). At June 30, 1996,
property and equipment consisted of the following:
Furniture, fixtures and equipment $ 250,929
Construction in progress 129,064
---------
379,993
Less accumulated depreciation (169,811)
---------
$ 210,182
7
<PAGE>
5. COMMITMENTS
During June 1996 the Company entered into a series of leasing
agreements with Cargill Leasing Corporation ("Cargill") which includes a
Commitment Letter, Master Equipment Lease and an Agreement for Progress
Payments (the "Agreements"). The Agreements provide that the Company
may purchase up to $1,100,000 of manufacturing equipment for the
Company's pilot plant facility through lease take-downs from Cargill.
The lease take-down at June 30, 1996 was apprioximately $111,000. The
Company expects that the lease take-downs will end in September 1996 at
which time full lease payments will commence for a period of seven
years with the Company's option to extend for an additional 12 months.
Interest upon commencement of full lease payments will be computed on a
weighted average of LIBOR and the rate on five year U.S Treasury Notes.
Prior to the commencement of full lease payments, the Company is
required to make interest payments at prime plus 2% on the lease take-
down. The lease is guaranteed by Land O' Lakes, Inc. This lease will
be structured as an operating lease in accordance with FASB 13.
During June 1996, the Company entered into a five year lease
agreement with Land O' Lakes, Inc. for specified space within the Land
O' Lakes facility in connection with the Company's pilot plant
manufacturing facility. The lease calls for annual payments of
approximately $86,000 and can be extended for additional one year
periods at the option of the Company.
6. LINE OF CREDIT
In January 1996, the Company entered into a $2.7 million line of
credit agreement with a commercial bank, which expired with the closing
of the Company's initial public offering (the "Offering") on April 1,
1996. Loans under this line of credit were to be guaranteed by six
parties and the guarantee was collateralized by letters of credit posted
by them in the aggregate amount of $2.7 million. In consideration for
the guarantees and letters of credit posted by these parties, the
Company issued warrants to purchase an initial aggregate of 162,014
shares of common stock at an exercise price equal to 70% of the Offering
price, or $7.00 per share.
In connection with this transaction, each of John Pappajohn and
Land O'Lakes, Inc., guaranteed $500,000 of the $2.7 million line of
credit, and in exchange received a warrant to purchase 30,003 shares of
common stock at $7.00 per share. John Pappajohn is a director and
shareholder of the Company. Land O'Lakes, Inc. is a shareholder and has
a representative serving on the board of directors of the Company.
In January 1996, the Company issued two convertible promissory
notes for $375,000 and $125,000 to two investment funds controlled by
Investment Advisers, Inc., which is a shareholder and has a
representative serving on the board of directors of the Company. The
notes became due on completion of the Offering. The notes were
convertible into Series E Preferred Stock at the option of the holder.
In connection with these notes, the Company issued warrants to purchase
30,003 shares which are identical to the line of credit warrants
described above. The notes have been repaid.
7. REVERSE STOCK SPLIT
On January 19, 1996, the Board approved a reverse stock split of
3.6923-for-1 for the Company's outstanding common stock. The Company's
shareholders approved this reverse stock split in March 1996. All
information in the financial statements with respect to the common stock
and to the conversion prices and ratios of all the preferred stock have
been adjusted to reflect this change. The reverse stock split had no
effect on the numbers of shares of preferred stock issued and
outstanding (as opposed to the conversion prices of all the preferred
stock and the numbers of shares of common stock into which the preferred
stock will convert).
8. INITIAL PUBLIC OFFERING
GalaGen Inc. consummated the Offering on April 1, 1996, which
consisted of 2,000,000 shares of common stock at a $10 per share price
to the public. All of the Company's preferred stock mandatorily
converted into common stock immediately prior to the closing of the
Offering. Series A Preferred Stock converted on a 1-for-1 basis, Series
B Preferred Stock converted on a 1.625-for-1 basis, Series C Preferred
Stock converted on a 1.667-for-1 basis. The terms of the Series D,
Series E and Series F-1 Preferred Stock provided that the conversion
prices of such stock be automatically adjusted to reflect the lower of
their effective conversion price at the time of closing or 70% of the
initial public offering price in the Offering. The $7,296,844 value of
the additional shares received due to such adjustments by the holders of
Convertible Promissory Notes (which converted into Series D Preferred
Stock) and the Series E and Series F-1 Preferred Stock upon conversion,
based
8
<PAGE>
on a conversion price of 70% of the Offering price of $10 per share, was
recorded in the second quarter of 1996 as a preferred stock dividend and
an increase to the net loss to arrive at net loss available to holders
of common stock in the calculation of net loss per share in the second
quarter.
Additionally, the 192,017 common stock warrants issued for
consideration for the guarantee of the Company's $2,700,000 line of
credit and for the $375,000 and $125,000 promissory notes described
above in Note 6 provide that the exercise price be equal to 70% of the
Offering price. The difference between the Offering price and exercise
price multiplied by the number of warrants, plus the intrinsic value of
the warrants was $768,064. Of that amount, $160,000 was recorded in the
first quarter of 1996 as interest expense, and $608,064 was recorded as
interest expense in the second quarter of 1996.
9. LOSS PER SHARE
The primary loss per share is based on the weighted average common
shares outstanding during the period. The fully diluted loss per share
assumes the conversion of preferred shares outstanding prior to the
initial public offering to common shares as of the beginning of the
period. The loss per share for periods prior to April 1, 1996, the
closing date of the Offering, also gives effect to the requirements of
Staff Accounting Bulletin No. 83 (SAB 83).
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
GalaGen Inc. is developing oral therapeutics that target
life-threatening and infectious diseases such as those caused by
antibiotic-resistant and emerging pathogens. The Company's naturally
derived immunotherapeutics are comprised of concentrated
pathogen-specific polyclonal antibodies which the Company produces in
concentrated form using its proprietary immunization technology. The
Company's products in development address serious gastrointestinal
infections complicating AIDS, cancer and antibiotic therapy, as well as
peptic ulcer disease. GalaGen's lead product in development, Sporidin-G,
is a polyclonal antibody product with specificity for Cryptosporidium
parvum, a parasite which causes chronic, life-threatening diarrhea in
AIDS and other immunocompromised patients.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
GENERAL. The net loss before preferred stock dividends of
$1,937,315 for the three months ended June 30, 1996 is greater than the
net loss of $1,527,491 for the three months ended June 30, 1995.
Historical spending levels are not indicative of future spending levels
because the Company is entering a period of rapid growth in product
development activity, which is planned to include substantial increases
in costs relating to personnel, research and development activity,
small-scale manufacturing facilities and accelerated clinical trial
activity. For these reasons, the Company believes its expenses and
losses will increase dramatically before any material product revenues
are generated.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and
development increased to $1,088,862 for the three months ended June 30,
1996 from $1,010,539 for the three months ended June 30, 1995. The
increase of $78,323 was due primarily to increased spending on clinical
trials and research and development personnel expense partially offset
by decreased expenses associated with the Company's transgenics program,
which was terminated in May 1995. The Company expects research and
development expenses to increase as the Company's clinical trials
activity accelerates, particularly expenses associated with the
development of SPORIDIN-G, the Company's lead product in development
aimed at treating C. parvum.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $437,419 for the three months ended June 30, 1996
from $401,673 for the three months ended June 30, 1995. The increase of
$35,746 was due to increases during the 1996 period in deferred
compensation, outside services and expenses associated with additional
staffing.
INTEREST INCOME AND EXPENSE. Interest income increased to
$202,865 for the three months ended June 30, 1996 from $1,236 for
the three months ended June 30, 1995. This increase is
attributable to the Company's increased level of investable funds which
resulted from the Offering. Interest expense increased to $613,899
for the three months ended June 30, 1996 from $116,515 for the
three months ended June 30, 1995. The $497,384 increase was due
primarily to the value of warrants issued to guarantors of a line
of credit and to the purchasers of two promissory notes (see Note 6
of Notes to Financial Statements), offset by decreased Convertible
Promissory Note interest expense due to the conversion of such
notes into common stock upon the Offering.
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT. The extraordinary
gain on extinguishment of debt of $605,421 in 1995 related to certain
debt reduction settlements regarding the Company's terminated
transgenics program.
PREFERRED STOCK DIVIDENDS. The preferred stock dividends of
$7,296,844 for the three months ended June 30, 1996 is a result of the
value of the additional shares issued to holders of the Series D,
Series E and Series F-1 Preferred Stock upon conversion to common stock
(see Note 8 of Notes to Financial Statements).
10
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
GENERAL. The net loss before preferred stock dividends of
$3,408,548 for the six months ended June 30, 1996 is greater than the
net loss of $3,082,451 for the three months ended June 30, 1995.
Historical spending levels are not indicative of future spending levels
because the Company is entering a period of rapid growth in product
development activity, which is planned to include substantial increases
in costs relating to personnel, research and development activity,
small-scale manufacturing facilities and accelerated clinical trial
activity. For these reasons, the Company believes its expenses and
losses will increase dramatically before any material product revenues
are generated.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and
development decreased to $1,785,721 for the six months ended June 30,
1996 from $2,269,165 for the six months ended June 30, 1995. The
decrease of $483,444 was due primarily to a onetime $300,000 license fee
paid by the Company in March 1995 and the lack of activity during the six
months ended June 30, 1996 in the Company's transgenics program, which
was terminated in May 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $912,670 for the six months ended June 30, 1996
from $703,025 for the six months ended June 30, 1995. The increase of
$209,645 was due to increases during the 1996 period in deferred
compensation, outside services, and expenses associated with additional
staffing.
INTEREST INCOME AND EXPENSE. Interest income increased to
$207,945 for the six months ended June 30, 1996 from $4,174 for the six
months ended June 30, 1995, This increase is attributable to the
Company's increased level of investable funds which resulted from the
Offering. Interest expense increased to $918,102 for the six months ended
June 30, 1996 from $214,435 for the six months ended June 30, 1995. The
$703,667 increase was due primarily to the value of warrants issued to
guarantors of a line of credit and to the purchasers of additional
Convertible Promissory Notes, offset by decreased Convertible
Promissory Note interest expense due to the conversion of such notes
into common stock.
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT. The extraordinary
gain on extinguishment of debt of $605,421 in 1995 related to certain
debt reduction settlements regarding the Company's terminated
transgenics program.
PREFERRED STOCK DIVIDENDS. The preferred stock dividends of
$7,296,844 for the six months ended June 30, 1996 is a result of the
value of the additional shares issued to holders of the Series D, Series
E and Series F-1 Preferred Stock upon conversion to common stock (see
Note 8 of Notes to Financial Statements) .
LIQUIDITY AND CAPITAL RESOURCES
Proceeds from the Company's Offering totalled $17.9 million
(after payment of related offering costs of approximately $1.4 million
for underwriting fees and $0.7 million for associated offering expenses).
The Company anticipates that these resources and interest thereon will
enable it to fund its operating expenses and capital requirements as
currently planned through approximately the end of the third quarter
of 1997.
Cash used in operations were $3,884,553 and $1,154,989 for
the six months ended June 30, 1996 and 1995, respectively. Cash
used in operations went primarily to fund operating losses. The
increase of $2,729,564 was due primarily to repayment of certain
obligations. The Company invested a net amount of $6,460,894 in
available-for-sale debt securities (see Note 3 of Notes to
Financial Statements) for the six months ended June 30, 1996 and
invested $149,509 and $21,097 for the six months ended June 30,
1996 and 1995, respectively, in computer equipment used to support
Company operations.
The Company expects to incur substantial additional research and
development and other costs, including costs related to clinical
studies, as well as capital expenditures necessary to establish
commercial scale cGMP manufacturing facilities. The Company will need to
raise substantial additional funds for longer term product development,
manufacturing and marketing activities it plans to undertake in the
future. The Company's ability to continue funding its planned operations
beyond the third quarter of 1997 is dependent upon its ability to obtain
additional funds through equity or debt financing, strategic alliances,
license agreements or from other financing sources. A lack of adequate
funding could eventually result in the insolvency or bankruptcy of the
Company. At a minimum, if adequate funds are not available, the Company
may be required to delay or to eliminate expenditures for certain of its
product development efforts or to license to third parties the rights to
11
<PAGE>
commercialize products or technologies that the Company would otherwise
seek to develop itself. Because of the Company's significant long-term
capital requirements, it may seek to raise funds when conditions are
favorable, even if it does not have an immediate need for such
additional capital at such time.
