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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended DECEMBER 31, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from __________ to _____________
Commission file number 0-20988
ANTEX BIOLOGICS INC.
(Name of small business issuer in its charter)
DELAWARE 52-1563899
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 PROFESSIONAL DRIVE, GAITHERSBURG, MARYLAND 20879
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (301) 590-0129
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes (X)
No ( )
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
Issuer's revenues for the fiscal year ended December 31, 1998 were
$4,507,029.
As of FEBRUARY 26, 1999, the aggregate market value of the voting stock
held by non-affiliates of the Issuer based upon the average bid and asked prices
of such stock on that date was $14,585,606.
At FEBRUARY 26, 1999, there were 25,863,726 shares of Common Stock of the
Issuer outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information with respect to Directors and Officers, Executive
Compensation, and Security Ownership of Certain Beneficial Owners and Management
will be contained in the Company's Proxy Statement for the 1999 Annual Meeting
of Stockholders and is incorporated by reference in Part III hereof.
Transitional Small Business Disclosure Format Yes ( ) No (X)
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TABLE OF CONTENTS
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Item Page
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PART I
1. Description of Business 4
2. Description of Property 22
3. Legal Proceedings 22
4. Submission of Matters to a Vote of Security Holders 22
PART II
5. Market for Common Equity and Related Stockholder Matters 23
6. Management's Discussion and Analysis of Financial Condition and
Results of Operations 24
7. Financial Statements 28
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 48
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 48
10. Executive Compensation 48
11. Security Ownership of Certain Beneficial Owners and
Management 48
12. Certain Relationships and Related Transactions 48
PART IV
13. Exhibits and Reports on Form 8-K 48
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This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For
this purpose, any statements contained herein that are not statements of
historical fact, including without limitation, the statements under "Item 1.
Description of Business" and "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere herein regarding
the Company's business, prospects, competition, results of operations or
financial position, may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes", "anticipates", "plans", "expects",
and similar expressions are intended to identify forward-looking statements.
Such forward-looking
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statements, which represent management's current expectations, are inherently
uncertain. A number of important factors, including those discussed below under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations", could cause actual results to differ materially from
those indicated by forward-looking statements made herein and presented
elsewhere by management from time to time. These factors include, but are not
limited to: (i) the Company's ability to fund its future operations, (ii) the
Company's ability to successfully complete product research and development,
including preclinical and clinical studies and commercialization; (iii) the
Company's ability to obtain required governmental approvals; (iv) the Company's
ability to attract and/or maintain manufacturing, sales, distribution and
marketing partners; and (v) the Company's ability to develop and commercialize
its products before its competitors. Investors are warned that actual results
may differ from management's expectations.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
DEVELOPMENT OF BUSINESS
Antex Biologics Inc., together with MicroCarb Human Vaccines, Inc.
("MCHV"), which is a joint venture with SmithKline Beecham Corporation and
SmithKline Beecham Biologicals Manufacturing s.a. (collectively, "SmithKline"),
and Antex Pharma Inc ("AntexPharma"), a wholly-owned subsidiary (hereinafter
referred to collectively as "Antex" or the "Company") is a biopharmaceutical
company committed to improving human health by developing new products to
prevent and treat infectious diseases and related disorders. The Company
concentrates its efforts in the development of products for mucosal infections,
particularly respiratory, gastrointestinal and urogenital bacterial diseases,
and nosocomial (hospital-acquired) infections. At its inception, the Company was
focused on identifying and researching carbohydrates and lipids as host
receptors that were recognized by bacteria, and the particular bacterial adhesin
proteins that bound these receptors. The methods developed and the tools
identified through this research were the foundation of the Company's
proprietary platform technology, ART (TM) (Adhesin-Receptor Technology). Later,
Antex scientists discovered that adding components identified in mucus and other
natural environmental signals to laboratory cultures effected certain changes in
laboratory grown bacteria. Methods were developed to analyze virulence
properties of many bacteria, and critical environmental signals that affected
the virulence expression in these bacteria were determined. This research led to
the development of the Company's second platform technology called NST (TM)
(Nutriment Signal Transduction). The first products developed through these
technologies were vaccines for bacterial infections. These technologies also
provide the tools and reagents used by Antex Pharma, which was formed in 1998,
to discover and develop novel therapeutics to treat infectious diseases and
related disorders.
BUSINESS
TECHNOLOGY OVERVIEW
General
Carbohydrates and lipids have a variety of functions within the human or
animal (collectively "mammalian") body. They serve as receptors of natural
chemical signals such as hormones and neurotransmittors, as reservoirs of
nutritional energy; others function in cell to cell adhesion and communication;
and some lipids make up the architecture of the plasma membranes of individual
mammalian cells. These particular cell membrane lipids were once thought to
function only to maintain the shape and integrity of cells and to serve as a
barrier between extracellular and intracellular environments. However,
discoveries by the Company's scientists and collaborators have revealed that
certain carbohydrates and lipids (i.e., glycolipids and phospholipids) within
mammalian ("host") cells play a major role in the pathogenesis of infection by
serving as receptors for bacterial attachment and as nutrients for growth of
bacteria.
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ART(TM) (Adhesin-Receptor Technology)
Generally, the first step in the process of microbial infection is the
attachment of microbes to the surface of host cells through a binding process
known as adhesion. The Company has developed a proprietary platform technology,
ART, to study the precise molecular events that underlie microbial adhesion to
host cell receptors. Much like a lock and key, adhesins (the "key"), which are
surface proteins on the outer membrane or cell wall of microbes recognize only
particular molecular conformations and bind to specific, complementary receptors
(the "lock") on the host cell surface. The Company believes that certain
microbial adhesins may be critical elements in providing a microbe access to the
host cell by attaching to the corresponding protein, carbohydrate or lipid
receptor, thereby facilitating the colonization (i.e., growth) and subsequent
infection of the microbes. The tools and reagents of ART technology are used by
the Company to develop products that interfere with the interactions of
bacterial attachment. These products include vaccines, particularly subunit
adhesin vaccines, novel therapeutics including receptor-antibiotic conjugate
drugs and soluble receptors, and diagnostics.
To date, using ART the Company's scientists have identified the molecular
structure of host cell receptors for more than 60 microbes or microbial toxins.
Once the receptor is identified, the Company then uses it as a tool to identify
and purify the corresponding microbial adhesin. Sufficient quantities of the
adhesins are produced for preclinical and clinical testing either by isolating
the "native" protein from the original microbe or by producing a "recombinant"
protein in another microbe.
One means of preventing disease and death from infectious microbes has
been immunization by vaccination. Immunization is the act of inducing immunity
by active or passive means. Antigens are substances of foreign agents such as
microbes which signal to the immune system the presence of those particular
agents. Natural immunity occurs when the mammalian immune system identifies
these antigens as foreign agents and initiates an immune response resulting in
the production of antibodies, specific proteins that recognize and react with
the particular antigen. The presence of the particular antigen on the surface of
the foreign agent elicits the corresponding antibody to bind to that foreign
agent but not to others. These antibodies are generally effective in
neutralizing foreign cells. Immunity can be induced by administering a microbial
antigen to a human or animal, in the form of a vaccine, to stimulate the immune
system to produce antibodies and create immunological memory. The presence of
these antibodies provide protection against a potential infection. This process
is referred to as "active immunization." However, in some cases, the immune
system on its own may not produce the antibodies in sufficient quantity to
eliminate the undesirable agents or may not have been induced prior to the
infection. In such instances, it may be possible to provide immunity by
injecting antibodies directly (rather than inducing their production) that have
been produced in another host, either naturally or through vaccination. This
process is referred to as "passive immunization."
One of the most difficult problems inherent in vaccine development is
that microbes of the same species often exhibit strain-to-strain diversity with
respect to the types of antigens on their surfaces. With such diversity in the
composition of microbes of the same species, the effect of some vaccines
targeted to a single strain of the microbe may be limited. The Company believes
its
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proprietary ART may aid in circumventing the problems posed by strain diversity
and antigen variations within strains. The Company has discovered that some
adhesins that occur on the outer membrane or cell wall of certain species of
microbes are the same throughout various strains within a given species. In
effect, the adhesions are "conserved". Based on data from preclinical animal
models, the Company believes that vaccines aimed at stimulating the production
of antibodies against these highly conserved proteins (adhesins) should be
effective in providing immunity to a wide variety of strains of a given species.