Except for the historical information contained herein, matters
discussed in this Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements that
involve risks and uncertainties, and actual results may be materially
different. Factors that could cause actual results to differ include:
levels of resources devoted by the Company to the development of its
manufacturing and marketing capabilities, risks generally associated
with construction of manufacturing facilities, the ability of the
Company to make technological advances, the status of competitive
products, the ability of the Company to establish strategic alliances to
provide research and development funding to the Company and other risk
factors listed in the Company's Prospectus dated March 27, 1996.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS
Exhibit Description
------- -----------
3.2 Restated Certificate of Incorporation of the
Company.(1)
3.4 Restated Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.(1)
4.2 Warrant to purchase 13,541 shares of common stock
of the Company issued to Piper Jaffray Inc., dated
January 26, 1993.(1)
4.3 Warrant to purchase 20,312 shares of common stock
of the Company issued to Gus A. Chafoulias, dated
October 12, 1993.(1)
4.4 Warrant to purchase 20,312 shares of common stock
of the Company issued to John Pappajohn, dated
October 12, 1993.(1)
4.5 Warrant to purchase 9,479 shares of common stock
of the Company issued to Cato Holding Company,
dated June 21, 1994.(1)
4.6 Form of Common Stock Warrant to purchase shares of
common stock of the Company, issued in connection
with the sale of Convertible Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series F-1
Convertible Preferred Stock of the Company issued
to Chiron Corporation, dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series F-2
Convertible Preferred Stock of the Company issued
to Chiron Corporation, dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3
Convertible Preferred Stock of the Company issued
to Chiron Corporation, dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3
Convertible Preferred Stock of the Company issued
to Chiron Corporation, dated March 29, 1995.(1)
4.11 Warrant to purchase 18,750 shares of common stock
of the Company issued to IAI Investment Funds VI,
Inc. (IAI Emerging Growth Fund), dated January 30,
1996.(1)
4.12 Warrant to purchase 6,250 shares of common stock
of the Company issued to IAI Investment Funds IV,
Inc. (IAI Regional Fund), dated January 30,
1996.(1)
4.13 Warrant to purchase 25,000 shares of common stock
of the Company issued to John Pappajohn, dated
February 2, 1996.(1)
4.14 Warrant to purchase 25,000 shares of common stock
of the Company issued to Edgewater Private Equity
Fund, L.P., dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of common stock
of the Company issued to Joseph Giamenco, dated
February 2, 1996.(1)
4.16 Warrant to purchase 25,000 shares of common stock
of the Company issued to Gus A. Chafoulias, dated
February 2, 1996.(1)
4.17 Warrant to purchase 25,000 shares of common stock
of the Company issued to JIBS Equities, dated
February 2, 1996.(1)
4.18 Warrant to purchase 25,000 shares of common stock
of the Company issued to Land O'Lakes, Inc., dated
February 2, 1996.(1)
13
<PAGE>
Exhibit Description
------- -----------
4.19 Bridge Note (Promissory Note Convertible into
Series E Convertible Preferred Stock) payable to
IAI Investment Funds VI, Inc. (IAI Emerging Growth
Fund), in the amount of $375,000 dated January 30,
1996.(1)
4.20 Bridge Note (Promissory Note Convertible into
Series E Convertible Preferred Stock) payable to
IAI Investment Funds IV, Inc. (IAI Regional Fund),
in the amount of $125,000 dated January 30,
1996.(1)
10.1 License Agreement between the Company and Land
O'Lakes dated May 7, 1992.(1)
10.2 Royalty Agreement between the Company and Land
O'Lakes dated May 7, 1992.(1)
10.3 Supply Agreement between the Company and Land
O'Lakes dated May 7, 1992.(1)
10.4 Master Services Agreement between the Company and
Land O'Lakes dated May 7, 1992.(1)
10.5 GalaGen Inc. 1992 Stock Plan.(1)
10.7 Stock and Warrant Purchase Agreement between the
Company and Chiron Corporation dated March 20,
1995.(1)
10.8 License and Collaboration Agreement between the
Company and Chiron Corporation dated March 20,
1995.(1)
10.9 GalaGen Inc. Employee Stock Purchase Plan., as
amended
10.10 Credit Agreement between the Company and Norwest
Bank Minnesota, N.A., dated as of January 24,
1996.(1)
10.11 Committment Letter between the Company and Cargill
Leasing Corporation, dated June 5, 1996
10.12 Master Equipment Lease between the Company and
Cargill Leasing Corporation, dated June 6, 1996
10.13 Agreement for Progress Payments between the
Company and Cargill Leasing Corporation, dated
June 6, 1996
10.14 Agreement for Lease between the Company and Land
O'Lakes, dated June 3, 1996
11.1 Statement re: computation of per share earnings
(loss)
27 Financial Data Schedule
------------------------
(1) Incorporated herein by reference to the same numbered
Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-1032).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GalaGen Inc.
------------
(Registrant)
Date: August , 1996 By: /s/ Robert A. Hoerr
---- -------------------
Robert A. Hoerr,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August , 1996 By: /s/ Gregg A. Waldon
---- -------------------
Gregg A. Waldon,
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting
Officer)
15
<PAGE>
EXHIBIT INDEX
Method of
Exhibit Description Filing
------- ----------- ---------
3.2 Restated Certificate of Incorpor- Incorporated
ation of the Company.(1) By Reference
3.4 Restated Bylaws of the Company.(1) Incorporated
By Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated
By Reference
4.2 Warrant to purchase 13,541 shares of Incorporated
common stock of the Company issued By Reference
to Piper Jaffray Inc., dated January
26, 1993.(1)
4.3 Warrant to purchase 20,312 shares of Incorporated
common stock of the Company issued to By Reference
Gus A. Chafoulias, dated October 12,
1993.
4.4 Warrant to purchase 20,312 shares of Incorporated
common stock of the Company issued to By Reference
John Pappajohn, dated October 12,
1993.(1)
4.5 Warrant to purchase 9,479 shares of Incorporated
common stock of the Company issued to By Reference
Cato Holding Company, dated June 21,
1994.(1)
4.6 Form of Common Stock Warrant to Incorporated
purchase shares of common stock of the By Reference
Company, issued in connection with the
sale of Convertible Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Incorporated
Series F-1 Convertible Preferred Stock By Reference
of the Company issued to Chiron
Corporation, dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Incorporated
Series F-2 Convertible Preferred Stock By Reference
of the Company issued to Chiron
Corporation, dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Incorporated
Series F-3 Convertible Preferred Stock By Reference
of the Company issued to Chiron
Corporation, dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Incorporated
Series F-3 Convertible Preferred Stock By Reference
of the Company issued to Chiron
Corporation, dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of Incorporated
common stock of the Company issued to By Reference
IAI Investment Funds VI, Inc. (IAI
Emerging Growth Fund), dated January
30, 1996.(1)
4.12 Warrant to purchase 6.250 shares of Incorporated
common stock of the Company issued By Reference
to IAI Investment Funds IV, Inc.
(IAI Regional Fund), dated January 30,
1996.(1)
4.13 Warrant to purchase 25,000 shares of Incorporated
common stock of the Company issued to By Reference
John Pappajohn, dated February 2,
1996.(1)
4.14 Warrant to purchase 25,000 shares of Incorporated
common stock of the Company issued to By Reference
Edgewater Private Equity Fund, L.P.,
dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of Incorporated
common stock of the Company issued to By Reference
Joseph Giamenco, dated February 2,
1996.
4.16 Warrant to purchase 25,000 shares of Incorporated
common stock of the Company
<PAGE>
Method of
Exhibit Description Filing
------- ----------- ---------
issued to Gus A. Chafoulias, dated By Reference
February 2, 1996.(1)
4.17 Warrant to purchase 25,000 shares of Incorporated
common stock of the Company issued to By Reference
JIBS Equities, dated February 2,
1996.(1)
4.18 Warrant to purchase 25,000 shares of Incorporated
common stock of the Company issued to By Reference
Land O'Lakes, Inc., dated February 2,
1996.(1)
4.19 Bridge Note (Promissory Note Convert- Incorporated
ible into Series E Convertible Prefer- By Reference
red Stock) payable to IAI Investment
Funds VI, Inc. (IAI Emerging Growth
Fund), in the amount of $375,000 dated
January 30, 1996.(1)
4.20 Bridge Note (Promissory Note Convert- Incorporated
ible into Series E Convertible Prefer- By Reference
red Stock) payable to IAI Investment
Funds IV, Inc. (IAI Regional Fund),
in the amount of $125,000 dated January
30, 1996.(1)
10.1 License Agreement between the Company Incorporated
and Land O'Lakes dated May 7, 1992.(1) By Reference
10.2 Royalty Agreement between the Company Incorporated
and Land O'Lakes dated May 7, 1992.(1) By Reference
10.3 Supply Agreement between the Company Incorporated
and Land O'Lakes dated May 7, 1992.(1) By Reference
10.4 Master Services Agreement between the Incorporated
Company and Land O'Lakes dated May 7, By Reference
1992.(1)
10.5 GalaGen Inc. 1992 Stock Plan.(1)
10.7 Stock and Warrant Purchase Agreement Incorporated
between the Company and Chiron By Reference
Corporation dated March 20, 1995.(1)
10.8 License and Collaboration Agreement Incorporated
between the Company and Chiron By Reference
Corporation dated March 20, 1995.(1)
10.9 GalaGen Inc. Employee Stock Purchase Electronic
Plan, as amended Transmission
10.10 Credit Agreement between the Company Incorporated
and Norwest Bank Minnesota, N.A., By Reference
dated as of January 24, 1996.(1)
10.11 Committment Letter between the Company Electronic
and Cargill Leasing Corporation, dated Transmission
June 5, 1996
<PAGE>
10.12 Master Equipment Lease between the Electronic
Company and Cargill Leasing Corporation, Transmission
dated June 6, 1996.
10.13 Agreement for Progress Payments between Electronic
the Company and Cargill Leasing Transmission
Corporation, dated June 6, 1996.
10.14 Agreement for Lease between the Company Electronic
and Land O'Lakes, dated June 3, 1996. Transmission
11.1 Statement re: computation of per share Electronic
earnings (loss). Transmission
27 Financial Data Schedule. Electronic
Transmission
------------------------------
(1) Incorporated herein by reference to the same numbered
Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-1032).
<PAGE>
Exhibit 10.9
GALAGEN INC. EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE AND SCOPE OF PLAN. The purpose of the GalaGen Inc. Employee
Stock Purchase Plan (the "Plan") is to provide the employees of GalaGen Inc.
(the "Company") and its affiliates with an opportunity to acquire a proprietary
interest in the Company through the purchase of its common stock and, thus, to
develop a stronger incentive to work for the continued success of the Company.
The Plan is intended to be an "employee stock purchase plan" within the meaning
of Section 423(b) of the Internal Revenue Code of 1986, as amended, and shall be
interpreted and administered in a manner consistent with such intent.
2. DEFINITIONS.
2.1 Whenever used in the Plan:
(a) "Affiliate" means any parent or subsidiary corporation of the
Company, as defined in Sections 424(e) and 424(f) of the Code.
(b) "Base Compensation" means the gross cash compensation (including
wage, salary, and overtime earnings) paid by the Company or any Affiliate to a
Participant in accordance with the terms of employment, but excluding all
Incentive Compensation, expense allowances (including, without limitation,
moving expense allowances), and compensation payable in a form other than cash;
provided that such compensation will be determined without regard to any
earnings reduction agreements made pursuant to (i) a qualified cash or deferred
arrangement under Section 401(k) of the Code or (ii) a cafeteria plan
established under Section 125 of the Code.
(c) "Board of Directors" means the board of directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board of
Directors.
(f) "Common Stock" means the common stock, par value $.01 per share,
of the Company.
(g) "Company" means GalaGen Inc.
(h) "Compensation" means the sum of a Participant's Base Compensation
and his or her Incentive Compensation.
<PAGE>
(i) "Eligible Employee" means any employee of the Company or an
Affiliate whose customary employment is (i) at least 20 hours per week and
(ii) for more than 5 months in any calendar year; provided, however, that
"Eligible Employee" shall not include any person who would be deemed for
purposes of Section 423(b)(3) of the Code to own stock possessing 5% or more of
the total combined voting power or value of all classes of stock of the Company.
(j) "Incentive Compensation" means compensation paid to a Participant
pursuant to any incentive compensation plan or arrangement of the Company or in
the form of commissions.
(k) "Fair Market Value" as of any date means:
(i) the closing sale price of a share of common stock on the
date specified or, if no sale of shares of common stock shall
have occurred on that date, on the next preceding day on which a
sale occurred of shares, on the National Association of
Securities Dealers, Inc. Automated Quotations National Market
System ("NMS"), or
(ii) if the shares of common stock are not quoted on the
NMS, what the Committee determines in good faith to be the fair
market value of a share of common stock on that date.
If such determination of Fair Market Value is not consistent with the then
current regulations of the Secretary of the Treasury applicable to plans
intended to qualify as an "employee stock purchase plan" within the meaning of
Section 423(b) of the Code, Fair Market Value shall be determined in accordance
with said regulations. The determination of Fair Market Value shall be subject
to adjustment as provided in Section 14 hereof.
(l) "Participant" means an Eligible Employee who has elected to
participate in the Plan in the manner set forth in Section 4.
(m) "Plan" means this GalaGen Inc. Employee Stock Purchase Plan.
(n) "Purchase Period" means the period of July 1, 1996 to
December 31, 1996, and thereafter the 12-month period beginning on January 1 of
each year and ending on December 31 of such year.
(o) "Stock Purchase Account" means the account maintained in the
books and records of the Company recording the amount withheld from each
Participant through payroll deductions made under the Plan.
3. SCOPE OF THE PLAN. Options to purchase shares of common stock may be
granted by the Company to Eligible Employees during the period commencing
July 1, 1996 and ending
2
<PAGE>
December 31, 2004 as hereinafter provided, but not more than 270,833 shares of
common stock (subject to adjustment as provided in Section 14 hereof) shall be
purchased pursuant to such options. All options granted pursuant to the Plan
shall be subject to the same terms, conditions, rights, and privileges. The
shares of common stock delivered by the Company pursuant to the Plan may be
acquired shares having the status of treasury shares, newly issued shares, or
both.
4. ELIGIBILITY AND PARTICIPATION. To be eligible to participate in the
Plan for a given Purchase Period, an employee must be an Eligible Employee on
the first day of such Purchase Period. An Eligible Employee may elect to
participate in the Plan by filing an enrollment form with the Committee in
advance of the Purchase Period that authorizes regular payroll deductions from
Compensation beginning with the first payday in the Purchase Period and
continuing until the Eligible Employee withdraws from the Plan or ceases to be
an Eligible Employee.
5. AMOUNT OF COMMON STOCK EACH ELIGIBLE EMPLOYEE MAY PURCHASE.
5.1 Subject to the provisions of the Plan, each Eligible Employee
shall be offered the option to purchase on the last day of the Purchase Period
the largest number of whole shares of common stock that can be purchased at the
price specified in Section 5.2 hereof with the entire credit balance in the
Participant's Stock Purchase Account; provided however, that (i) no more than
5,000 shares of common stock may be purchased under the Plan by any one
Participant for a given Purchase Period and (ii) no more than $25,000 in Fair
Market Value (determined at the beginning of each Purchase Period) of shares of
common stock and other stock may be purchased under the Plan and all other
employee stock purchase plans (if any) of the Company and the Affiliates by any
Participant for each calendar year. If the purchases by all Participants would
otherwise cause the aggregate number of shares of common stock to be sold under
the Plan to exceed the number specified in Section 3 hereof, however, each
Participant shall be allocated a ratable portion of the maximum number of shares
of common stock which may be sold.
5.2 The purchase price of each share of common stock sold pursuant to
the Plan will be the lesser of (i) 85% of the Fair Market Value of such share on
the first business day of the Purchase Period or (ii) 85% of the Fair Market
Value of such share on the last business day of the Purchase Period.
6. METHOD OF PARTICIPATION.
6.1 The Committee shall give notice to Eligible Employees of each
offering of options to purchase shares of common stock pursuant to the Plan and
the terms and conditions for each offering. Such notice is subject to revision
by the Company at any time prior to the date of grant of the option. The first
day of a Purchase Period is the date contemplated by the Company as the date of
grant of the option to purchase such shares.
6.2 Each Eligible Employee who desires to participate in the Plan for
a Purchase Period shall signify his or her election to do so by signing an
election form developed by
3
<PAGE>
the Committee. An Eligible Employee may elect different withholding percentages
for Base Compensation and for Incentive Compensation, provided that the
withholding percentage as to each must always be a whole percentage from 0% to
10%. An election to participate in the Plan and to authorize payroll deductions
as described herein must be made before the commencement of the Purchase Period
to which it relates and shall remain in effect unless and until such Participant
withdraws from the Plan, modifies his or her authorization, or terminates his or
her employment with the Company, as hereinafter provided.
6.3 Any Eligible Employee who does not make a timely election as
provided in Section 6.2 hereof shall be deemed to have elected not to
participate in the Plan. Such election shall be irrevocable for such Purchase
Period.
7. STOCK PURCHASE ACCOUNT.
7.1 The Company shall maintain a Stock Purchase Account for each
Participant. Payroll deductions pursuant to Section 6 hereof will be credited
to such Stock Purchase Accounts on each payday.
7.2 No interest will be credited to a Participant's Stock Purchase
Account.
7.3 The Stock Purchase Account is established solely for accounting
purposes, and all amounts credited to the Stock Purchase Account will remain
part of the general assets of the Company.
7.4 A Participant may not make any separate cash payment into his or
her Stock Purchase Account.
8. RIGHT TO ADJUST PARTICIPATION OR TO WITHDRAW.
8.1 A Participant may, at any time during a Purchase Period, direct
the Company to make no further deductions from his or her Compensation or to
reduce or increase the amount of such deductions. Upon either of such actions,
future payroll deductions with respect to such Participant shall cease or be
reduced or increased in accordance with the Participant's direction.
8.2 Any Participant who stops payroll deductions may not thereafter
resume payroll deductions for the Purchase Period, and any Participant who
decreases or increases payroll deductions may not thereafter further decrease or
increase such deductions for the Purchase Period, except that he or she may stop
further deductions.
8.3 At any time before the end of a Purchase Period, any Participant
may also withdraw from the Plan. In such event, all future payroll deductions
shall cease and the entire credit balance in the Participant's Stock Purchase
Account will be paid to the Participant, without
4
<PAGE>
interest, in cash within 60 days. A Participant who withdraws from the Plan
will not be eligible to reenter the Plan until the next succeeding Purchase
Period.
8.4 Notification of a Participant's election to reduce, increase or
terminate deductions, or to withdraw from the Plan, shall be made by the filing
of an appropriate notice to such effect with the Committee.
9. TERMINATION OF EMPLOYMENT. If the employment of a Participant is
terminated for any reason, including termination because of death, permanent
disability, or retirement at or after age 65, the Company shall refund in cash
all amounts credited to his or her Stock Purchase Account.
10. EXERCISE OF OPTION AND PURCHASE OF SHARES.
10.1 As of the last day of the Purchase Period, the entire credit
balance in each Participant's Stock Purchase Account will be used to purchase
the largest number of whole shares of common stock purchasable with such amount
(subject to the limitations of Section 5 hereof) unless the Participant has
filed an appropriate form with the Committee in advance of that date (which
either elects to purchase a specified number of whole shares which is less than
the number described above or elects to receive the entire credit balance in
cash).
10.2 Any amount remaining in a Participant's Stock Purchase Account
after such purchase (or the entire credit balance if the Participant elected not
to purchase any shares) will be paid to the Participant in cash within 60 days
after the end of the Purchase Period.
10.3 As soon as practicable after the close of the Purchase Period,
certificates for the number of whole shares of common stock, determined as
aforesaid, purchased by each Participant shall be issued and delivered to him or
her.
11. RIGHTS AS A STOCKHOLDER. A Participant shall not be entitled to any
of the rights or privileges of a stockholder of the Company with respect to such
shares, including the right to receive any dividends which may be declared by
the Company, until he or she actually has paid the purchase price for such
shares and certificates have been issued to him or her in accordance with
Section 10.
12. RIGHTS NOT TRANSFERABLE. A Participant's rights under the Plan are
exercisable only by the Participant during his or her lifetime, and may not be
sold, pledged, assigned, or transferred in any manner other than by will or the
laws of descent and distribution. Any attempt to sell, pledge, assign, or
transfer the same shall be null and void and without effect. The amounts
credited to a Stock Purchase Account may not be assigned, transferred, pledged,
or hypothecated in any way, and any attempted assignment, transfer, pledge,
hypothecation, or other disposition of such amounts will be null and void and
without effect.
5
<PAGE>
13. ADMINISTRATION OF THE PLAN.
13.1 The Plan shall be administered by the Committee, which is
authorized to make such uniform rules as may be necessary to carry out its
provisions. The Committee shall determine any questions arising in the
administration, interpretation, and application of the Plan, and all such
determinations shall be conclusive and binding on all parties.
13.2 If any option granted under the Plan shall lapse or terminate
unexercised, the number of shares of common stock covered thereby shall again
become available for sale under the Plan.
14. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change
in the common stock of the Company by reason of stock dividends, stock splits,
corporate separations, recapitalizations, mergers, consolidations, combinations,
exchanges of shares and the like, the aggregate number and class of shares
available under the Plan, and the number, class, and purchase price of shares
under option but not yet purchased under the Plan, shall be adjusted
appropriately by the Committee.
15. REGISTRATION OF CERTIFICATES. Stock certificates will be registered in
the name of the Participant, or jointly in the name of the Participant and
another person, as the Participant may direct on an appropriate form.
16. AMENDMENT OF PLAN. The Board of Directors may at any time amend the
Plan in any respect which shall not adversely affect the rights of Participants
pursuant to options accepted under the Plan, except that, without stockholder
approval on the same basis as required by Section 19.1, no amendment shall be
made (i) to increase the number of shares to be reserved under the Plan, (ii) to
decrease the minimum purchase price, (iii) to withdraw the administration of the
Plan from the Committee, or (iv) to change the definition of employees eligible
to participate in the Plan.
17. EFFECTIVE DATE OF PLAN. The Plan shall consist of an offering
commencing July 1, 1996 and ending December 31, 1996 and thereafter eight
consecutive annual offerings beginning on January 1 of each year and ending on
December 31 of such year. All rights of Participants in any offering hereunder
shall terminate at the earlier of the conclusion of the last Purchase Period
authorized herein on December 31, 2004 or:
17.1 on the day that Participants become entitled to purchase a
number of shares of common stock equal to or greater than the number of shares
remaining available for purchase; or
17.2 at any time, at the discretion of the Board of Directors, after
30 days' notice has been given to all Participants.
6
<PAGE>
Upon termination of the Plan, shares of common stock, in accordance with
Section 10, shall be issued to Participants and cash, if any, remaining in the
Participants' Stock Purchase Accounts shall be refunded to them, as if the Plan
were terminated at the end of a Purchase Period.
18. GOVERNMENTAL REGULATIONS AND LISTING. All rights granted or to be
granted to Eligible Employees under the Plan are expressly subject to all
applicable laws and regulations and to the approval of all governmental
authorities required in connection with the authorization, issuance, sale, or
transfer of the shares of common stock reserved for the Plan, including, without
limitation, there being a current registration statement of the Company under
the Securities Act of 1933, as amended, covering the shares of common stock
purchasable under options on the last day of the Purchase Period applicable to
such options, and if such a registration statement shall not then be effective,
the term of such options and the Purchase Period shall be extended until the
first business day after the effective date of such a registration statement, or
post-effective amendment thereto. If applicable, all such rights hereunder are
also similarly subject to effectiveness of an appropriate listing application to
the National Association of Securities Dealers, Inc. covering the shares of
common stock under the Plan upon official notice of issuance.
19. MISCELLANEOUS.
19.1 The Plan shall be submitted for approval by the stockholders of
the Company prior to December 31, 1996. If not so approved prior to such date,
the Plan shall terminate December 31, 1996.
19.2 The Plan shall not be deemed to constitute a contract of
employment between the Company and any Participant, nor shall it interfere with
the right of the Company to terminate any Participant and treat him or her
without regard to the effect which such treatment might have upon him or her
under the Plan.
19.3 Wherever appropriate as used herein, the masculine gender may be
read as the feminine gender, the feminine gender may be read as the masculine
gender, the singular may be read as the plural, and the plural may be read as
the singular.
19.4 The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Minnesota.
19.5 Delivery of shares of common stock or of cash pursuant to the
Plan shall be subject to any required withholding taxes. A person entitled to
receive shares of common stock may, as a condition precedent to receiving such
shares, be required to pay the Company a cash amount equal to the amount of any
required withholdings.
7
<PAGE>
Lease No. 04983
Date: June 5, 1996
THIS COMMITMENT LETTER AMENDS AND SUPERSEDES THAT COMMITMENT LETTER DATED
MAY 30, 1996
GalaGen Inc.
4001 Lexington Avenue North
Arden Hills, MN 55126-2988
(hereinafter "Lessee")
We are pleased to inform you that your application for a Master Equipment Lease
has been accepted by Cargill Leasing Corporation ("Lessor") subject to the
following terms and conditions:
1. Equipment to be Leased: 500 Gallon Batch Milk Processing System
All Equipment must be satisfactory to Lessor.
2. Cost of Equipment: Not to exceed $1,100,000.00, including applicable
freight and handling charges with soft costs not to exceed $28,000.00.
3. Term of Lease: Seven (7) Years
4. Rent: The Lessee will make eighty-four consecutive monthly payments
in advance equal to 1.27884% of the original Equipment Cost.
The rental percentage(s) stated above are based on a combination of
current money market rates, as published in the Wall Street Journal
dated, February 7, 1996, listed below.
30 DAY LIBOR RATE 5.38%
U.S. TREASURY NOTES
COUPON MATURITY TERM YIELD
--------------- ---- -----
7.75% February 2001 5 years 5.27% ("Reference Yield")
THE RENTAL PERCENTAGE(S) WILL BE INCREASED OR DECREASED BY .00049% FOR
EACH ONE (1) BASIS POINT CHANGE IN THE COST OF MONEY INDEX, AS IS
COMPUTED IN THE TABLE BELOW.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
MONEY WEIGHTING WEIGHTED
MARKET RATES RATE / YIELD FACTOR RATE/YIELD
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
LIBOR Reference Rate 5.38% 10% 0.5380%
- -------------------------------------------------------------------------------
Reference Yield 5.27% 90% 4.7430%
- -------------------------------------------------------------------------------
COST OF MONEY INDEX 5.2810%
---------------------------------------
</TABLE>
The Cost of Money Index used to calculate the final adjustment to the
rental percentage(s) will be determined on the documentation date. It
will be based on the combination of the 30 Day LIBOR Rate and the U.S.
Treasury Note, five years from the documentation date. If there are
multiple U.S. Treasury Note five years from the documentation date,
the Treasury Note with a coupon rate closest to the published yield
will be used. If there are no U.S. Treasury Notes five years from the
documentation date, the closest previous U.S. Treasury Note will be
used.
5. Interim Rent: The period between the date of Equipment delivery and
acceptance as specified in the Delivery and Acceptance Certificate and
the Commencement Date shall be referred to as the "Interim Rent
Period." The Lessee will pay to Lessor on the Commencement Date,
Interim Rent, based on the daily equivalent of the monthly rental
payment for the number of days from the later of (a) the date on which
the appropriate Delivery and Acceptance is executed by the Lessee or
(b) the date of funding for appropriate Equipment by Lessor, to the
Commencement Date.
6. Commencement Date: If the Equipment is delivered and funded by the
Lessor between the 1st and the 15th of the month, the Commencement
Date will be the first of the following month. If the Equipment is
delivered and funded by the Lessor between the 16th and the 31st of
the month, the Commencement Date will be the fifteenth of the
following month.
7. Termination Options: Provided Lessee shall have complied with all
terms and conditions of the Lease and provided Lessee shall not be in
default as defined in Section 13 of the Lease, Lessee shall have the
option to purchase all, but not less than all, of the Equipment at a
cost equaling 20% of the original Equipment Cost. Lessor will use
best efforts to inform Lessee of Expiration Date on or about sixty
(60) days prior to Expiration Date; provided however, failure of
Lessor to give such notice shall not affect Lessor's rights or
Lessee's obligations under the Lease. Payment for purchase of the
Equipment must be received on or before the Expiration Date.
If Lessee does not exercise the option to purchase all, but not less
than all, of the Equipment on the Expiration Date, this Lease shall
automatically renew for a period of twelve (12) months at the then
fair market renewal value.
At the end of the renewal period specified above, Lessee may i)
purchase all, but not less than all, of the Equipment at a cost equal
to the then fair market value; or ii) immediately return all, but not
less than all, of the Equipment to Lessor, pursuant to Section 18 of
the Lease, plus, Lessee must pay to Lessor a restocking fee of two
and one half percent (2.5%) of the original Equipment Cost.
8. Early Termination: So long as no Event of Default has occurred and is
continuing, Lessee has the right to early terminate this Lease at the
end of the twenty-fourth (24th) payment, only, for an amount equal to
sixty-nine percent (69%) of the original Equipment Cost and return all
but not less than all the Equipment to Lessor in accordance with the
terms of the Lease
9. Receipt of a Commitment Fee in the amount of $11,000.00 is hereby
acknowledged.
10. Lessor's commitment is conditioned on :
<PAGE>
I. Execution of the following prior to funding:
a) Commitment Letter
b) Master Equipment Lease
c) Uniform Commercial Code Filing
d) Schedule A to Master Equipment Lease
e) Delivery and Acceptance Certificate
f) Execution of Guaranty from Land O'Lakes, Inc.
g) Board Resolution, Secretary's Certificate, Certificate of
Incumbency, or other acceptable document authorizing Lessee to
enter into the Lease and setting forth authorized signatory.