Further, the Company believes that both the microbial adhesins and their
corresponding host cell receptors present novel targets and vehicles for the
design of new therapeutics to treat microbial infections. The Company has
developed novel conjugates of known antibiotics with host cell receptors. In
addition, novel analogs of the adhesins and receptors can be developed to
interfere with the initial step in microbial infections.
NST(TM) (Nutriment Signal Transduction)
The behavior of a microbe during entry and invasion of the host is a
balancing act between the microbe and the host. Pathogenic microbes require a
specific environment and nutrients to survive, reproduce, and cause infection.
The mucosal surface, where more than ninety (90) percent of infections start,
serves as a barrier to infections, but it can also serve as an environment for
bacteria to survive and grow. Antex scientists found that certain microbes use
substances found in the mucus as nutriment sources. This led to the development
of methodology to examine bacterial virulence properties and the discovery of
particular factors present in the host environment that were necessary for
microbes to be pathogenic. NST is the regulation of bacterial growth and/or
pathogenicity (virulence) by important physiological nutriments. Physiological
nutriments include natural chemicals and other environmental conditions, such as
temperature and oxygen content, that a bacteria normally encounters in the body.
By identifying the particular chemicals and conditions in the host that
transduce a bacteria and enhance the expression of virulence properties, Antex
can duplicate in the laboratory the specific environment found in the body
(host). NST is used to produce more clinically relevant microbes. Antex has
shown that NST grown bacteria express antigens and other virulence factors that
more closely resemble those seen within the body; these antigens/virulence
factors may not be expressed in bacteria grown using traditional laboratory
conditions. Therefore, these expressed antigens or antigenically enhanced
microbes should result in more potent and better targeted vaccines for inducing
immunity against an infectious agent.
Moreover, Antex has discovered that the in vitro antibiotic sensitivity
of these "upregulated" NST-bacteria may be more similar to that of bacteria
within an infected host than conventionally grown bacteria. Because the profile
of antibiotic susceptibility or resistance of NST-bacteria may be more closely
related to the in vivo sensitivity of bacteria, the identification of novel
antibiotics should be facilitated through the use of NST grown bacteria. Antex
has discovered that some of the newly expressed virulence factors of
NST-bacteria are metabolic proteins which may be novel targets for drug
discovery and development of novel antibacterial compounds. Therefore, NST also
provides a platform to investigate and develop novel substances to down
regulate, potentiate or
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modify the growth and/or virulence of pathogenic bacteria or kill virulent
bacteria.
PRODUCT AREAS OF RESEARCH AND DEVELOPMENT
The Company is currently conducting research and development activities
with respect to various pharmaceutical products including vaccines and
therapeutics which are based on its ART and NST technologies.
ENTERIC DISORDERS
Peptic Ulcers and Stomach Cancers
Discovered in 1983, Helicobacter ("H.") pylori is now recognized as the
predominant cause of ulcers. Scientists estimate that this spiral-shaped
bacterium leads to 90 percent of duodenal ulcers and 80 percent of gastric
ulcers. This organism is present in all parts of the world. The prevalence of
infection increases with age, with greater than 90 percent of people by age 20
in developing countries and 50-60 percent of people over 60 in developed
countries infected with this bacteria. The Centers for Disease Control and
Prevention ("CDC") estimates that two-thirds of the world's population is
infected with H. pylori, including about 25 million Americans. More recently,
this bacteria has been associated with stomach cancer and has been classified by
the World Health Organization ("WHO") as a Class 1 carcinogen. No single agent
therapy has been found to wipe out this infection, and antibiotic resistance is
increasing.
The Company is engaged in ongoing efforts aimed at developing a vaccine
for H. pylori. Using NST technology, the Company has produced H. pylori bacteria
that are antigenically enhanced when compared to conventionally grown H. pylori.
These cells have been inactivated (killed) and combined with a proprietary
mucosal adjuvant for use as a vaccine. The Company has shown in preclinical
animal models that the H. pylori vaccine is well tolerated and generates both
mucosal and systemic immune responses. The animal studies showed that the
vaccine works both prophylactically and therapeutically; it prevented infection
from H. pylori and cleared H. pylori in previously infected animals.
A clinical trial under a U.S. Food and Drug Administration ("FDA")
Investigational New Drug Application ("IND") was successfully completed in
January 1999. This randomized double-blinded Phase I clinical trial was
conducted to assess the safety and immunogenicity of this H. pylori vaccine
preparation in volunteers with and without subclinical gastric infection. The
orally administered vaccine was generally well tolerated and caused no serious
adverse events and did not exacerbate the H. pylori infection in the
asymptomatic volunteers. Some individuals experienced self-limiting mild
gastrointestinal disturbances only after the initial vaccination. The vaccine
generated an immune response to H. pylori in both uninfected and asymptomatic H.
pylori infected individuals.
Helicobacter-specific serum IgG and IgA antibody responses were seen
following vaccination. Moreover, fecal and salivary IgA antibody responses were
significantly increased in the vaccinated groups compared to volunteers
receiving either the HWC alone, the adjuvant alone or the placebo,
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evidencing that the vaccine induced both systemic and mucosal immune responses.
Additionally, the vaccine induced the generation of Helicobacter -specific
antibody secreting cells within the gastric antrum and intestinal duodenum, the
site of Helicobacter infections. Additional clinical studies are planned to
establish the appropriate dosing regimen, evaluate other formulations and assess
initial effectiveness trials
In addition, Company scientists and collaborators have identified host
cell receptors and have purified adhesins from H. pylori. The Company has cloned
the genes, produced the recombinant proteins and produced quantities of the
adhesins for preclinical animal testing. Further, the Company is evaluating
other surface proteins and acellular antigens as potential vaccine candidates.
Further development and commercialization of this potential vaccine product for
use in humans is in collaboration with SmithKline through MCHV. The Company may
enter into other collaborations regarding these and other potential products for
uses other than as human vaccines. See "Strategy for Commercial Development."
Diarrheal and Contaminated Food and Water Disorders
Currently, in the U.S. the leading cause of contaminated food-borne
illness, including severe diarrhea and gastritis, is Campylobacter jejuni
("Campylobacter"). The CDC reports that four million Campylobacter infections
occur in the U.S. each year. International public health officials estimate that
Campylobacter annually causes 400 to 500 million cases of diarrhea worldwide.
Seemingly mild, diarrheal diseases are responsible for 200 to 800 deaths a year
in the U.S. and more in other countries. Using NST technology, the Company has
produced Campylobacter bacteria that are antigenically enhanced compared to
conventionally grown Campylobacter.
In 1994, the Company entered into a Cooperative Research and Development
Agreement ("CRADA") with the United States Navy to clinically test the Company's
vaccine to prevent diarrhea caused by enteropathogenic Campylobacter (See
"Strategy for Commercial Development."). Two successful Phase I clinical trials
have been completed and a Phase II trial is being completed. The first trial
completed was a Phase I clinical study which demonstrated the safety and
immunogenicity of the inactivated Campylobacter whole cell vaccine preparation.
The second Phase I clinical study demonstrated the safety and immunogenicity of
a vaccine preparation consisting of the inactivated Campylobacter whole cells in
combination with a mucosal adjuvant.
The Phase II trial was a double-blinded, placebo-controlled challenge
study and evaluated the clinical and immunological outcomes of the oral vaccine
in healthy adult volunteers against experimental infection with Campylobacter.
The sequence of clinical and microbiological events associated with
Campylobacter infections was characterized and correlated with immune response
patterns in vaccinated, previously infected and non-infected volunteers.
The clinical results of this Phase II trial with respect to safety were
similar to the Phase I studies, in that there were no serious adverse events
related to vaccination. As anticipated, some of the volunteers (approximately
25%) experienced a mild gastrointestinal reaction (3 or more loose stools) in
the one to two days following the first oral vaccination. This mild reaction did
not cause any complications for the volunteers and did not impact on their
normal daily activities. Possible
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modifications of the vaccine formulation will be addressed in the future trials.
The preliminary results of this Phase II trial also confirmed the Phase I
clinical studies with respect to the immunogenicity of the vaccine. Like live
infection, the vaccine induced Campylobacter-specific humoral and cellular
immune responses in the majority of the recipients. The trial demonstrated that
the vaccine was safe, immunogenic and elicited intestinal and systemic immune
responses associated with protection against disease. This trial also
identified, for the first time, two immune correlates of protection that will be
used to evaluate vaccine effectiveness in follow-on studies.