Acceptable Certification by Guarantor authorizing ability to
enter into this arrangement and setting forth authorized
signatory.
h) Execution of Equipment Condition Addendum.
i) Execution of Property Waiver.
j) Execution of Progress Payment Agreement.
k) Execution of Purchase Agreement Assignment(s).
II. Receipt or completion of the following prior to funding:
a) Receipt of Ownership and Encumbrance Search results.
b) Receipt of all necessary documentation transferring title free of
any and all encumbrances in the Equipment to Lessor.
c) Written evidence of insurance coverage.
d) Lessor to complete an inspection of all Equipment as well as
verify that Lessor's equipment stickers are attached to all items
of Equipment evidencing the ownership of Lessor.
e) Receipt of detailed equipment specifications.
11. Additional Terms and Conditions:
a) Lessee to provide Lessor company prepared quarterly financial
statements within forty-five (45) days from the first three
quarter ends.
12. The conditions specified in paragraph 10 must be completed to Lessor's
reasonable satisfaction as of or before (a) the execution of a
Delivery and Acceptance Certificate with respect to any Item of
Equipment, or (b) November 30, 1996, whichever occurs first. If any
one of the items enumerated in paragraph 10 is omitted or not
completed by such date, this acceptance will become null and void and
Lessor shall have no obligations or liabilities to Lessee whatsoever
with respect to such Equipment. Lessee agrees to defend, indemnify
and save Lessor harmless from any claim, cause of action, loss,
damage, liability, cost or expense (including reasonable attorney
fees) which may be incurred in any manner by or for the account of any
of them relating to Lessee's omitting one or more of such enumerated
items or to Lessee's failing to complete one or more of such
enumerated items.
13. Lessee further agrees to inform Lessor immediately in writing,
supported by accounting evidence, of any material adverse changes in
Lessee's financial condition. Any such change could subject the
outstanding
<PAGE>
part of this commitment to termination (stipulated in following
paragraph) or to changes in terms or conditions.
14. Lessor may, at its option, terminate its obligation under this letter
as to all items of Equipment for which required schedules and
documents have not been executed if (a) the Equipment has not been
delivered and accepted by Lessee prior to the expiration date of this
commitment as evidenced by Lessee's execution and Lessor's receipt of
a Delivery and Acceptance Certificate; or (b) there is (prior to said
expiration date), a material adverse change in Lessee's financial
condition; or (c) THERE IS A CHANGE IN THE TAX LAWS OR REGULATIONS
MATERIALLY AFFECTING THIS TRANSACTION. Lessee agrees to indemnify,
protect and save harmless Lessor, its agents, officers, directors,
employees, successors and assigns from and against any and all
liabilities, obligations, liens, losses, damages, injuries, claims,
demands, penalties, actions, costs and expenses, including reasonable
attorney fees of whatsoever kind and nature arising out of or incurred
as a result of the termination of Lessor's obligations under this
letter as to all or any of the Items of Equipment. If Lessor elects
to terminate its obligations hereunder, Lessee agrees to purchase from
Lessor at its cost, plus expenses, the Items of Equipment for which
required schedules and documents, as described in Section 10, have not
been executed and which Lessor has purchased or has become obligated
to purchase hereunder.
15. This letter shall cease to be of any force and effect as to any Item
of Equipment on the Effective Date of the Lease relating to such Item
of Equipment.
This commitment is effective only if it is accepted in writing as provided below
and two copies of this letter are immediately returned to Lessor, together with
any commitment fee required by this commitment.
LESSOR: CARGILL LEASING CORPORATION
By
---------------------------------
Title
-----------------------------
The undersigned hereby accepts this commitment and: (1) agrees to be fully
bound by the terms and conditions thereof, (2) covenants that all facts and
circumstances pertaining to the application are and shall be as represented and
(3) further agrees to comply with and execute all documents as described in
Section 10 hereof and return them to Lessor as soon as possible.
LESSEE: GALAGEN INC.
By /s/ GREGG A. WALDON
---------------------------------
Title Chief Financial Officer
-----------------------------
Date June 6, 1996
-----------------------------
<PAGE>
MASTER EQUIPMENT LEASE
LEASE NO. 04983
LESSOR: CARGILL LEASING CORPORATION (herein called the "Lessor")
6000 CLEARWATER DRIVE
MINNETONKA, MN 55343-9497
LESSEE: GALAGEN INC. (herein called the "Lessee")
4001 LEXINGTON AVENUE NORTH
ARDEN HILLS, MN 55126-2988
<PAGE>
1. LEASE
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, pursuant
to the terms of this Master Equipment Lease (herein called the "Lease"), the
personal property described in Schedule(s) A, attached hereto and incorporated
herein, and all attachments, additions, accessories, replacement parts,
substitutions and repairs incorporated therein and/or affixed thereto, (herein
called the "Equipment") and the proceeds thereof. The parties may from time to
time, by mutual agreement, add other items of equipment to this Lease for such
terms and at such rates as may be agreed by execution of additional Schedule(s)
A, and this Lease shall control and be effective as to such additional items of
equipment as though the same were set forth herein. For purposes of construing
this Lease, all Schedule(s) A attached hereto shall be incorporated herein and
form a part hereof. No respective Schedule A shall be construed as an
independent separate lease.
2. TERM
This Lease shall be in force with respect to each item of Equipment for a period
beginning with the Commencement Date or if earlier, with respect to any item of
Equipment, the commencement of the corresponding Interim Rent Period as set
forth in the corresponding Schedule(s) A and ending at the expiration of the
period ("Expiration Date") set forth in the corresponding Schedule(s) A (herein
called the "Lease Term").
3. RENT
Lessee shall pay to Lessor the payment amounts set forth in Schedule(s) A
(herein called "Rent") for use of the Equipment for the Lease Term. Rent shall
be payable to Lessor at the office of Lessor in Minnetonka, Minnesota 55343-9497
or at such other location as Lessor may from time to time instruct Lessee in
writing. In the event Lessee should fail to pay Lessor any Rent within five (5)
days of the due date thereof, or any other sum required to be paid to the Lessor
within five (5) days of demand, Lessee shall pay unto Lessor a delinquent
payment charge from the due date of payment until paid at an annual rate of 10%
unless otherwise prohibited by law, in which case interest will be charged at
the highest lawful rate allowed. All payments hereunder shall be applied to
unpaid obligations then due hereunder in the inverse order of delinquency, that
is, payments shall first be applied to the least delinquent obligation.
4. WARRANTIES
LESSOR, NOT BEING THE MANUFACTURER OF THE EQUIPMENT NOR THE MANUFACTURER'S
AGENT, MAKES NO EXPRESS OR IMPLIED WARRANTY OF ANY KIND WHATSOEVER WITH RESPECT
TO THE EQUIPMENT, INCLUDING BUT NOT LIMITED TO: THE MERCHANTABILITY OF THE
EQUIPMENT OR ITS FITNESS FOR A PARTICULAR PURPOSE; THE DESIGN OR CONDITION OF
THE EQUIPMENT; THE QUALITY OR CAPACITY OF THE EQUIPMENT; THE WORKMANSHIP IN
THE EQUIPMENT; COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS OF ANY LAW,
RULE, OR SPECIFICATION; PATENT INFRINGEMENTS OR LATENT DEFECTS, IT BEING AGREED
THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT ALL RISKS AS BETWEEN LESSOR AND
LESSEE ARE TO BE BORNE BY LESSEE. LESSOR IS NOT RESPONSIBLE FOR INSTALLATION
OF, OR FOR ANY REPAIRS OR SERVICE TO, THE EQUIPMENT. LESSOR IS NOT RESPONSIBLE
FOR LOSS OF PROFIT OR FINANCIAL LOSS OR INCIDENTAL OR CONSEQUENTIAL DAMAGES,
INCLUDING, BUT NOT LIMITED TO, LOSS OR INTERRUPTION OF BUSINESS, WHICH MAY BE
DIRECTLY OR INDIRECTLY CAUSED BY OR ATTRIBUTABLE TO THE INADEQUACY OF THE
EQUIPMENT. Lessee will be subrogated to Lessor's claims, if any, against the
manufacturer or supplier of the Equipment for breach of any warranty or
representation and, Lessor shall enforce any such warranty, express or implied,
issued on or applicable to any of the Equipment, provided, that Lessee is not in
default under the Lease pursuant to Section 13, hereof, and Lessor shall not be
obligated to enforce any such warranty unless Lessee agrees in writing to pay
all expenses in connection therewith. All proceeds of any such warranty
recovery from the manufacturer or supplier of the Equipment shall be used at the
discretion of Lessor to either repair or replace the affected Equipment.
NOTWITHSTANDING THE FOREGOING, LESSEE'S OBLIGATION TO PAY RENT OR ANY OTHER SUM
REQUIRED UNDER THIS LEASE SHALL BE AND IS ABSOLUTE AND UNCONDITIONAL.
5. TITLE AND IDENTIFICATION
This Lease is intended to constitute a true lease and not a sale of the related
Equipment. However, to the extent, at any time or from time to time, this Lease
is construed to be a transaction intended as security, Lessor retains and
Lessee hereby grants to Lessor a security interest in and to the Equipment, the
proceeds of any sale thereof, the assignment, lease, or sublease thereof, any
insurance proceeds with respect thereto, and any other rights of Lessee,
tangible or intangible, in and to the Equipment, the Lease, and their proceeds;
provided, further, that Lessee may not, to the extent this Lease is construed to
be a transaction intended as security, sell or otherwise encumber the Equipment
without Lessor's prior written consent. No right, title or interest
2
<PAGE>
in the Equipment shall pass to Lessee other than, conditioned upon Lessee's
compliance with and fulfillment of the terms and conditions of this Lease, the
right to maintain possession and use the Equipment for the Lease Term as
provided in Schedule(s) A. Lessee, at its expense, will protect and defend
Lessor's title to the Equipment from and against all claims, liens, and legal
process of creditors of Lessee and take such action as is necessary to discharge
any such claim, lien, or legal process. Lessor may require plates or markings
to be affixed to or placed on the Equipment indicating Lessor is the owner and
Lessee will not alter, deface, cover or remove such ownership identification.
6. TAXES, REGISTRATION, AND LICENSING
Lessee agrees to comply with all laws, regulations and orders relating to the
Lease and to pay when due as additional rent and indemnify Lessor on an
after-tax basis for, all assessments, license fees, taxes (including but not
limited to sales, use, excise, personal property, value added, consumption,
franchise, state income, gross receipts, ad valorem, stamp, documentary and
federal highway use tax) and all other governmental charges, fees, fines or
penalties whatsoever, whether payable by Lessor or Lessee, on or relating to the
Equipment or the purchase, manufacture, maintenance, transfer, lease,
possession, use, registration, rental, shipment, transportation, delivery,
ownership or operation thereof or on or relating to the Lease and the schedules
executed in connection therewith except taxes of Lessor on net income imposed by
the United States or the State of Minnesota other than sales, use, ad valorem or
rental taxes; provided, however, that if under local law or custom such payments
may be made only by Lessor, Lessee shall promptly notify Lessor, and shall
reimburse Lessor, when due, for all payments made by Lessor. Where any tax or
government charge is paid or reported directly by Lessor, the amount of such tax
attributable to the Equipment or the Lease shall be determined in good faith by
Lessor based on the same general assumptions and methodology upon which Lessor
and its parent company customarily file their returns. If Lessee disagrees with
such determination, such determination shall be verified by KPMG Peat Marwick or
another independent firm of certified public accountants acceptable to Lessee
and reasonably acceptable to Lessor; such verification to be based on the
provisions of this Section 6 and shall not involve the disclosure of
confidential information to Lessee. Lessor shall include the Equipment,
if applicable, on Lessor's personal property tax return and Lessee shall
reimburse Lessor, upon demand, for all taxes paid by Lessor with respect
thereto. Unless otherwise requested by Lessor, Lessee shall prepare and file
all other returns required with respect to charges payable by Lessee hereunder
and furnish copies to Lessor; provided, however, that the foregoing shall not
include any federal and state income taxes of Lessor. Lessee shall obtain such
licensing and registration of the Equipment as is required by federal, state and
local law or regulation. Lessee agrees to promptly notify Lessor in writing not
more than five (5) days after any attachment, tax lien or other judicial process
shall attach to the Equipment and the full particulars thereof.
"After-tax basis" when referring to any amount, shall mean, for purposes of this
Lease, an amount which, after deduction of all federal, state, and local income
taxes that are required to be paid by the recipient in respect of the receipt or
accrual of such amount, is equal to the amount required to be indemnified on an
after-tax basis, calculated using the assumption that the recipient is fully
taxable for federal, state, and local income tax purposes at the maximum rate of
federal income taxation applicable to corporations, and at the maximum composite
rate of state and local income taxation applicable to such recipient, at the
time such amount is received or properly accrued.
7. GENERAL INDEMNIFICATION
Lessee assumes liability for, and hereby agrees to indemnify, protect and hold
harmless Lessor on an after-tax basis, its agents, employees, officers,
directors, successors and assigns from and against any and all liabilities,
obligations, liens, losses, damages, injuries, claims, demands, penalties,
actions, costs and expenses, including reasonable attorney fees of whatsoever
kind and nature (including any of the foregoing arising in connection with
latent or other defects, or any claim for patent, trademark or copyright
infringement or under the doctrine of strict liability) (collectively,
"Claims"), arising out of the manufacture, possession, use, condition,
operation, installation, alteration (with or without Lessor's consent), repair,
maintenance, ownership, selection, delivery, leasing, removal or return of the
Equipment during the Lease Term, by Lessee, its agents, its employees or any
permitted sublessees, or arising out of any failure on the part of Lessee to
perform or comply with conditions of this Lease or by operation of law; provided
such Claims are not solely due to Lessor's gross negligence or willful
misconduct. The indemnities and assumptions of liabilities and obligations
provided in Sections 6 and 8 hereof shall continue in full force and effect
notwithstanding assignment, expiration or other termination of the Lease, and
the indemnities and assumptions of liabilities and obligations provided in this
Section shall continue in full force and effect notwithstanding assignment,
expiration or other termination of the Lease, unless any such Losses arose out
of acts or omissions that occur after the termination of the Lease and return to
Lessor or purchase by Lessee of all Equipment, in which case such indemnities
and assumptions of liabilities and obligations shall cease.
3
<PAGE>
8. TAX INDEMNITY
Lessee acknowledges that (i) Lessor (including for purposes of this Section 8,
Lessor's transferee or assignee, or the consolidated or combined group of
corporations with which Lessor (or its tranferee or assignee) files its income
tax returns), as owner of the Equipment, intends to claim all available tax
benefits of ownership with respect to the Equipment, including, but not limited
to, the maximum accelerated cost recovery deductions under section 168 of the
Internal Revenue Code of 1986, as amended (the "Code") with respect to 100% of
the Original Cost of the Equipment, commencing in Lessor's taxable year which
includes the Commencement Date (or the date of the Delivery and Acceptance
Certificate, if earlier) (the "Depreciation Deductions"), (ii) Lessor will not
be required to include in its gross income with respect to the transactions
contemplated in the Lease any amounts other than Rent, Stipulated Loss Value and
sale proceeds at the times and in the amounts contemplated hereby (any failure
of this clause (ii) referred to as an "Inclusion"), (iii) Lessor will be
entitled to treat all items of income, gain, loss, deduction and credit arising
out of the transactions contemplated by this Lease as income, gain, loss,
deduction and credit from sources within the United States (any failure of this
clause (iii) to be true which results in Lessor being able to utilize fewer
foreign tax credits in any taxable year against its federal income tax liability
is referred to as a "Foreign Tax Loss"), (iv) Lessor is at all time subject to a
marginal federal income tax rate of 35% and files its income tax returns on the
basis of a fiscal year ending May 31 using the accrual method of accounting.
Lessee hereby represents and warrants to Lessor for federal income tax
purposes:(i) The Lessee has not made any election or taken any other action
which would limit the Depreciation Deductions, (ii) the Equipment will be placed
in service no later than the applicable Commencement Date or the date of the
Delivery and Acceptance Certificate, if earlier, (iii) no Lessee Person (as
defined below) has or will take any action or position in connection with any
tax return which is inconsistent with Lessor's ownership of the Equipment, (iv)
the Equipment is not and will not become tax-exempt use property for purposes of
section 168(h) of the Code, (v) as of the Commencement Date (or the date of the
Delivery and Acceptance Certificate, if earlier), the Equipment is complete for
its intended use by Lessee, and (vi) all information provided to Lessor or an
appraiser by Lessee, if any, concerning or relating to the Equipment was
accurate at the time given, and as of the Commencement Date or the date of the
Delivery and Acceptance Certificate, if earlier.
Lessee agrees that if the Depreciation Deductions shall be lost, delayed or
recaptured, or Lessor shall suffer an Inclusion or Foreign Tax Loss, in each
case by reason of any action or failure to act on the part of the Lessee (or any
affiliate, employee, assignee, successor or sublessee of Lessee (a "Lessee
Person")), or the inaccuracy or breach or any representation, warranty or
covenant of Lessee set forth in this Lease or any Event of Default hereunder or
any action taken pursuant thereto (if Stipulated Loss Value is not paid with
respect to such Event of Default), or any loss casualty, damage, or confiscation
of or to the Equipment, or any bankruptcy or insolvency or similar proceeding
involving the Lessee or any Lessee Person, then Lessor shall have suffered a
"Tax Loss" for purposes of this Lease. Within thirty (30) days after the date
of such Tax Loss, Lessee shall pay to Lessor a lump sum amount which, after
deduction of all taxes required to be paid by Lessor with respect to the receipt
of such amount under the laws of any federal, foreign, state or local government
taxing authority (the "gross-up"), shall preserve Lessor's after-tax discounted
cash flow return on equity, cash flows and book income based on FASB 13,
originally assumed by Lessor in entering into the Lease (Lessor's "Economic
Return") after the payment of any federal tax payable with respect to such Tax
Loss. Lessee shall also pay to Lessor amounts necessary to reimburse Lessor on
an after-tax basis for interest and penalties (including additions to tax by
reason of underpayment of estimated tax) incurred in connection with such Tax
Loss.
The occurrence and amount of any Tax Loss and the amount payable hereunder shall
be determined in good faith by Lessor based on the assumptions and methodology
upon which Lessor customarily files its returns and assuming that at all times
(i) Lessor has sufficient taxable income to fully realize any tax benefits on a
current basis and (ii) any gross-up or tax with respect to an Inclusion shall be
computed based on the highest applicable marginal corporate tax rates then in
effect. If Lessee disagrees with any such determination, at Lessee's cost, such
determination shall be verified by KPMG Peat Marwick or another independent firm
of certified public accountants acceptable to Lessor and Lessee (and the
determination by such firm hereunder shall be binding on the parties hereto).
For the purpose of this Lease, a Tax Loss shall be deemed to occur upon, and the
date of such Tax Loss shall be, the earliest of (i) the occurrence of any event
which may cause such Tax Loss, (ii) the payment by Lessor to the applicable
taxing authority of the tax increase resulting from such Tax Loss, (iii) receipt
by Lessor from the appropriate taxing authority of any notice of proposed
deficiency, statutory notice of deficiency or assessment relating to such Tax
Loss, (iv) an adjustment of the tax return of Lessor to reflect such Tax Loss.
9. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS
If Lessee shall fail to duly and promptly perform any of its obligations under
this Lease with respect to the Equipment, Lessor may, at its option, perform any
act or make any payment which Lessor deems necessary for the maintenance and
preservation of the Equipment and Lessor's title thereto, including payments for
satisfaction of liens, repairs, taxes, levies and insurance, and all sums so
paid or incurred by Lessor, together with any delinquent payment charges
pursuant to Section 3 hereof, and any reasonable legal fees incurred by Lessor
in connection therewith, shall be paid by Lessee to Lessor upon demand. The
performance of any act or payment by Lessor as provided herein shall not be
deemed a waiver or release of any obligation or default on the part of Lessee.
4
<PAGE>
10. SELECTION, DELIVERY, AND INSTALLATION
Lessee has selected the Equipment, including the type, quantity, and the
supplier thereof, based solely on its own judgment and expressly disclaims any
reliance upon i) any statements or representations, if any, made by Lessor, its
agents or employees and ii) Lessor's, its agents or employees, skill of
judgement, if any, to select or furnish suitable equipment. Lessee acknowledges
that Lessor is not a dealer, manufacturer, merchant or supplier of equipment of
any kind and that the Equipment subject to this Lease is of a type, size, design
and capacity selected by Lessee and that Lessor is acquiring the Equipment or
the right to possession and use of the Equipment in connection with this Lease.
Lessor shall have no liability for any delivery or installation of the Equipment
or for any failure by supplier to fill the purchase order or meet the conditions
thereof.
11. USE AND ASSIGNMENT
Lessee, at its sole cost, will cause the Equipment to be operated and maintained
in accordance with any applicable manufacturer's manuals or instructions,
applicable laws, any insurance policies and any warranties of the manufacturer
with respect to the Equipment, by competent and duly qualified personnel only,
in accordance with applicable governmental regulations, if any, and for its
originally intended business purpose only. Lessee shall not sell, pledge,
hypothecate, or otherwise encumber or suffer a lien upon or against any interest
in this Lease or the Equipment. Without Lessor's prior written consent, (i) for
all non-rolling stock Equipment Lessee shall not move such Equipment from its
place of installation or delivery as set forth in Schedule(s) A, and (ii) for
all rolling stock Equipment Lessee shall not change the place of registration of
such Equipment as set forth in Schedule(s) A nor shall Lessee remove such
Equipment from the continental United States. LESSEE SHALL NOT ASSIGN THE LEASE
OR ASSIGN OR SUBLET ANY ITEM OF EQUIPMENT WITHOUT LESSOR'S PRIOR WRITTEN
CONSENT. ANY ASSIGNMENT OR SUBLEASE ENTERED INTO BY LESSEE WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR SHALL BE NULL AND VOID.
Lessee agrees that Lessor may assign, sell or encumber all or any part of this
Lease, the Equipment and the Rent hereunder upon prior written consent of Lessee
which is not to be unreasonably withheld. Following consent from Lessee, Lessee
agrees to execute those documents necessary to complete such assignment or sale.
Lessee shall not assert against assignee and/or mortgagee any defense,
counterclaim or offset that Lessee may have against Lessor. Subject to the
other terms and conditions herein, this Lease inures to the benefit of and is
binding upon the heirs, legatees, personal representatives, successors and
permitted assigns of the parties hereto.
12. ALTERATIONS
Without the prior written consent of Lessor, Lessee shall not make any
alterations, additions or improvements to the Equipment. All permitted
alterations, additions and improvements of whatsoever kind or nature made to the
Equipment shall become the property of Lessor upon expiration or earlier
termination of this Lease except that any of the foregoing which are not
required pursuant to Section 11 and are removed without damage to the Equipment,
without adversely affecting the Equipment's commercial value, useful life or
originally intended use shall remain the property of Lessee. No advertising or
insignia shall be placed on the Equipment without the prior consent of Lessor,
unless the Equipment is rolling stock, whereas Lessor hereby consents to the
placement of Lessee's insignia.
13. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute a default by
Lessee (herein called "Event of Default") in the performance of Lessee's
obligations hereunder:
(i) failure of Lessee to pay Rent within five (5) days after it
is due,or failure of Lessee upon demand to pay any other
amount required to be paid herein ; or
(ii) failure of Lessee to timely comply with any covenant,
condition or obligation, other than the payment of Rent and
the obligations under Section 25 hereof, imposed on or
required to be performed by Lessee under this Lease (and
such failure shall continue for five (5) days after written
notice by Lessor); or
(iii) failure of Lessee to perform or observe any covenant
required to be performed or observed by Lessee under Section
25 hereof; or
(iv) any representation or warranty made by Lessee herein shall
prove untrue in any material respect as of the date of
issuance or making thereof; or
5
<PAGE>
(v) Lessee or any of Lessee's guarantors ("Guarantor") shall
become insolvent or bankrupt or generally fails to pay, or
shall admit in writing its inability to pay, its debts as
they come due, or shall make an assignment for the benefit
of, or any composition or arrangement with, its creditors,
or shall apply for, consent to or agree in the appointment
of a trustee, receiver, liquidator or other custodian for
Lessee or Guarantor, its business or all or a substantial
part of its property, or, in the absence of such
application, consent or agreement, a trustee, receiver,
liquidator or other custodian shall be appointed for Lessee
or Guarantor, its business or all or a substantial part of
its property and is not discharged within thirty (30) days;
or
(vi) any bankruptcy, reorganization, debt arrangement, or other
case or proceeding under any bankruptcy, insolvency or
similar law of any applicable jurisdiction, or any
dissolution, winding up or liquidation case or proceeding
shall be commenced in respect of Lessee or Guarantor, and,
if such case or proceeding is not commenced by Lessee or
Guarantor, as it shall be consented to or acquiesced in by
Lessee or Guarantor or remain undismissed for thirty (30)
days; or Lessee or Guarantor shall take any action to
authorize, or in furtherance of, any of the events described
in clause (v) or this clause (vi); or
(vii) any guaranty of Lessee's obligations hereunder for any
reason ceases to be in full force and effect; or
(viii) Lessee's or Guarantor's business is dissolved, terminated or
is discontinued; or Lessee or Guarantor dies, if either of
them shall be an individual; or
(ix) Lessee sells, transfers or disposes of all or substantially
all of its assets or property or a material portion thereof,
or merges with any other entity or engages in any form of
corporate reorganization or recapitalization which causes a
Change of Control without the prior written consent of
Lessor, which will not be unreasonably withheld. Change of
Control shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d)
and 14(d)(ii) of the Securities Exchange Act of 1934)
becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or
indirectly, of more than seventy-five percent (75%) of the
total voting power of all classes of stock then outstanding
of Lessee normally entitled to vote in the election of
directors; or
(x) a transfer of ownership of the Lessee's outstanding voting
stock or other action (issuance of new shares, sale of
Treasury shares, purchase of outstanding shares, dividends,
etc.) resulting in a Change of Control of Lessee without the
prior written consent of Lessor, which shall not be
unreasonably withheld; or
(xi) Lessee attempts to move, sell, or transfer the Equipment
from its place of installation or domicile as described in
Schedule(s) A attached hereto, or encumber the Equipment or
part with possession, sublet or assign this Lease without
Lessor's prior written consent, which shall not be
unreasonably withheld.
14. REMEDIES
Upon occurrence of any Event of Default and at any time thereafter so long as
the same shall be continuing, Lessor may, at its option, declare this Lease to
be in default and may do one or more of the following with respect to any or all
Equipment as Lessor in its sole discretion shall elect, all of which are hereby
authorized by Lessee, to the extent permitted by and subject to compliance with
any mandatory requirements of applicable law then in effect:
(i) terminate this Lease effective immediately; or
(ii) cause Lessee, upon written demand and at Lessee's expense,
to promptly return any or all Equipment under all Schedules
to Lessor pursuant to Section l8 hereof; or
(iii) take possession of any or all Equipment and remove the same
without liability for injuries suffered through or loss
caused by such repossession. LESSEE WAIVES ANY AND ALL
RIGHTS TO NOTICE AND JUDICIAL HEARING WITH RESPECT TO THE
REPOSSESSION OR ATTACHMENT OF THE EQUIPMENT BY LESSOR IN THE
EVENT OF DEFAULT HEREUNDER BY LESSEE. In the event Lessor
proceeds pursuant to this subsection (iii), Lessor may sell
any or all Equipment at public or private sale as is
commercially reasonable given the existing conditions on an
"AS IS, WHERE IS" basis without recourse or warranties of
any kind, or otherwise hold, use, operate, or keep idle such
Equipment; or
(iv) whether or not Lessor has exercised any other right
hereunder, by written notice to Lessee, cause Lessee to pay
Lessor (as liquidated damages for loss of a bargain and not
as a penalty) on the date specified in such notice an amount
equal to the Rent due and payable on the first of the month
following the date of the notice of Lease termination plus a
sum equal to the appropriate Stipulated Loss Value
determined as of the first of the month following the date
of the notice of Lease termination in accordance with the
Stipulated Loss Value Schedule set out in Schedule(s) A.