Shigella is another leading cause of diarrheal disease worldwide with
over 1 billion cases reported worldwide. Infection is most common in children 1
to 4 years old. There is no vaccine available. NST is being used to produce
antigenically enhanced Shigella. Preclinical testing of a Shigella vaccine is
encouraging and indicates that an inactivated vaccine may provide efficacy
against this diarrheal disease.
Further development and commercialization of these potential vaccine
products for use in humans is in collaboration with SmithKline through MCHV. The
Company may enter into other collaborations regarding these and other potential
products for uses other than as human vaccines. See "Strategy for Commercial
Development."
RESPIRATORY DISEASES
Otitis Media
Middle ear infections, known as otitis media, are the most frequent
reason children visit doctors, and the most common cause of hearing loss in
children. Eighty percent of all children will have at least one episode of
otitis media and over $2 billion is spent annually for the care of otitis media
in the U.S. Otitis media is caused primarily by bacterial infections. Two of
these bacteria are Haemophilus ("H.") influenzae (nontypeable) and Moraxella
("M.") catarrhalis. The current treatment of choice for otitis media is
antibiotic therapy. However, because of the increase in the incidence of
antibiotic resistant strains of these bacteria and the costs associated with the
treatment of this disease, the Company believes that an otitis media vaccine
would be a preferable alternative for addressing this disease.
The Pittsburgh Otitis Media Research Center estimates that H. influenzae
nontypeable is present in over 25% of otitis media infections. The Company has
identified an adhesin, Hin47, of H. influenzae and has successfully cloned the
gene for production of the recombinant adhesin. This adhesin is extremely
conserved in H. influenzae. The recombinant form of the adhesin has been shown
in animal studies to elicit an immune response.
In 1994, the Company entered into a license agreement with Pasteur
Merieux Connaught ("PMC"), a wholly-owned subsidiary of Rhone Poulenc Rorer,
under which the Company granted to PMC an exclusive worldwide, other than the
Asia-Pacific region, license to develop, manufacture
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and sell one or more vaccines based on the Company's proprietary H. influenzae
Hin47 protein. PMC is evaluating this vaccine in human clinical studies and has
completed Phase I studies that showed the vaccine to be safe and to generate an
immune response in healthy adults adolescents and infants. See "Strategy for
Commercial Development". The Company continues to collaborate with PMC in
evaluation of this technology and has received three milestone payments
according to the agreement.
In addition, the Company continues to identify other novel proteins from
H. influenzae using both NST and ART technologies. The Company has also
identified novel outer membrane proteins from M. catarrhalis. The Company is
producing two proprietary outer membrane proteins for potential subunit
vaccines, which are at the preclinical development stage. The Company has
produced one lot of two subunit proteins under FDA Good Manufacturing Practices.
The H. influenzae Hin47 vaccine preparation for use in humans, in the
territory of Asia-Pacific, and the M. catarrhalis vaccine preparations for use
in humans have been licensed to SmithKline through MCHV for further development
and possible commercialization. The Company may enter into other collaborations
regarding the Moraxella catarrhalis proteins and other potential products for
uses other than as human vaccines. See "Strategy for Commercial Development."
Pneumonia and Meningitis
Pneumonia is the fifth leading cause of death in the U.S., with
approximately 2.5 million cases occurring in the U.S. annually. H. influenzae
nontypeable and M. catarrhalis are causative agents for acute pneumonia in
adults, particularly the elderly. The Company believes that the technology
utilized to develop vaccines for H. influenzae nontypeable and M. catarrhalis
described in "Respiratory Diseases - Otitis Media" above may have application
against acute pneumonia.
Bacterial meningitis is a rapidly evolving upper respiratory tract
infection where onset of early symptoms is very fast (0 to 4 days) and
complications can be serious, including brain damage and a high incidence of
death (greater than 15% even with antibiotic therapy). Three of the most common
infectious agents include H. influenzae (Type B and nontypeable), M. catarrhalis
and Neisseria ("N.") meningitidis. N. meningitidis is a respiratory pathogen
that causes invasive meningococcal infections primarily in children younger than
5 years of age and travelers to countries recognized to have epidemic disease.
The only vaccine currently available is one comprising bacterial capsular
polysaccharides which have been shown to cross-react with neural cells,
potentially causing severe side effects. The Company is using both ART and NST
to identify novel adhesins or other surface proteins to develop a subunit
vaccine that may avoid the drawbacks of the vaccine currently being used.
These potential vaccine products for use in humans have been licensed to
SmithKline through MCHV for further development and possible commercialization.
The Company may enter into other collaborations regarding these and other
potential products for uses other than as human vaccines. See "Strategy for
Commercial Development."
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UROGENITAL DISEASES
In the U.S., almost 12 million cases of sexually transmitted urogenital
diseases occur annually. By age 21, approximately one out of every five young
people has required treatment for a sexually transmitted disease. The most
prevalent sexually transmitted diseases in the world are caused by a bacteria
called Chlamydia ("C.") trachomatis. Millions of people suffer from cervicitis,
pelvic inflammatory disease, sterility, ectopic pregnancies and symptomatic
urethritis caused by C. trachomatis. In the U.S. during 1995, 477,638 new cases
were reported to the CDC, more than any other infectious disease. The CDC
estimates there are more than 3.5 million additional cases undiagnosed and
unreported in the U.S. each year.
Globally, the World Health Organization ("WHO") estimates 89 million new
cases of urogenital diseases caused by C. trachomatis emerge each year. Because
C. trachomatis also causes trachoma, the world's most common form of preventable
blindness, the WHO estimates Chlamydia is responsible for at least 15 percent of
the world's blindness.
The Company believes that through its proprietary ART it is possible that
an effective anti-Chlamydial vaccine could be developed. The Company has
identified and purified an outer membrane protein from C. trachomatis and has
cloned the protein's gene. The Company has shown in a preclinical animal model
that the subunit vaccine generated an immune response. The experiments gave
evidence that the vaccine may protect animals from infertility caused by
Chlamydial infections. In November 1998, the Company successfully completed a
Phase II Small Business Innovation Research grant ("SBIR") from the National
Institutes of Health ("NIH").
Further development and commercialization of this potential vaccine
product for use in humans is in collaboration with SmithKline through MCHV. The
Company may enter into other collaborations regarding these and other potential
products for uses other than as human vaccines. See "Strategy for Commercial
Development."
NOSOCOMIAL INFECTIONS
Some bacteria causing various infectious diseases are resistant to
multiple antibiotics and the number of antibiotic-resistant bacteria is
continuing to increase. Resistant infections confront and thwart the treatment
of some patients in the community as well as in the hospital. Major resistant
hospital pathogens include Staphylococcus aureus, Streptococcus, Enterococci,
Pseudomonas, Mycobacteria and Enterobacter including Escherichia coli and
Klebsiella. The economic and human costs of antibiotic resistance continue to
rise. Mortality and hospital length of stay are at least doubled for resistant
strains of some pathogens.
Staphylococci are one of the most common causes of community- and
hospital- acquired infection. The most common treatments are antibiotics such as
methicillin and more recently vancomycin. Resistance to methicillin ("MRS") is
common. In fact, in many U.S. hospitals, strains of staphylococci are resistant
to all available antimicrobials except vancomycin. Recently, there have been
reported cases of reduced susceptibility to vancomycin. The occurrence of fully
vancomycin-resistant staphylococcal infections in a hospital could result in a
serious public health
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problem.
Streptococci and Enterococci are comprised of four groups of organisms,
some of which are normally harmless and some which are severely pathogenic. Two
of the most severe forms of invasive Streptococci are necrotizing fascitis and
the rapidly progressing streptococcal toxic shock syndrome. Since 1989, a rapid
increase in the incidence of infection and colonization with
vancomycin-resistant Enterococci ("VRE") has been reported from U.S. hospitals.
This increase poses several problems, including the lack of available
antimicrobials for treating infections caused by VRE, because most VRE are also
resistant to multiple drug therapy previously used for the treatment of
infections due to these organisms, and the possibility that the vancomycin
resistance genes present in VRE may be transferred to other microorganisms such
as Staphylococcus aureus.