"Stipulated Loss Value" shall mean an amount equal to the
product of the Original Cost of such Equipment multiplied by
the percentage set forth on the SLV Schedule in Schedule(s)
A; or
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(v) Lessor may exercise any other right or remedy which may be
available to it under the Uniform Commercial Code or any
other applicable law or proceed by appropriate court action
to enforce the terms hereof or to recover damages for the
breach hereof.
In addition, Lessee shall pay Lessor all reasonable costs and expenses incurred
by Lessor as a result of Lessee's default hereunder or the termination hereof
including without limitation, reasonable attorney's fees, and costs arising out
of repossession and disposal of the Equipment.
Provided Lessee has previously paid to Lessor the sum of the Stipulated Loss
Value, Rent due and owing, and other reasonable costs and expenses incurred
pursuant hereto, Lessee shall be entitled to the net proceeds of any such sale,
disposition, or re-lease of the Equipment to the extent they do not exceed the
Stipulated Loss Value. Any excess shall be retained by Lessor. To the extent
the Equipment is re-leased by Lessor, Lessee shall be credited the present value
of the lease rental stream at the discount rate of Chase Manhattan Prime as of
the date the re-lease is agreed to between the parties. Furthermore, to the
extent the parties to this Lease need to determine the present value of any
monies due under the Lease, the parties agree that the discount rate shall be
Chase Manhattan Prime.
In addition, Lessee shall continue to be liable for all indemnities under this
Lease and for all reasonable attorney fees and other costs and expenses
resulting from the termination hereof and/or the exercise of Lessor's remedies,
including placing any Equipment in the condition required by Section 18 hereof.
No remedy referred to in this Section is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity. Any repossession or
subsequent sale or lease by Lessor of the Equipment shall not bar an action for
a deficiency as herein provided and the bringing of any action or the entry of
judgment against the Lessee shall not bar the Lessor's right to repossess any or
all Equipment. No expressed or implied waiver by Lessor of any default shall
constitute a waiver of any other default by Lessee or a waiver of any of
Lessor's rights.
15. NOTICES
Any notices or demands required to be given herein shall be given to the parties
in writing and shall be deemed given three (3) days after mailing when mailed by
certified mail, postage prepaid, by direct courier or by confirmed facsimile to
the address herein set forth or to such other address as the parties may
hereafter substitute by written notice.
16. REPAIRS: LOSS AND DAMAGE
Lessee, at its own costs and expense, shall keep the Equipment in good repair,
condition and working order including but not limited to compliance with all
applicable recall orders and in as good operating condition so as to be capable
of operating in accordance with its original design capability, commercial
operation and function and in at least the condition of similar equipment owned
or operated by Lessee and in accordance with industry standards (ordinary wear
and tear, in each case, excepted) and shall furnish all parts, mechanisms and
devices and servicing required therefor. All such parts, mechanisms and devices
shall immediately become the property of Lessor and part of the Equipment for
all purposes hereof.
Lessee agrees to immediately inform Lessor of any damage to the Equipment or
caused by the Equipment or the existence of any Casualty Occurrence as
hereinafter defined. All risk of loss with respect to the Equipment shall be
borne by Lessee.
If any Equipment is lost, stolen, destroyed, or damaged for any reason, or in
the event of any condemnation, confiscation, theft or seizure or requisition of
title to or the use of such Equipment (herein called "Casualty Occurrence"),
Lessee will, at the option of Lessor, either (a) repair or replace the same with
like Equipment in good repair or (b) promptly pay to Lessor:
(i) a sum equal to the Stipulated Loss Value of such Equipment
determined as of the date following the Casualty Occurrence
set forth in the Stipulated Loss Value Schedule in the
related Schedule A(s); plus
(ii) an amount equal to the Rent in respect of the Equipment
suffering a Casualty Occurrence accrued up to the Stipulated
Loss Value Date used for calculation of the Stipulated Loss
Value payment; less
(iii) any physical damage insurance proceeds received by Lessor as
a result of said Casualty Occurrence.
As of the date on which the Stipulated Loss Value is due, the Rent for such
Equipment shall cease to accrue and the term of this Lease as to such Equipment
shall terminate and (except in case of the loss, theft or complete destruction),
Lessor shall be entitled to recover possession of the Equipment. Lessor hereby
appoints Lessee its agent to dispose of any Equipment suffering a Casualty
Occurrence at the best price commercially reasonable on an "AS IS, WHERE IS"
basis without recourse or warranties of any kind. Provided that Lessor has been
paid the Stipulated Loss Value and all Rent or other sums due and owing as to
such Equipment, Lessee shall be entitled to the net proceeds of such sale.
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17. INSPECTION
Lessor, or its employees or agents, may, but shall not be obligated to, inspect
the Equipment at a reasonable time or place, and for such purpose enter any
building or place where said Equipment is located.
18. RETURN OF EQUIPMENT
Except upon the valid exercise of any renewal option or purchase option or
performance of a terminal rent adjustment clause requirement, all as set forth
in the applicable Schedule(s) A, upon the Expiration Date, or earlier
termination as provided herein, Lessee, at its own risk and expense, will
immediately return the Equipment as described in such Schedule(s) A to Lessor in
the condition as described in the Equipment Condition Addendum attached hereto,
at such location(s) as Lessor shall designate and within a 500 mile radius of
Lessee's Arden Hills, MN location, including, but not limited to Chicago, IL and
its surrounding metropolitan area, freight and insurance prepaid. Lessee hereby
acknowledges that any such designation is reasonably convenient to Lessee.
In the event that the Equipment is not returned within ten (10)) days after the
Expiration Date or such date as earlier terminated, Lessee shall pay as
additional rent an amount equal to the greater of the fair market daily rental
as determined by Lessor or the daily equivalent of Rent as described in the
applicable Schedule(s) A for each day from, and including the Expiration Date or
such date as earlier terminated until and including the day on which the
Equipment is returned. Payment of additional rent hereunder does not relieve
Lessee of its obligation to return the Equipment immediately at such time as set
forth herein.
19. FINANCIAL REPORTS
Lessee and Guarantor shall furnish Lessor during the Lease Term hereof with
annual audited financial statements within one hundred twenty (120) days after
the end of its fiscal year and, with respect to Lessee, such other financial
information as Lessor may from time to time request including, without
limitation, reports filed with federal or state regulatory agencies. Lessee
shall also provide Lessor company prepared quarterly financial statements within
forty-five (45) days from the first three quarter ends. Lessee hereby warrant
and represent that all financial statements heretofore and hereafter delivered
to Lessor by or upon behalf of Lessee have been and will be prepared in
accordance with generally accepted accounting principles, and any statements and
data submitted in writing to Lessor in connection with this Lease, are true and
correct and present fairly the financial condition of Lessee for the period
involved.
20. NO OFFSET
LESSEE HEREBY WAIVES ANY AND ALL EXISTING AND FUTURE CLAIMS AND OFFSETS, AGAINST
ANY RENT OR OTHER PAYMENTS DUE HEREUNDER; AND AGREES TO PAY THE RENT AND OTHER
AMOUNTS HEREUNDER REGARDLESS OF ANY OFFSET OR CLAIM WHICH MAY BE ASSERTED BY
LESSEE OR ON ITS BEHALF. LESSEE HEREBY FURTHER ACKNOWLEDGES THAT THE
MANUFACTURER AND/OR SUPPLIER OF THE EQUIPMENT, INCLUDING THEIR RESPECTIVE AGENTS
AND EMPLOYEES, WERE AT NO TIME AND ARE NOT NOW THE AGENT OR UNDER THE
SUPERVISION OF LESSOR, NOR WAS OR IS LESSOR IN ANY MANNER, THE AGENT OF THE
MANUFACTURER AND/OR SUPPLIER.
21. LESSEE'S REPRESENTATIONS
Lessee represents, warrants and agrees that (a) it has the full power, authority
and legal right to enter into and perform this Lease; the execution, delivery
and performance of this Lease have been duly authorized by all necessary
corporate or other legal action on the part of Lessee, do not require the
approval or consent of any stockholder, trustee or holders of any indebtedness
or obligations of Lessee, and will not contravene any law, governmental rule,
regulation or order binding on Lessee (or the Certificate or Articles of
Incorporation or By-Laws of Lessee if it is a corporation) or contravene the
provisions of, or constitute a default under, or result in the creation of any
lien or encumbrance upon the property of Lessee under any indenture, mortgage,
contract or other agreement to which Lessee is a party, or by which its
subsidiaries may be bound or affected; and (b) all consents and approvals of,
the giving of notice to, registration with, and the taking of any other action
in respect of any federal, state or foreign governmental authority or agency,
necessary, if at all, to permit the transactions contemplated by this Lease have
been taken; and (c) this Lease constitutes a legal, valid and binding obligation
of Lessee enforceable against Lessee in accordance with the terms thereof; and
(d) there are no pending or threatened actions or proceedings before any court
or administrative agency which will adversely affect the condition, business or
operations of Lessee or any of its subsidiaries or the ability of Lessee to
perform its obligations under this Lease; and (e) the transactions contemplated
by this Lease will raise no presumption of fraud as against and will be
effective against all creditors of Lessee under applicable state and federal
laws,
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including, without limitation, laws relating to fraudulent conveyances or bulk
transfers; and (f) Lessee shall provide Lessor and Guarantor, upon request, with
an opinion of counsel satisfactory to Lessor with respect to the foregoing
matters.
22. FURTHER ASSURANCES
Lessee shall execute and deliver to Lessor, upon Lessor's reasonable request,
such further documents, instruments, and assurances as Lessor deems necessary or
advisable for the confirmation or perfection of this Lease and Lessor's rights
hereunder and such information as is necessary to support Lessor's treatment of
the transaction for tax purposes. Lessee shall reimburse Lessor for all
expenses incurred by Lessor in connection with this provision, including the
costs of searches and all filings. Any such filing or recording shall not in
and of itself be a factor in determining whether or not the Lease is intended as
security.
23. QUIET ENJOYMENT
Lessor covenants that Lessor will not interfere in Lessee's quiet enjoyment of
the Equipment hereunder during the Lease Term so long as (i) Lessee is in
compliance with each term and condition hereof, and (ii) no Event of Default has
occurred or is continuing.
24. WAIVER
The failure of Lessor to insist, in any one or more instances, upon strict
performance by Lessee of any of the covenants of this Lease, or to exercise any
option herein contained, shall not be construed as a waiver or relinquishment
for the future of such covenant or option, but the same shall continue and
remain in full force and effect. The receipt by Lessor of Rent, with knowledge
of the breach of any covenant or condition hereof, shall not be deemed a waiver
of such breach and no waiver by Lessor of any provision hereof shall be deemed
to have been made unless expressed in writing and signed by Lessor.
25. INSURANCE
At its own expense, Lessee shall obtain and maintain for the Lease Term,
physical damage and liability insurance. The physical damage insurance shall
insure against loss or damage to the Equipment including, without limitation,
loss by fire, explosion, wind, hail, flood, malicious mischief, vandalism,
theft, collision, upset, overturn, glass breakage and any other physical loss to
the Equipment. For any titled Equipment, the amount of insurance against loss
or damage shall not be less than the actual cash value of the Equipment. For
any other type of Equipment, the amount of insurance against loss or damage
shall not be less than the new replacement cost of the Equipment. Such policy
providing insurance for the damage to the Equipment shall name Lessor as Loss
Payee as Lessor's interest may appear and shall not have a deductible amount in
excess of $5,000 without the express written consent of Lessor.
The liability insurance shall provide coverage for the liability of Lessee and
Lessor for damages arising out of the ownership, maintenance, use, and operation
of the Equipment. Such liability insurance shall also contain a contractual
liability provision for purposes of insuring the performance of Lessee hereunder
this Lease. Liability insurance shall have minimum limits of $1,000,000 per
person, $1,000,000 occurrence and $1,000,000 property damage, or $1,000,000
combined single limit and shall have no deductible without the express written
consent of Lessor. Each insurance policy shall name Lessee as the named insured
and Lessor as an additional insured and shall contain a clause requiring the
insurer to give Lessor 30 days prior written notice of any material alteration
in the terms of the policy or of the cancellation thereof. To the extent that
Lessee may have liability insurance in excess of the minimum limits required
herein, Lessor shall be named as an additional insured on any such coverage.
Each policy shall be primary without right of contribution from any other
insurance which is carried by Lessor and shall expressly provide that all of the
provisions thereof except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured.
Lessee or Lessee's insurance agent(s) shall furnish to Lessor a Certificate of
Insurance or other evidence satisfactory to Lessor that such insurance coverage
is in or will be in effect as of the Commencement Date set forth in Schedule(s)
A or the date of Delivery and Acceptance by Lessee, whichever is earlier;
provided, however, that Lessor shall be under no duty either to ascertain the
existence of or to examine such insurance policy or to advise Lessee in the
event such insurance coverage shall not comply with the requirements hereof.
Lessee further agrees to give to Lessor prompt written notice not more than five
(5) days after any damage to, or loss of, the Equipment or damage or injury
caused by the Equipment. Lessee shall, at its own expense and cost, have the
duty and responsibility to make all proofs of loss and take all other steps
necessary to effect collections from underwriters for any loss under any of the
above mentioned policies. The proceeds of such insurance, at the option of
Lessor shall be applied (a) toward the replacement, restoration or repair of
the Equipment or (b) toward payment of the obligations of Lessee hereunder.
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Any policies of insurance carried in accordance with this Section shall provide
that in respect of the interests of Lessor in such policies, the insurance shall
not be invalidated by any action or inaction of Lessee or any other person
(other than Lessor) including, but not limited to, any misrepresentation and
shall insure Lessor's interests, as they appear, regardless of any breach or
violation of any warranties, declarations, or conditions contained in such
policies by or binding upon Lessee or any other person (other than Lessor).