From 1989 through 1993, the percentage of nosocomial enterococcal
infections reported to the CDC National Nosocomial Infections Surveillance
System that were caused by VRE increased from 0.3% to 7.9%. The increase was due
mainly to the 34-fold rise (0.4% to 13.6%) of VRE infections in intensive-care
unit patients. The actual increase in the incidence of VRE in U.S. hospitals may
be larger than reported because many clinical laboratories cannot consistently
detect vancomycin resistance.
DRUG DISCOVERY
The Company believes that the anti-infective market presents an
attractive opportunity to leverage its two proprietary platform technologies --
ART and NST -- to develop novel therapeutics. AntexPharma's rational,
target-based drug discovery strategy will integrate ART and NST with genomics,
bioinformatics, molecular modeling, and combinatorial chemistry to identify and
develop antibacterial compounds to fight the above described bacterial
infections as well as nosocomial infections described below.
AntexPharma's drug discovery process follows four basic steps as part of
the integrated program with the Company's proprietary platform technologies:
target identification and validation, assay development, lead compound
discovery/identification, and compound optimization.
Target Identification and Validation
In this first phase, the Company uses its specific functional expertise
and know-how in combination with microbial genomics, bioinformatics and
proteomics to identify and select novel targets for drug discovery. Acceptable
targets will be either those that are essential for the life of the pathogen or
are virulence factors. Additionally, the target must be divergent between the
pathogen and host, so that modification and/or disruption of the target will
attenuate or kill the microbe, and/or inhibit its virulence without a
detrimental impact on the host. ART and NST has been used to identify several
potential molecular targets for drug discovery.
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Assay Development
Several approaches are used in assay development including bactericidal,
primary and secondary ex vivo biochemical screens, and secondary whole cell in
vivo assays. Primary assays incorporate physiological or enzymatic targets in a
high-throughput format to screen for biological activity of compounds. This
biological activity is then reconfirmed in specific biochemical and whole cell
assays to characterize the target-compound interaction. The Company's NST
technology is used to conduct the screening assays under conditions simulating
the in vivo growth of the bacteria, thereby having the pathogen express relevant
targets for testing.
Lead Discovery/Identification
Using validated targets in primary and secondary assays, compound
libraries are screened to identify lead compounds for further evaluation.
Compounds that show activity in the primary assay are labeled as "hits", and are
further evaluated in secondary assays to characterize their activities against
the pathogen in a more natural state, including human cell culture. Information
generated in the primary and secondary screening assays is used to identify
compounds to serve as the starting point for lead compound optimization.
Lead Optimization
Optimizing lead compounds is an iterative process of systematically
modifying the compound structure (analogs) and retesting. Analogs are evaluated
for their spectrum of activity against a broad range of bacterial targets,
tested against whole bacterial cells including drug resistant strains and tested
for activity against host related targets. The Company currently has limited
lead optimization capabilities and intends to increase the development of this
capability for anti-infectives and anti-inflammatory/oxidant compounds.
Access to diverse molecular libraries for screening against targets is
critical to drug discovery. The Company is committed to developing its own
library and has already discovered and began to synthesize a proprietary group
of complex heterocyclic compounds. The Company will seek collaborative partners
to also provide libraries to support the screening process. In addition to
synthetic compounds, the Company is investigating natural products and intends
to establish a natural products library, which will broaden the diversity of the
compounds to be screened.
The Company's therapeutic research and development currently consists of
the following drug discovery programs.
ANTIBIOTICS
The antibacterial drug discovery program is focused on those pathogens
that have a high annual incidence rate, and have increasing antibiotic
resistance to all the currently available antibiotics. The Company has
identified and is developing four series of novel proprietary complex
heterocyclics and modified natural compounds to screen for broad spectrum
antibiotic activity and as specific antibacterial agents. The current specific
agent screens are directed against methicillin-
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<PAGE> 14
resistant Staphylococci and vancomycin-resistance Enterococci.
POTENTIATORS
The objective of this program is to discover compounds to use in
combination with existing antibiotics to improve their effectiveness or overcome
the resistance of certain bacteria to the antibiotic. The development of
resistance to an antibiotic is usually due to a specific defined resistance
pathway. The initial goal is to identify compounds for methicillin-resistant
Staphylococcus and vancomycin-resistant Enterococci that may act through
identified structural target mechanisms or through functional targets not
previously identified. The Company believes that compounds identified may be
developed as oral and systemic adjunctive therapy to methicillin and vancomycin.
Additionally, the Company has patented technology on antibiotic-receptor
conjugates.
MODULATORS
Disease of the host is caused by bacterial products and destruction of
the host tissues. The bacterial gene products causing this damage are involved
in bacterial virulence and pathogenicity and are conserved among pathogenic
bacteria. The Company believes that modulators or inhibitors of these bacterial
virulence functions should be broadly acting and detrimental to the bacteria,
thereby affecting its disease causing ability.
The Company's NST technology is targeted to the genomic elements
underlying bacterial pathogenesis and virulence. The Company has developed
biochemical, molecular and genetic procedures to identify pathogenesis targets
ex vivo and in animal models. These methods can be used to identify modulators
of pathogenesis and virulence factors in an in vitro/ ex vivo environment that
are clinically relevant. The Company currently has a natural compound analog
library, and will continue to increase it. Modulation of pathogenesis and
virulence factors is a novel approach to the prevention and treatment of
bacterial diseases. Anti-pathogenesis and anti-virulence agents resulting from
signal transduction and pathogenesis potentially offer advantages over
traditional antibiotic therapy. Initial screening will be for gram positive
pathogens.
ANTIFLAMOXIDANTS(TM) (Anti-inflammatories/Anti-oxidants)
As stated above, infectious diseases not only activate the immune system
in the host, but also triggers the host inflammatory response. These host
responses are directly caused by the infection and usually act together in a
cascading effect to fight against the invading microbe. Inflammation in a
controlled manner is important to fight against infections. However,
uncontrolled inflammation, such as psoriasis, lupus and arthritis, can be a
severe problem in some individuals. Some inflammatory diseases and other
disorders, such as peptic ulcers, cardiovascular diseases and infertility, may
occur as indirect results of an infection. For instance, disorders not
previously known to be caused by infectious diseases, such as reactive
arthritis, neurological disorders and various forms of cancers, more recently
have been linked to prior infections.
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<PAGE> 15
The presence of foreign microbes triggers host cells called leukocytes,
or white blood cells, which are the first host cell types involved in defense
against infection. Normally, these leukocytes are present in the blood, but
migrate from the blood to the site of infection when triggered. Leukocytes play
a vital role in both the immune and the inflammatory responses. The initial
white blood cells recruit other inflammatory cells, such as macrophages, and
immune system cells, such as B and T cells. These cells also release many other
cellular molecules including cytokines (such as interleukins - IL1, IL2 and
IL8, and TNF) and oxidative stress (reactive oxygen species ("ROS"), such as
NO, O(2)(-) and OH.) that activate the immune system and enhance the
inflammatory cascade.
This cascade of inflammatory and immune response activity, when
controlled, is the host's defense system against infection. However, in some
instances this cascade escalates out of control. For instance, as stated above,
one action of ROS is to activate signal transduction pathways. However, ROS also
acts directly to damage cells by disrupting cellular structure and damaging
cellular molecules. This action of ROS is not restricted to the microbes, but
also can disrupt the host's cells as well. Thus, an overproduction of ROS is
damaging to the host's tissue. Additionally, the unregulated production of
cytokines and infiltration of inflammatory cells, such as neutrophils and
macrophages, carries with it the infiltration of fluid, causing swelling and
pain.
Therefore, the Company's drug discovery program will also involve
screening assays for identifying new anti-inflammatory and/or anti-oxidant drugs
that may interfere with signal transduction pathways to block the overproduction
of cytokines and cell-mediated inflammation, and/or block the overproduction of
reactive oxygen species.
PRODUCTION FACILITY
The Company contracts for the services of a FDA-approved pilot plant.
This facility initially has been used for the production of the Company's
Campylobacter and H. pylori whole cell vaccines for clinical trial purposes and
for the Company's M. catarrhalis subunit vaccine. The pilot plant was
established and operates in compliance with the FDA's Good Manufacturing
Practices. See "Government Regulation." The Company anticipates that it will
produce pilot and clinical trial lots of its other proposed vaccines in this
pilot facility.
STRATEGY FOR COMMERCIAL DEVELOPMENT
All of the Company's proposed products are in discovery, research,
preclinical or clinical development. The Campylobacter vaccine is currently in a
Phase II clinical trial, with two Phase I clinical trials successfully
completed. A vaccine for H. pylori has successfully completed a Phase I clinical
trial. All potential vaccine and therapeutic products will require substantial
additional research and development, preclinical testing, clinical trials and/or
regulatory approvals from the appropriate governmental agencies prior to
commercialization. See "Government Regulation." The process from research to
marketing could require significant expenditures over a number of years.
In December 1994, the Company entered into a technology license agreement
with PMC,
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<PAGE> 16
whereby the Company granted an exclusive license to develop, produce and market
any product using the Company's H. influenzae nontypeable Hin47 protein in all
countries other than those in the Asia-Pacific region, as defined. Under the
license agreement, PMC must use commercially reasonable efforts to develop a
marketable product. However, at its option and for good cause, PMC may cease
development upon 6 months' prior written notice to the Company and upon payment
of all amounts due to the Company through the termination date, at which time
the licensed technology reverts to the Company. The Company earned a license fee
in 1994 and is entitled to milestone payments based on the licensee's
performance or the passage of time. Three such milestone payments have
subsequently been earned, including a $500,000 milestone payment in December
1998. Upon commercialization, the licensee is obligated to pay a guaranteed
minimum annual royalty to the Company on sales of any product incorporating the
Company's technology. The licensee successfully completed a Phase IA clinical
trial in adults in 1997, a Phase IB clinical trial in children in 1998 and is
currently conducting a Phase IC in infants, which evaluated the safety and
immunogenicity of the vaccine. (The Company is currently finalizing the
renegotiation of certain provisions of the license agreement).
In August 1994, the Company entered into a CRADA with the United States
Navy, whereby the Company granted Government Purpose License Rights to its
Campylobacter vaccine technology. In exchange for the rights granted, the United
States Navy agreed to conduct and fund the costs involved in Phase I, II and III
clinical trials for the vaccine, subject to the availability of required funds.
The Company retained all commercial rights to develop, produce and market any
product involving its proprietary Campylobacter technology. Either party may
terminate the CRADA upon thirty days written notice. Two Phase I trials have
been successfully completed. A final report on the results of a Phase II
clinical trial is being completed.
Effective March 1996, the Company executed definitive agreements with
SmithKline Beecham Corporation and SmithKline Beecham Biologicals Manufacturing
s.a. ("SmithKline"), which established MCHV, to develop and commercialize human
bacterial vaccines utilizing the Company's proprietary technologies. At December
31, 1998, the agreements provide for the following: the option by SmithKline to
provide annual funding of research and development for future years; an exchange
option granted by the Company to SmithKline enabling SmithKline to convert its
equity interest in MCHV for 3,595,264 shares of the Company's common stock,
under specified conditions; and a warrant granted by the Company to SmithKline
enabling SmithKline to acquire up to 5,730,802 shares of the Company's common
stock, under specified conditions, and only to the extent that stipulated
options and warrants previously granted and outstanding as of the date of the
establishment of the strategic alliance are exercised. The agreements also
provide for SmithKline to make milestone payments and pay royalties to MCHV; and
for SmithKline to reimburse the Company for expenses the Company incurs for
agreed upon production lots of vaccines for clinical trials, the conduct of
agreed upon clinical trials, and agreed upon prosecution and maintenance of the
Company's patents and patent applications. SmithKline is responsible for
conducting additional clinical trials, manufacturing, and sales and
distribution.
. In April 1998, the Company established AntexPharma, to research and
develop novel therapeutic alternatives to address the unmet clinical needs of
antibiotic resistance and newly emerging diseases by applying the NST and ART
platform technologies. AntexPharma will also
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<PAGE> 17
seek to license and/or acquire additional technologies, suitable later stage
development candidates, and products to further the Company's objectives.
AntexPharma will pursue strategic alliance and financing opportunities related
to therapeutic products.
The Company may continue to grant licenses to certain of its proprietary
technologies, reagents, and vaccine and therapeutic products in exchange for
license fees, royalty payments and other compensation. The Company anticipates
seeking such arrangements with respect to technologies that it is unwilling or
unable to pursue on its own.
GOVERNMENT REGULATION
The production and marketing of the Company's products and its research
and development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. In the United States,
vaccines, drugs and certain diagnostic products are subject to FDA review of
safety and efficacy. The Federal Food, Drug and Cosmetic Act, the Public Health
Service Act and other federal statutes and regulations govern or influence the
testing, manufacture, safety, labeling, storage, record keeping, approval,
advertising and promotion of such products. Noncompliance with applicable
requirements can result in criminal prosecution and fines, recall or seizure of
products, total or partial suspension of production, refusal of the government
to approve Product License Applications ("PLAs"), New Drug Applications ("NDAs")
or refusal to allow the Company to enter into supply contracts. The FDA also has
the authority to revoke product licenses and establishment licenses previously
granted.
In order to obtain FDA approval to market a new biological or
pharmaceutical product, the Company or its licensees must submit proof of
safety, purity, potency and efficacy, which will require the Company or its
licensees to conduct extensive laboratory, preclinical and clinical tests. This
testing, as well as preparation and processing of necessary applications, are
expensive, time-consuming and often take several years to complete. There is no
assurance that the FDA will act favorably in making such reviews. The Company or
its licensees may encounter significant difficulties or costs in their efforts
to obtain FDA approvals which could delay or preclude the Company or its
licensees from marketing any products that it may develop. The FDA may also
require postmarketing testing and surveillance to monitor the effects of
marketed products or place conditions on any approvals that could restrict the
commercial applications of such products. Product approvals may be withdrawn if
problems occur following initial marketing, such as, compliance with regulatory
standards is not maintained. With respect to patented products or technologies,
delays imposed by governmental marketing approval processes may materially
reduce the period during which the Company or its licensees will have the
exclusive right to exploit patented products or technologies. See "Patents and
Other Rights." Refusals or delays in the regulatory process in one country may
make it more difficult and time consuming for the Company or its licensees to
obtain marketing approvals in other countries.
The FDA approval process for a new biological or pharmaceutical drug
involves completion of preclinical studies and the submission of the results of
these studies to the FDA in an IND, which must be approved before human clinical
trials may be conducted. The results of preclinical and
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<PAGE> 18
clinical studies on biological or pharmaceutical drugs are submitted to the FDA
in the form of a PLA or NDA for product approval to commence commercial sales.
In responding to a PLA or NDA, the FDA may require additional testing or
information, or may deny the application. In addition to obtaining FDA approval
for each biological or chemical product, an Establishment License Application
("ELA") must be filed and the FDA must inspect and license the manufacturing
facilities for each product. Product sales may commence only when both PLA/NDA
and ELA are approved.
In certain instances in which a treatment for a rare disease or condition
is concerned, the manufacturer may request the FDA to grant the drug product
Orphan Drug status for a particular use. In this event, the developer of the
drug may request grants from the government to defray the costs of certain
expenses related to the clinical testing of such drug and be entitled to
marketing exclusivity and certain tax credits. The Company or its licensees may
seek Orphan Drug designation in the future for proposed products. If these
products are the first such products approved, the Company or its licensees may
be entitled to seven year marketing exclusivity for these products once
regulatory approval has been obtained. The seven year period of exclusivity
applies only to the particular drug for the rare disease or condition for which
the FDA has designated the product an Orphan Drug. Therefore, another
manufacturer could obtain approval of the same drug for an indication other than
the Company's or could seek Orphan Drug status for a different drug for the same
indication.
Sales of biological and pharmaceutical products and medical devices
outside the United States are subject to foreign regulatory requirements that
vary widely from country to country. Whether or not FDA approval has been
obtained, approval of a product or a device by a comparable regulatory authority
of a foreign country must generally be obtained prior to the commencement of
marketing in that country.
The Company is also subject to regulation by the Occupational Safety and
Health Administration ("OSHA") and the Environmental Protection Agency ("EPA")
and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations. The Company
believes that it is in compliance with regulations regarding the disposal of its
biological, radioactive and chemical waste. The Company voluntarily complies
with NIH guidelines regarding research involving recombinant DNA molecules. Such
guidelines, among other things, restrict or prohibit certain recombinant DNA
experiments and establish levels of biological and physical containment that
must be met for various types of research.