Lessee shall, to the extent reasonably possible, obtain the liability insurance
required hereunder on an occurrence basis rather than a claims-made basis. To
the extent that the Lessee must obtain some or all of this coverage on a
claims-made basis, Lessee shall provide Lessor with satisfactory evidence that
the retroactive date of the claims-made policy is prior to the Commencement Date
or the date of Delivery and Acceptance by Lessee, whichever is earlier; that the
then remaining aggregate amount of Lessee's coverage is and will be sufficient
to meet the minimum amount of coverage required hereunder, and that the policy
will either remain in force, be renewed, or a satisfactory discovery period will
be purchased to cover any claims which might arise hereunder in the future.
Lessee's obligation to keep the Equipment insured as provided herein shall
continue until the Equipment is returned to Lessor pursuant to Section 18
hereof.
26. TERMINATION OPTIONS
The termination options with respect to each item of Equipment are set forth on
the applicable Schedule A.
27. JURISDICTION
Lessee hereby consents to jurisdiction and venue of the federal or state courts
sitting in the State of Minnesota for purposes of resolving all disputes of any
nature whatsoever regarding the Lease, or any transaction contemplated hereby
and Lessee hereby waives objection which it may now or hereafter have to the
laying of jurisdiction or venue in the federal or state courts of Minnesota.
Lessor and Lessee agree that a summons and complaint commencing an action or
proceeding in any such court shall be properly served and shall confirm personal
jurisdiction if served personally, by certified mail to it at its address
designated pursuant to the Lease, or as otherwise provided under the respective
rules of the state or federal courts of Minnesota.
28. NOTICE
All notices to Lessee shall be sent to: GalaGen Inc.
4001 Lexington Avenue North
Arden Hills, MN 55126-2988
Attn: Greg Waldon
with a copy at the foregoing address to: Land O'Lakes, Inc.
Attn: Legal Department
All notices to Lessor shall be sent to: Cargill Leasing Corporation
P.O. Box 5627
Minneapolis, MN 55440
Attn: Credit/Investment
Manager
29. MISCELLANEOUS
If there should be more than one party executing this Lease as Lessee, all
obligations hereunder to be performed by Lessee shall be the joint and several
liability of all such parties. Any provision of this Lease which is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Time is of the essence with respect to this Lease. The
captions in this Lease are for convenience only and shall not define or limit
any of the terms hereof.
The parties hereto acknowledge by INITIALING immediately hereafter that no
waiver, amendment, re-lease or modification of this Lease shall be established
by conduct, custom, or course of dealing but solely by an instrument in writing
duly executed by the parties hereto.
Lessee: __________ Lessor: __________
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Lessor and Lessee agree that if either party incurs costs or expenses (including
reasonable attorney's fees) to enforce any rights arising out of or relating to
this Lease, the prevailing party shall be entitled to recover such costs or
expenses.
This Lease consists of the foregoing and the Schedules, Exhibits, Addenda, and
Riders referred to herein and correctly sets forth the entire Lease agreement
between Lessor and Lessee. No agreements or understandings shall be binding on
either of the parties hereto unless specifically set forth in this Lease
THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF MINNESOTA, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY, AND PERFORMANCE, REGARDLESS OF THE STATE OF MINNESOTA'S CHOICE OF LAW
PROVISIONS.
IN WITNESS WHEREOF, the parties hereto through a duly authorized representative
have executed this Lease as of this
6 day of JUNE , 1996 LESSEE: GALAGEN INC.
- ---------- ------- ----
By /s/ GREGG A. WALDON
---------------------------------
WITNESS/
ATTEST /s/SUSAN SKOGLUND Title CFO
----------------- -----------------------------
LESSOR: CARGILL LEASING CORPORATION
By
---------------------------------
Title
---------------------------------
11
<PAGE>
AGREEMENT FOR PROGRESS PAYMENTS
THIS AGREEMENT, made and entered into as of the 6 day of June, 1996, by and
between CARGILL LEASING CORPORATION (hereinafter "CLC"), a Delaware corporation,
with its principal place of business at P.O. Box 5627, Minneapolis, Minnesota
55440, and GalaGen Inc., a Delaware corporation with its principal place of
business at 4001 Lexington Avenue North, Arden Hills, MN 55126 (hereinafter
"GalaGen").
WITNESSETH:
WHEREAS, GalaGen has agreed to lease the equipment described in Exhibit 1
attached hereto (hereinafter "the Equipment") from CLC pursuant to Master
Equipment Lease No. 04983 (hereinafter "the Lease"):
WHEREAS, CLC has agreed to purchase the Equipment from the manufacturer of
the Equipment (the "Manufacturer) and lease the Equipment to GalaGen subject to
the completion of all the terms and conditions of that certain Commitment Letter
dated June 5, 1996, between the parties hereto (hereinafter "the Commitment
Letter");
WHEREAS, CLC has agreed to make progress payments to the Manufacturer of
the Equipment prior to the Effective Date of the Lease (as defined in paragraph
6) which progress payments will be less than 100% of the purchase price;
WHEREAS, GalaGen is willing to pay CLC interest on the progress payments
and/or reimburse CLC for all payments to the Manufacturer pursuant to the terms
and conditions stated in this Agreement; and
WHEREAS, all capitalized terms not otherwise defined herein shall have the
meaning set forth in the Lease.
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. GalaGen acknowledges that CLC has no obligation to purchase the
Equipment or lease it to GalaGen unless GalaGen complies with all of
the terms and conditions of the Commitment Letter to the complete
satisfaction of CLC by November 30, 1996. In addition to the
conditions set forth in the Commitment Letter, GalaGen hereby also
agrees that if it fails to timely pay any interest payments due CLC
pursuant to Section 4 below, CLC shall have no obligation to purchase
the Equipment or lease it to GalaGen notwithstanding GalaGen's
performance of all of the Commitment Letter's conditions. If GalaGen
fails to perform all conditions of the Commitment Letter as of
November 30, 1996 or if GalaGen fails to timely pay all Section 4
interest payments as of the Effective Date, CLC shall have the right
to refuse to execute the Lease as a result thereof. If CLC refuses to
execute the Lease it shall so notify GalaGen and GalaGen shall
promptly reimburse CLC for all progress payment funds paid to the
Manufacturer. The reimbursable amount due CLC shall accrue interest
at Chase Manhattan Bank's prime rate plus 2% as applicable on a
day-to-day basis until paid. Furthermore, GalaGen agrees to pay all
of CLC's expenses including attorneys' fees incurred by CLC to collect
the foregoing reimbursable amount. GalaGen agrees that its obligation
to reimburse CLC is unconditional and that it shall not be necessary
that CLC first attempt to collect the funds from the Manufacturer or
that it exhaust all of its rights or remedies against the
Manufacturer. GalaGen agrees that its obligations to reimburse CLC
hereunder shall be primary and direct. Upon payment of such
reimbursable amount to CLC GalaGen shall be subrogated to all rights
and remedies that CLC may have against the Manufacturer. GalaGen
further agrees to assume all obligations of CLC with respect to all
legal requirements regarding the acceptance and/or rejection of the
Equipment including all such laws set forth in the Uniform Commercial
Code.
2. Any payments for which GalaGen becomes obligated to pay pursuant to
paragraph 1 shall be due and payable in immediately available funds in
Minneapolis upon demand by CLC.
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3. GalaGen agrees to indemnify, protect, and hold CLC harmless from and
against all losses, damages, injuries, liabilities, claims, and
demands of whatsoever nature and all expenses in connection therewith
including, but not limited to, reasonable attorneys' fees arising out
of or as a result of CLC's refusal to purchase the Equipment or lease
it to GalaGen as a result of GalaGen's failure to perform its
obligations hereunder. This indemnification includes, but is not
limited to, all losses, damages, injuries, liabilities, claims, and
demands made by the Manufacturer.
4. GalaGen agrees to pay interest to CLC at Chase Manhattans Bank's prime
rate plus 2% as applicable on a day-to-day basis for all monies paid
by CLC to the Manufacturer prior to the Effective Date. CLC will
calculate the amount owing and give GalaGen telephonic and telegraphic
notice thereof on the last day of every calendar month commencing with
the expiration of the month during which CLC makes its initial advance
of funds to the Manufacturer. Payment shall be due from GalaGen
within five (5) days after receipt of telephonic and telegraphic
notice of the amount then due and owing. GalaGen agrees that any
amount which has been accrued through the Effective Date but is not
yet due and owing shall be paid in full by GalaGen on the Effective
Date and delivered to CLC in conjunction with the Delivery and
Acceptance Certificate. Such payment shall be calculated as otherwise
provided in this paragraph 4 except that CLC will give GalaGen
telephonic and telegraphic notice of the amount to be paid five (5)
days prior to the Effective Date and shall calculate the amount due on
each of such five (5) days at Chase Manhattan Bank's prime rate on the
day such notice in given plus 2%.
5. Lessee shall insure at its expense all Equipment once received at
Lessee's dock, stored at its plant, or otherwise within its possession
pursuant to the terms of the Lease.
6. For purposes of this Agreement, the Effective Date of the Lease shall
be the date upon which all of the requirements set out in Section 10
of the Commitment Letter are completed to CLC's satisfaction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day, month, and year first above written.
CARGILL LEASING CORPORATION
By:
--------------------------------
Title:
--------------------------------
GALAGEN INC.
WITNESS/
ATTEST: /s/ SUSAN SKOGLUND By: /s/ GREGG A. WALDON
------------------------------ --------------------------------
Title: CFO
--------------------------------
<PAGE>
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE ("Lease"), entered into effective as of the 3rd day of
June, 1996, by and between Land O'Lakes, Inc., a Minnesota cooperative
corporation, ("LOL") and GalaGen Inc., a Delaware corporation, ("GALAGEN");
WHEREAS, LOL and Procor Technologies, Inc., a Minnesota corporation, ("PROCOR")
entered into a Master Services Agreement on May 7th, 1992, ("MASTER SERVICES
AGREEMENT"), which provides, among other things, the use of space in LOL's pilot
plant, freezers, and warehouse.
WHEREAS, PROCOR was merged into GALAGEN by Agreement and Plan of Merger dated
May 7, 1992, whereupon the separate existence of PROCOR ceased and GALAGEN
continued as the surviving corporation.
WHEREAS, in addition to the lease of space as set forth in the MASTER SERVICES
AGREEMENT, GALAGEN requires the exclusive use of certain space as more fully
defined herein.
NOW, THEREFORE, LOL, for and in consideration of the rent, covenants, and
agreements hereinafter set forth to be paid, kept, and performed by GALAGEN,
hereby demises and leases unto GALAGEN, and GALAGEN hereby does hire and rent
from LOL, the premises hereinafter described, upon the terms and conditions
hereinafter set forth.
IT IS AGREED:
1. THE LEASED PREMISES. LOL leases to GALAGEN and GALAGEN rents from LOL
2,515 square feet consisting of those areas highlighted in red on Exhibit A,
attached hereto and made part hereof, and parts of a mezzanine, parts of a
chemical room, and parts of the locker area as designated by LOL, ("LEASED
PREMISES"). For purposes of this Lease, LOL's building including parking area,
drive ways and common areas located at 4001 Lexington Avenue North, Arden Hills,
Minnesota shall be defined as "BUILDING". GALAGEN leases the LEASED PREMISES
from LOL in an "as-is" condition with any improvements to the LEASED PREMISES to
be at GALAGEN's sole responsibility and cost.
2. USE OF LEASED PREMISES AND COMMON AREAS. GALAGEN shall use the LEASED
PREMISES for manufacturing and storage of bovine immunoglobulin concentrate
products and for no other purpose whatsoever except as reasonably consented to
by LOL, which consent shall not be unreasonably withheld or delayed. GALAGEN
may not use the LEASED PREMISES for any unlawful activity. In particular,
GALAGEN promises that the LEASED PREMISES and the property on which the LEASED
PREMISES is located will not be used by GALAGEN or others acting under its
control to manufacture, sell, give away, barter, deliver, exchange, distribute
or possess with intent to manufacture, sell, give away, barter, deliver,
exchange, or distribute a controlled substance in violation of any local, state,
or federal law. GALAGEN shall have access to and use of the LEASED PREMISES 24
hours a day, 7 days a week, including without limitation, the ability to use
such portions of the common areas of the BUILDING for such use.
Page 1
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3. TERM. The term of this Lease shall be for five (5) years, commencing on
the date of this Lease, and ending on June 30, 2001 (the "Term"). This Lease
may be extended for additional one (1) year periods at the option of GALAGEN, if
GALAGEN notifies LOL in writing at least ninety (90) days prior to the original
termination date, or any subsequent anniversary date, of its intent to exercise
this option. Such extension will continue this Lease according to the same
terms and conditions as found herein.
4. RENT. GALAGEN shall pay to LOL, at the address designated in this Lease,
rent for the Term in the amount equal to $85,510.00 per annum; $7,125.83 per
month and $34.00 per square foot ("Annual Rent"). The payment for Annual Rent
for each month must be paid on or before the 1st day of each month beginning
June 1, 1996, together with any other rent due and payable under this Lease at
the address set forth in Section 11 without offset, deduction or demand. LOL
does not have to give notice to GALAGEN to pay Annual Rent. GALAGEN understands
that LOL will not accept a partial payment of Annual Rent. This Section may be
amended in writing, signed by both parties if the parties agree to increase or
to decrease the square footage of the LEASED PREMISES. The amount of Annual
Rent or other rent for the services provided by LOL hereunder shall be reviewed
and adjusted annually by mutual agreement of the parties.