The Company, either alone or in conjunction with its collaborators, have
filed INDs for Campylobacter and H. pylori vaccines. The applications were
accepted by the FDA. The Company has entered into, and anticipates that it may
in the future enter into, joint ventures, licensing or similar collaborative
arrangements with one or more companies that will assume the costs and
responsibility for clinical testing and for FDA and comparable foreign
regulatory approval of any product which the Company may have in development.
See "Strategy for Commercial Development." To the extent that the Company is
unable to enter into such arrangements or to raise additional capital, it may
not have the resources to complete the regulatory approval process for such
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products.
PATENTS AND OTHER RIGHTS
The Company has 14 allowed or issued U.S. Patents and 64 allowed or
issued international patents. Currently there are seven pending patent
applications in the United States, with corresponding international patent
applications. Two of the issued patents and the corresponding foreign patent
applications, are co-owned with other entities. The patent applications relate
to novel proteins, their corresponding genes and uses thereof, and to the
Company's ART and NST technologies. Collectively, the applications include
composition claims for enhanced bacteria, receptors and their corresponding
adhesins or toxins, method of use claims for the use of these compositions, for
vaccines and for other antimicrobial products.
The Company holds non-exclusive licenses for rights to 1 U.S. and 2
foreign patents covering VeroTest(R) and related technologies. Additionally the
Company holds a non-exclusive license to 7 additional U.S. Patents related to
carbohydrate receptors for microorganisms. The Company has made initial payments
to the licensors, and royalty payments must be made if the Company markets
products or services incorporating the licensed technologies.
There can be no assurance that the Company's pending patent applications
will result in issued patents, that any of its issued patents will afford
protection against a competitor, or that any patents issued or licensed to the
Company could not be challenged, invalidated or circumvented by others. Further,
the patent position worldwide of biotechnology firms generally is highly
uncertain, involving complex legal and factual questions. Since patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by several months or even years, the
Company cannot be certain that others have not filed patent applications
directed toward inventions covered by its pending patent applications or that it
was the first to file patent applications on such inventions. There can also be
no assurance that any application of the Company's technologies will not
infringe patents or proprietary rights of others or that licenses that might be
required for the Company's processes or products would be available on
reasonable terms. Furthermore, there can be no assurance that challenges will
not be instituted against the validity or enforceability of any patent owned or
licensed by the Company or, if instituted, that such challenges will not be
successful or that the Company will have the financial resources to defend
against any such challenge. The extent to which the Company or its licensees may
be required to obtain licenses under other proprietary rights, the cost and the
availability of such licenses are unknown.
Patent litigation is becoming more widespread in the biotechnology
industry. There can be no assurance that others could not bring legal actions
against the Company or its licensees for patent infringement. If the Company or
its licensees becomes involved in such litigation, it could consume a
substantial portion of the Company's resources. The Company also may lack the
financial resources to defend its patents against infringements by others.
The Company believes that obtaining foreign patents may be more difficult
than obtaining
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domestic patents because of differences in U.S. and foreign patent laws. In
addition, foreign patents, if obtained, may not provide the level of protection
provided by domestic patents.
The Company's success depends, in large part, on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of third parties. If patents do not issue from present or
future patent applications, the Company will likely be subject to greater
competition. The Company also relies upon unpatented proprietary technology, and
in the future may determine in some cases that its interest would be better
served by reliance on trade secrets or confidentiality agreements rather than
patents. In such circumstances, no assurance can be made that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to such proprietary technologies or disclose
such technologies or that the Company or its licensees can meaningfully protect
its rights in such unpatented proprietary technologies.
The Company requires each of its employees, consultants, and advisors to
execute a confidentiality agreement and an invention agreement upon the
commencement of an employment or consulting relationship with the Company. The
employee agreements generally provide that all inventions conceived by the
individual and all confidential or proprietary technology, including information
and materials, developed or made known to the individual during the term of the
relationship shall be the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties except under specified
circumstances. The term of ownership of inventions by consultants and advisors
varies depending primarily upon the policies of the academic and other
institutions with which the consultants and advisors are associated. The Company
has entered into nondisclosure agreements which are intended to protect its
confidential information delivered to third parties for research or other
purposes. There can be no assurance that these agreements will provide
meaningful protection of the Company's confidential or proprietary technology in
the case of unauthorized use or disclosure. Even if others do not gain
unauthorized access to the Company's confidential or proprietary technology,
there can be no assurance that others will not independently develop
substantially equivalent proprietary technology. In addition, to the extent that
strategic partners or consultants apply technological information developed
independently by them or others to Company projects or apply Company technology
to other projects, disputes may arise as to the ownership of proprietary rights
to such technology.
COMPETITION
Competition in the biotechnology and pharmaceutical industry is intense.
While the Company is only aware of a limited number of companies that are
pursuing the development of new bacterial vaccines and antimicrobial products,
competition from other biotechnology and pharmaceutical companies for the
development of products for prevention and/or treatment of the same infectious
diseases targeted by the Company is intense and expected to increase. Many of
the Company's competitors have substantially greater financial resources and
larger research and development staffs than the Company, as well as
substantially greater experience in developing products, in obtaining regulatory
approvals, and in manufacturing and marketing pharmaceutical products than the
Company. Competition with these companies involves not only product development,
but also
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acquisition of products and technologies from universities and other research
institutions. The Company also competes with universities and other institutions
in the development of products, technologies and processes. Competitors have
developed, or may be in the process of developing technologies that are, or in
the future may be, the basis for competitive products. There can be no assurance
that the Company's competitors will not succeed in developing technologies and
products that are more effective or affordable than those being developed by the
Company and its licensees. In addition, one or more of the Company's competitors
may achieve product commercialization or patent protection earlier than the
Company.
To the extent the Company has exclusively licensed to other parties
applications of the technology to address potential alternatives for treatment
of certain infectious diseases, such alternatives are no longer available to the
Company, thereby impacting the Company's ability to compete in the market for
certain therapies for infectious diseases.
The Company expects products approved for sale to compete primarily on
the basis of product efficacy, safety, reliability, and patent position. Certain
of the infectious diseases that the Company has chosen to target for its
research and development efforts are currently being treated with therapies that
have varying degrees of success. Accordingly, the success of the Company will be
dependent upon the acceptance of a developed product by the medical community as
a preferable method of treatment which in turn will depend upon the marketing
and education efforts made by or on behalf of the Company. In addition, the
first pharmaceutical product to reach the market in a therapeutic or preventive
area is often at a significant competitive advantage relative to later entrants
to the market. The Company's competitive position also will depend on its
ability to attract and retain qualified scientific and other personnel, develop
effective proprietary products, obtain patent protection and have its licensees
be successful at implementing production and marketing plans.
BACKGROUND
In March 1988, BioCarb Inc., the Company's predecessor, was established
as a wholly-owned subsidiary of BioCarb AB, a Swedish biotechnology company. In
August 1991, the Company was acquired by a then officer in a management buy-out
and began doing business as MicroCarb Inc. Subsequent to the management buy-out,
the Company has been operating as a development stage enterprise. In 1996, the
Company changed its name to Antex Biologics Inc.
EMPLOYEES
At December 31, 1998, the Company had 30 full-time employees and contract
personnel, of which 25 were in research and development. Of these personnel, 14
hold Ph.D. degrees. None of the employees is represented by a labor union. The
Company considers its employee relations to be good.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 24,000 square feet of laboratory and
office space in Gaithersburg, Maryland, pursuant to a ten-year lease entered
into in December 1998 which extended the term and expanded the space under its
expiring lease. The lease provides for 1999 annual rent of approximately
$375,400, with specified annual increases. In addition, the lease requires the
Company to pay its pro-rata share of building operating expenses and
administrative charges estimated at approximately $150,000 for 1999.
Approximately 15,000 square feet of the facility is currently fully equipped as
a state-of-the art biotechnology research facility. The Company believes that
its equipped space and its intended renovation and expansion (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations") will
provide facilities sufficient for the Company's planned activities for at least
the next twelve months, with the exception of the need for a small animal
facility and pilot plant. The Company currently contracts for these services
from existing facilities and intends to continue to do so for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The common stock, par value $.01, of the Company ("Common Stock") traded
on the Nasdaq Small-Cap Market until January 11, 1995 at which time it was
deleted. The Common Stock currently is quoted on the OTC Bulletin Board under
its symbol ANTX. The range of high and low closing bid prices for the Common
Stock for the years ended December 31, 1997 and 1998 as reported by Nasdaq is
presented below. Such quotations reflect interdealer prices, without retail
mark-up, mark-down, or commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
1997
----
1st Quarter 1 17/32
2nd Quarter 13/16 17/32
3rd Quarter 1-1/4 9/16
4th Quarter 1-19/32 23/32
1998
----
1st Quarter 1-1/4 27/32
2nd Quarter 1-5/32 11/16
3rd Quarter 23/32 9/32
4th Quarter 35/64 37/128
</TABLE>
As of February 26, 1999, there were approximately 150 holders of record
of the Common Stock.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and does not
anticipate that any cash dividends will be paid in the foreseeable future.
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STOCK ISSUANCE IN FOURTH QUARTER
During the fourth quarter of 1998, 50,000 shares of Common Stock were
issued to an investment banker in exchange for the surrender of a certain right.
The shares were issued without registration in reliance on Section 4(2) of the
Securities Act of 1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The Company commenced operations in August 1991.
Effective March, 1996, the Company executed definitive agreements with
SmithKline Beecham Corporation and SmithKline Beecham Biologicals Manufacturing
s.a. ("SmithKline"), establishing a corporate joint venture, MicroCarb Human
Vaccines Inc. ("MCHV"), to develop and commercialize human bacterial vaccines
utilizing the Company's proprietary technologies (see Note 6 to the financial
statements).
The strategic alliance with SmithKline is consistent with one aspect of
the Company's overall strategy which, since its inception, has been to establish
strategic partnerships and to focus on researching technologies with the goal of
developing new products to prevent and treat infectious diseases and their
related disorders. The Company is operating as a development stage enterprise.
RESULTS OF OPERATIONS
Revenues for 1998 totalled $4,507,029 consisting of human bacterial
vaccine research and development support of $3,168,286 and reimbursable expenses
incurred of $679,711 pursuant to the strategic alliance with SmithKline,
$159,032 from a Small Business Innovation Research ("SBIR") grant, and a
$500,000 milestone payment from Pasteur Merieux Connaught.
Revenues for 1997 totalled $4,755,712 consisting of human bacterial
vaccine research and development support of $2,820,612 and reimbursable expenses
incurred of $1,275,726 pursuant to the strategic alliance with SmithKline,
$509,374 from SBIR grants, and a $150,000 milestone payment from Pasteur Merieux
Connaught.
Research and development expenses in 1998 increased $666,656, or 17.3%,
to $4,525,772 in comparison to $3,859,116 in 1997. The increase is due to the
$250,000 buy-back of therapeutic technology previously licensed to GalaGen Inc.;
to expenditures, including the cost of additional personnel, resulting directly
from the increase in activities related to therapeutics; and to increased
expenditures directly related to the strategic alliance with SmithKline.
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General and administrative expenses in 1998 decreased $285,996, or 17.4%,
to $1,357,193 in comparison to $1,643,189 in 1997. The decrease is attributable
primarily to the nonrecurrence of the fees incurred in 1997 in connection with
overseas patent application filings and to reduced general legal fees.
The noncash expense of $1,711,814 in 1998 resulted from the cashless
exercise of the Placement Agent's unit purchase option. The expense represents
the excess of the cost of the treasury shares over the fair value of the common
stock at the date of the issuance of the common stock.
The decrease in interest income in 1998 in comparison to 1997 reflects
the decrease in cash available for investing.
LIQUIDITY AND CAPITAL RESOURCES
As a development stage company, the Company's operating activities have
been limited primarily to research and development involving its proprietary
technologies, and accordingly, have generated limited revenues. The Company is
scheduled to receive at least $2,000,000 in 1999 in research and development
payments from SmithKline covering the period March 1, 1999 to December 31,
1999. Additionally, the costs incurred by the Company associated with a
recently completed Phase I clinical trial for Helicobacter pylori, the agreed
upon production of vaccine material, and the prosecution of the Company's
applicable patents and patent applications are reimbursable by SmithKline.
During 1999, MCHV will continue to assess to which human bacterial
vaccine research projects resources will be allocated. The Company anticipates
that its research and development expenses related to human bacterial vaccines
will continue to be substantial for the foreseeable future and anticipates that
funding will be provided in part through the strategic alliance with SmithKline.
The Company intends to utilize a portion of its available resources in pursuing
these vaccine activities and research and development activities in
therapeutics. To fund these research and development activities and general and
administrative expenses, the Company will be required to rely on its current
assets and future financings.
For 1999, the Company currently anticipates that it will maintain its
total employees and contract personnel at approximately the 1998 year end total
of 30.
In December 1998, the Company concluded negotiations for an extension of
its facility lease and an expansion of its existing space. Estimated
construction costs and equipment acquisitions related to the planned renovation
and expansion of the Company's facility total approximately $2.5 million.
Anticipated financing from the landlord is expected to fund approximately $1.6
million of this estimate. The Company is currently in discussions with various
lenders to secure debt financing for the balance. To the extent that the Company
is unsuccessful in obtaining the additional financing required, the resulting
shortfall may
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necessitate the curtailment or elimination of the Company's planned facility
renovation and expansion.
In order to sustain its research and development programs beyond the
first quarter of 2000, as well as to fund its future operations, the Company
will continue to seek additional financing. The Company has no lines of credit.
In seeking additional funding, the Company continues to examine a range of
possible transactions, including: additional strategic alliances; possible
increases in research and development funding by SmithKline; additional equity
or debt public offerings and private placements; the sale and leaseback of
existing assets; and additional grants and contracts. However, there is no
assurance that additional funds will be available from these or any other
sources or, if available, that the terms on which such funds can be obtained
will be acceptable to the Company.
If the Company is unsuccessful in its efforts to obtain sufficient
financing to continue to fund its current operations, the Company will be
required to reduce its level of operations. The Company may seek to enter into a
business combination transaction that would involve the merger or sale of the
Company in order to preserve shareholder value.
The report of the independent accountants on the Company's financial
statements contains an explanatory paragraph indicating that there is
substantial doubt about the Company's ability to continue as a going concern.
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board has issued a new standard.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities, which becomes effective for years
beginning after June 15, 1999, requires that every derivative instrument be
recorded in the balance sheet as either as asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized in earnings unless specific hedge accounting criteria are met. The
Company believes that the effect of adoption of SFAS 133 will not be material to
the Company's financial statements.
YEAR 2000 DISCLOSURE
The Company has initiated its Year 2000 compliance program, the purpose
of which is to identify those systems that are not yet Year 2000 compliant, and
to initiate replacement or other remedial action to assure that systems will
continue to operate in the Year 2000. The Company expects to complete its
assessment by April 30, 1999, which includes third party confirmations from the
Company's key suppliers, vendors and business partners, with respect to their
computers, software and systems, and their ability to maintain normal operations
in the Year 2000. To the extent that the Company is not satisfied with the
status of a vendor's Year 2000 compliance or remediation plans, the Company
expects to develop and implement appropriate contingency plans. Such contingency
plans will include the
26
<PAGE> 27
development of alternative sources for the product or service provided by any
non-compliant vendor.
The Company has already initiated the removal and exchange of some
non-compliant systems and expects to continue such replacement or other remedial
action to ensure that its computers, software and systems, and other systems
will continue to operate in the Year 2000. These activities are intended to
encompass all major categories of systems used by the Company, including
laboratory instrumentation, building systems, and financial systems, among
others. In some instances, the installation of new software and hardware in the
normal course of business is being accelerated to also afford a solution to Year
2000 issues. Year 2000 spending is expected to total less than $100,000, of
which the Company has incurred approximately $30,000. The total cost estimate is
based on the Company's assessment as of December 31, 1998 and is subject to
change as the compliance program progresses.
The capital improvements and expenses required for the Year 2000 effort
have been included as part of the Company's annual budget. The Company does not
expect that the capital spending or period expense associated with the Year 2000
issues will have a material effect on its financial position or results of
operations. The Company's policy is to expense all costs related to its Year
2000 compliance program unless the useful life of the technological asset is
extended or increased. It is expected that assessment, remediation and
contingency planning will be ongoing throughout fiscal 1999 with the goals of
appropriately resolving all material internal systems and third party issues.