5. QUIET ENJOYMENT. Subject to GALAGEN's performance of all of its
obligations under this Lease, GALAGEN shall have the peaceful and quiet use
of the LEASED PREMISES for the permitted use set forth in Section 2, without
hindrance on the part of LOL. GALAGEN and LOL each covenant to the other
that it will not operate in a manner that will interfere with the operations
of the other party in the BUILDING or the LEASED PREMISES, as the case may
be. LOL agrees it will not make any changes to its operations in the BUILDING
or make any material alterations to the BUILDING or the LEASED PREMISES that
would have a material adverse impact on GALAGEN's operations in the LEASED
PREMISES for the permitted use. Except for emergency repairs and boiler
maintenance, LOL agrees to provide GALAGEN with thirty (30) days' prior
notice of any maintenance, repairs or alterations to the BUILDING which could
result in the interruption of its business to the LEASED PREMISES. LOL shall
use reasonable efforts to give thirty (30) days notice that maintenance to
the boiler will occur within a two (2) week time period. If emergency
repairs are required to the LEASED PREMISES, LOL shall not be required to
give notice.
6. UTILITIES AND TAXES. GALAGEN, at its sole cost, shall have separate
submeters installed for the following utility services furnished by LOL to the
storage area, pilot plant area and mezzanine area of the LEASED PREMISES:
water and electricity. LOL shall read the submeters at such times to coincide
with the billing periods as determined by LOL's utility suppliers and invoice
GALAGEN based upon GALAGEN's percentage use of LOL's total water and electricity
usage for the BUILDING for the same billing period. Sewer charges shall be paid
by GALAGEN as provided in Section 20. The price per unit of utility supplied
used to invoice GALAGEN shall be the same price per unit of utility supplied
that LOL is charged by the respective utility. During the Term, GALAGEN shall
also pay all taxes and governmental charges on any property of GALAGEN brought
in or on the LEASED PREMISES, sales and other excise taxes on products thereof,
and any taxes levied on or with respect to income or profits from the LEASED
PREMISES earned during the Term. GALAGEN shall be responsible for any increase
in real estate taxes and special assessments for the BUILDING which results from
the creation of
Page 2
<PAGE>
improvements or alterations made by GALAGEN. Except as otherwise provided in
this Section 6, LOL agrees to pay all real estate taxes and special assessments
levied against the BUILDING. LOL and GALAGEN shall cooperate with each other
with respect to any contest of real estate taxes.
7. REPAIRS AND MAINTENANCE. Except as otherwise provided herein, LOL shall
keep and maintain the BUILDING and the structural portions of the LEASED
PREMISES (including without limitation, the roof, the slab floor, and the
structural walls) in good order, condition and repair. GALAGEN shall keep and
maintain the LEASED PREMISES in good order, condition and repair. Any damage
done to the BUILDING by GALAGEN's improvements to the LEASED PREMISES,
equipment, installations or operations shall be repaired by GALAGEN at GALAGEN's
sole cost and with LOL's prior written approval. If GALAGEN fails to maintain
the LEASED PREMISES as provided herein, LOL shall have the right, but not the
obligation, after notice and opportunity for GALAGEN to cure, to perform such
maintenance as is required of GALAGEN in which event GALAGEN shall promptly
reimburse LOL for its costs in providing such maintenance or repairs.
8. A. INDEMNITY BY GALAGEN. Except for the gross negligence or willful actions
of LOL or its employees, GALAGEN shall indemnify and hold harmless LOL from and
against every demand, claim, cause of action, judgment and expense, and all loss
and damage arising from:
a) any injury or damage to the person or property of GALAGEN or LOL, any
other tenant in the BUILDING or to any other person in the BUILDING, where
the injury or damage is caused by the negligence or misconduct of GALAGEN,
its agents, servants or employees, or of any other person entering on the
LEASED PREMISES or the BUILDING under express or implied invitation of
GALAGEN, or results from the violation of laws or ordinances, governmental
orders of any kind or of the provisions of this Lease by any of the
foregoing,
b) any loss or damage, however caused, to equipment, fixtures, improvements
or property of GALAGEN in or about the BUILDING,
c) any loss or damage resulting from an interference with GALAGEN's
business, and
d) any injury or damage not specified above to the person or property of
GALAGEN, its agents, servants or employees, or any other person entering on
the BUILDING under express or implied invitation of GALAGEN, where the
injury or damage is caused by any reason.
If LOL or its employees or agents shall, without fault on their part, be
made a party to any litigation commenced by or against GALAGEN, then
GALAGEN shall indemnify and hold LOL, it employees or agents harmless and
shall pay all costs, expenses and reasonable attorney's fees incurred or
paid in connection with such litigation. This indemnity by GALAGEN shall
survive the expiration or early termination of this LEASE.
8. B. INDEMNITY BY LOL. Except for the gross negligence or willful actions of
GALAGEN or its employees, LOL shall indemnify and hold harmless GALAGEN from
and against every
Page 3
<PAGE>
demand, claim, cause of action, judgment and expense and all loss or damage
arising from the gross negligence or willful actions of LOL or its
employees.
9. INSURANCE BY GALAGEN. During the Term, GALAGEN, shall at its expense carry
and maintain and cause its contractors to maintain in full force and effect:
A. General public liability insurance against the claims for personal
injury, death or property damage occurring in or about the LEASED
PREMISES or resulting from the installation, operation or maintenance
of GALAGEN's business on the LEASED PREMISES, such insurance to be in
the amount of at least $1,000,000.00 for all personal injuries and
deaths resulting from any one accident and $1,000,000.00 for property
damage in any one accident.
B. A Standard Worker's Compensation and Employer's Liability Insurance
Policy in the amount equal to the limit of liability and in a form
prescribed by the laws of the State of Minnesota.
C. "All-Risk" property damage for the LEASED PREMISES (including any
improvements in the amounts of the full replacement values thereof.
10. WAIVER OF SUBROGATION. Each party hereto agrees to obtain from all
insurers providing property insurance, a waiver of all rights of subrogation
against the other party. Failure of a party to obtain such waiver of
subrogation shall be a default hereunder, giving the other party all rights and
remedies available on default. In addition, if either party fails to obtain
such waiver of subrogation, the other party's insurer shall not be bound by its
waiver of subrogation. Each party, on the other party's request, will provide
evidence of this waiver of subrogation. Notwithstanding anything to the
contrary in the Lease, LOL and GALAGEN hereby release one another and their
respective partners, officers and employees from any and all liability (to the
other or anyone claiming through or under them by way of subrogation or
otherwise) for any loss or damage covered by property insurance or coverable by
a customary "all risk" policy of property damage, even if such loss or damage
shall have been caused by the fault or negligence of the other party, or anyone
for whom such party may be responsible.
11. NOTICES. All notices shall be in writing and delivered by hand delivery to
be personally received by the party at its address set forth below or its
appropriate designee, or to such other address as such party may hereafter
designate by written notice to the other party.
If to LAND O'LAKES, INC., to: If to GALAGEN, to:
LAND O'LAKES, INC. GALAGEN, INC.
Attn: Mike Gabriel Attn: Mike Cady
P O Box 116 P O Box 116
Minneapolis MN 55440-0116 Minneapolis MN 55440-0116
Page 4
<PAGE>
All such notices shall be considered effective on receipt.
12. ALTERATIONS. GALAGEN shall make no alteration, additions or improvements
to the LEASED PREMISES without LOL's prior written consent. All such approved
alterations are to be done at the sole cost and risk of GALAGEN and shall be
designed consistent with the BUILDING's current systems and services. All such
approved alterations shall be done in a manner to minimize any interruption of
LOL's business in the BUILDING to the greatest extent reasonable. Any damage to
the BUILDING by such approved alterations shall be immediately reported to LOL
and GALAGEN shall pay any and all costs to repair such damage within thirty (30)
days after its receipt of an invoice. Any additions or improvements to the
LEASED PREMISES made by GALAGEN during the Term shall become part of the
LEASED PREMISES and the property of LOL at the expiration or termination of this
Lease, except that GALAGEN shall have the right to remove all personal property,
equipment and trade fixtures, including without limitation, the water purifier
from the LEASED PREMISES. GALAGEN shall not be obligated to prepare the LEASED
PREMISES for the next occupant thereof provided, however, the LEASED PREMISES
shall be surrendered to LOL in the condition in which GALAGEN is required to
maintain the LEASED PREMISES as set forth in Section 7.
13. RIGHT OF ACCESS. GALAGEN shall have unrestricted access to the LEASED
PREMISES and BUILDING and common areas reasonably necessary to access the LEASED
PREMISES. With GALAGEN's verbal consent, LOL shall have the right to enter into
and on the LEASED PREMISES during the Term for the purpose of examining the same
for repairs or maintenance necessary for the safety and preservation thereof
(except that no notice shall be required in case of emergencies). When making
repairs, LOL shall take all necessary actions to protect GALAGEN's property and
personnel from loss, damage and injury and to avoid disrupting GALAGEN's use and
occupancy of the LEASED PREMISES.
14. GALAGEN DEFAULT. GALAGEN shall be considered in default of this Lease
("GALAGEN Default") if (1) GALAGEN fails to pay Annual Rent or other rent when
due; or (2) GALAGEN fails to perform any of its other obligations under this
Lease within thirty (30) days after receiving notice from LOL specifying the
nature and extent of the GALAGEN Default. If a GALAGEN Default has occurred,
LOL may: (1) end this Lease after giving GALAGEN thirty (30) days written notice
of its intention to do so and in accordance with any laws governing such
termination, and GALAGEN shall then surrender the LEASED PREMISES to LOL; or (2)
LOL may enter and take possession of the LEASED PREMISES, in accordance with any
laws governing such repossession, and remove GALAGEN, with or without having
terminated the Lease. LOL's exercise of any of its remedies or its receipt of
GALAGEN's keys shall not be considered an acceptance or surrender of the LEASED
PREMISES by GALAGEN. A surrender must be agreed to in writing and signed by
both parties. GALAGEN shall be liable for and shall pay to LOL within thirty
(30) days of receiving LOL's invoice, all reasonable attorneys' fees and other
direct costs of expenses of LOL actually incurred by LOL as a result of a
GALAGEN Default.
15. GOVERNING LAW. This Lease, and the rights and obligations of the
parties hereto, shall be construed and enforced in accordance with the laws
of the state of Minnesota.
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<PAGE>
16. AMENDMENTS TO LEASE. This Lease may not be effectively amended, changed,
modified, or altered without the written consent of both parties hereto.
17. BINDING ON SUCCESSORS. This Lease shall be binding on the heirs,
representatives, successors, and assigns of the parties hereto.
18. PREVAILING PARTY FEES. In the event either party institutes any legal
action to enforce the terms of this Lease, the prevailing party shall be
entitled to reimbursement of all costs incurred in connection with such action,
including without limitation reasonable attorneys' fees.
19. CONFIDENTIALITY. Each party acknowledges that it may become aware of, or
come into possession of, the other party's Confidential Information (as defined
herein). The Confidential Information shall be retained in secret; shall not be
utilized in competition with the other party or the other party's successors or
assigns; and shall not be disclosed to any third party without the other party's
prior written consent. Confidential Information shall be defined as all
information observed by each party in the LEASED PREMISES and the BUILDING
including, without limitation, equipment design, all formulas, processing
information, research and development information, product concepts, financial
information, marketing and business plans and strategies, the identity of any of
LOL's or GALAGEN's third party customers and the like. The obligations of this
Section shall survive the termination of this Lease.
20. LEASED PREMISES EXPENSES. Notwithstanding anything contained herein to
the contrary, any reasonable out-of-pocket costs incurred by LOL as a result of
GALAGEN's occupancy of the LEASED PREMISES and not included in Annual Rent shall
be reimbursed by GALAGEN within thirty (30) days after its receipt of an invoice
from LOL. If possible, LOL, using reasonable efforts, shall provide GALAGEN
with an opportunity to review costs prior to LOL incurring such costs.
The parties hereto have duly executed this Lease effective as of the date and
year first above written.
LAND O'LAKES, INC. GALAGEN INC.
- ------------------------- -------------------------
By: /s/ DAVID HETTINGA By: /s/ ROBERT A. HOERR
-------------------- --------------------
Its: VICE PRESIDENT Its: PRESIDENT, CEO
-------------------- --------------------
Page 6
<PAGE>
GalaGen Inc. (A Development Stage Company)
Exhibit 11.1---Statement Re: Computation of Earnings Per Share (unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary Loss Per Share:
Average shares outstanding 7,129,263 1,888,815 6,105,442 1,888,710
SAB No. 83 shares - for stock
options granted at exercise
prices less than the initial
public offering price during
the 12 months preceding the
initial public offering using
the treasury method - 133,042 - 133,042
------------------------------------------------------------
Total 7,129,263 2,021,857 6,105,442 2,021,752
------------------------------------------------------------
------------------------------------------------------------
Net loss applicable to common
shareholders $(9,234,159) $(1,527,491) $(10,705,392) $(3,082,451)
------------------------------------------------------------
------------------------------------------------------------
Net loss per share applicable
to common shareholders $(1.30) $(.76) $(1.75) $(1.52)
------------------------------------------------------------
------------------------------------------------------------
Fully Diluted Loss Per Share:
Average shares outstanding 7,129,263 1,888,815 6,105,442 1,888,710
SAB No. 83 shares - for stock
options granted at exercise prices
less than the initial public
offering price during the 12
months preceding the initial
public offering using the
treasury method - 133,042 - 133,042
Assumed conversion of all series of
convertible preferred stock - 2,571,936 - 2,595,074
------------------------------------------------------------
Total 7,129,263 4,593,793 6,105,442 4,616,826
------------------------------------------------------------
------------------------------------------------------------
Net loss applicable to common
shareholders $(9,234,159) $(1,527,491) $(10,705,392) $(3,082,451)
------------------------------------------------------------
------------------------------------------------------------
Net loss per share applicable $(1.30) $(.33) $(1.75) $(.67)
to common shareholders
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PERIOD END
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000889872
<NAME> GALAGEN, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,075,598
<SECURITIES> 6,460,894
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,567,351
<PP&E> 379,993
<DEPRECIATION> (169,811)
<TOTAL-ASSETS> 15,777,533
<CURRENT-LIABILITIES> 667,021
<BONDS> 0
0
0
<COMMON> 71,294
<OTHER-SE> (1,025,938)
<TOTAL-LIABILITY-AND-EQUITY> 15,777,533
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,698,391
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 918,102
<INCOME-PRETAX> (3,408,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,408,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,705,392)
<EPS-PRIMARY> (1.75)
<EPS-DILUTED> (1.75)
</TABLE>