There can be no assurances, however, that the Company's computer systems and the
applications of other companies on which the Company's operations rely will be
timely converted or that any such failure to convert by another company will not
have a material adverse effect on the Company's operations.
27
<PAGE> 28
ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Antex Biologics Inc.
<TABLE>
<S> <C>
Report of Independent Accountants.........................................................................29
Consolidated Balance Sheets as of December 31, 1997 and 1998..............................................30
Consolidated Statements of Operations for the years ended December 31, 1997 and
1998 and the period August 3, 1991 (inception) to December 31, 1998.....................................31
Consolidated Statements of Stockholders' Equity (Deficit) for the period
August 3, 1991 (inception) to December 31, 1998......................................................32-33
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and
1998 and the period August 3, 1991 (inception) to December 31, 1998..................................34-35
Notes to Consolidated Financial Statements.............................................................36-47
</TABLE>
28
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Antex Biologics Inc.
In our opinion the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows present fairly, in all material respects, the
financial position of Antex Biologics Inc. (a development stage enterprise) at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for the years then ended and for the period January 1, 1993 to December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of the Company for the
period August 3, 1991 (inception) to December 31, 1992. The financial
statements for the period August 3, 1991 (inception) to December 31, 1992 were
audited by other auditors, whose report, dated February 28, 1993, expressed an
unqualified opinion on those statements. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, to fund the expected levels of operating
and capital expenditures for 1999 and early 2000, the Company will require
additional sources of cash before March 31, 2000. There can be no assurance the
Company will be successful in raising sufficient capital, on a timely basis, to
meet its cash needs and there exists a substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
PricewaterhouseCoopers LLP
McLean, Virginia
February 26, 1999
29
<PAGE> 30
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,697,156 $4,856,479
Accounts and other receivables 666,253 78,251
Prepaid expenses 251,340 98,689
Deferred compensation trust - 264,920
---------- ----------
Total current assets 6,614,749 5,298,339
Property and equipment, net 446,861 665,442
Deferred compensation trust 229,405 -
Restricted cash - 146,600
Other 68,230 73,944
-------- ----------
$7,359,245 $6,184,325
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 531,345 $ 458,194
Deferred research and development revenue 554,152 568,488
Deferred compensation - 264,920
---------- ----------
Total current liabilities 1,085,497 1,291,602
Deferred gain on equipment 106,983 107,994
Deferred compensation 229,405 -
Excess of fair value over cost of net assets acquired, net
of accumulated amortization of $181,180 and $209,416 101,173 72,937
Other 19,647 2,625
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none outstanding - -
Common stock, $.01 par value; 95,000,000 shares
authorized; 22,480,304 and 29,287,353 shares
issued 224,803 292,874
Additional paid-in capital 17,752,839 20,694,942
Deficit accumulated during the development stage (12,161,102) (14,994,789)
Treasury stock - 3,423,627 shares - (1,283,860)
---------- ---------
Total stockholders' equity 5,816,540 4,709,167
---------- ----------
$7,359,245 $6,184,325
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 31
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
-----------------------
TO
1997 1998 DECEMBER 31, 1998
---- ---- -----------------
<S> <C> <C> <C>
Revenues $ 4,755,712 $ 4,507,029 $13,961,927
----------- ----------- -----------
Expenses:
Research and development 3,859,116 4,525,772 17,784,523
General and administrative 1,643,189 1,357,193 9,955,251
--------- --------- ---------
Total expenses 5,502,305 5,882,965 27,739,774
--------- --------- ----------
Loss from operations (746,593) (1,375,936) (13,777,847)
Other income (expense):
Interest income 314,040 254,063 1,203,229
Cost of treasury shares in excess
of fair value - (1,711,814) (1,711,814)
Interest expense (10,123) - (708,357)
---------- ----------- -----------
Net loss $ (442,676) $(2,833,687) $(14,994,789)
============ ============ ============
Loss per share:
Basic and diluted $(0.02) $(0.12)
======= =======
Weighted average shares
outstanding:
Basic and diluted 22,188,172 23,184,075
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 32
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period August 3, 1991 (inception) to December 31, 1998
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------
SHARES PAR VALUE
-----------------------------------
<S> <C> <C>
Initial capitalization ($.20 per share) - $ -
Net loss - -
-----------------------------------
Balance at December 31, 1991 -
- -
Sale of common stock for cash, January 1992 ($4.61 per share) - -
Sale of common stock for cash, February 1992 ($6.90 per share) - -
Issuance of common stock for services, March 1992 to July 1992 ($2.00 per share) 113,700 1,137
Conversion of notes payable into preferred stock, September 1992 ($4.48 per share) 89,328 893
Sale of preferred stock for cash, September 1992 ($4.48 per share)
Issuance of preferred stock upon exercise of warrants, September 1992 46,900 469
($1.92 per share)
Issuance of common stock for cash ($1.00 per share) and services ($1.00 per share),
October 1992 - -
Conversion of preferred stock into common stock, December 1992 (249,928) (2,499)
Sale of common stock and warrants for cash, December 1992 ($4.84 per unit,
net of offering costs of $1,396,893 or $1.16 per unit - -
Net loss - -
-----------------------------------
Balance at December 31, 1992 - -
Sale of common stock and warrants for cash, January 1993 ($5.27 per unit, net
of offering costs of $131,723 or $.73 per unit) - -
Compensation and consulting expense in connection with options granted - -
Net loss - -
-----------------------------------
Balance at December 31, 1993 - -
Net loss - -
-----------------------------------
Balance at December 31, 1994 - -
Sale of common stock and warrants for cash, March and April 1995 ($39,972 per
unit, net of offering costs of $706,971 or $10,028 per unit) - -
Required registration of common stock and warrants, October 1995
($1,525 per unit) - -
Net loss - -
-----------------------------------
Balance at December 31, 1995 - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 33
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TREASURY STOCK
ADDITIONAL DURING THE
- --------------------------------- ----------------------------
PAID-IN DEVELOPMENT
SHARES PAR VALUE SHARES COST TOTAL
CAPITAL STAGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
390,830 $3,908 $ 74,093 $ - - $ - $ 78,001
- - - (941,145) - - (941,145)
- --------------------------------------------------------------------------------------------------------------------
390,830 3,908 74,093 (941,145) - - (863,144)
43,430 435 199,565 - - - 200,000
115,801 1,158 798,842 - - - 800,000
- - 383,014 - - - 383,014
- - 507,972 - - - 509,109
- - 399,296 - - - 400,189
- - 89,531 - - - 90,000
75,000 750 149,250 - - - 150,000
249,928 2,499 - - - - -
1,200,000 12,000 5,791,227 - - - 5,803,227
- - - (2,415,723) - - (2,415,723)
- --------------------------------------------------------------------------------------------------------------------
2,074,989 20,750 8,392,790 (3,356,868) - - 5,056,672
180,000 1,800 946,477 - - - 948,277
- - 64,011 - - - 64,011
- - - (2,725,902) - - (2,725,902)
- --------------------------------------------------------------------------------------------------------------------
2,254,989 22,550 9,403,278 (6,082,770) - - 3,343,058
- - - (3,040,032) - - (3,040,032)
- --------------------------------------------------------------------------------------------------------------------
2,254,989 22,550 (9,122,802) - - 303,026
9,403,278
10,071,630 100,716 - - - 2,818,030
2,717,314
- - - - - (107,530)
- - (107,530) (3,131,059) - - (3,131,059)
- --------------------------------------------------------------------------------------------------------------------
12,326,619 123,266 12,013,062 (12,253,861) - - (117,533)
</TABLE>
(Continued)
32
<PAGE> 34
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
For the Period August 3, 1991 (inception) to December 31, 1998
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------
SHARES PAR VALUE
-----------------------------------
<S> <C> <C>
Issuance of exchange option, May 1996 ($.37 per share, net of related costs of $351,082) - $ -
Issuance of common stock upon exercise of Class B Warrants and stock options,
May - August 1996, ($.50 per share, net of related costs of $214,811) - -
Net income - -
-----------------------------------
Balance at December 31, 1996 - -
Issuance of common stock upon excise of stock options, October 1997 - -
Net loss - -
-----------------------------------
Balance at December 31, 1997 - -
Forfeiture of escrowed shares, May 1998 - -
Cashless exercise of Placement Agent's unit purchase option, September 1998
($121,430 per unit) - -
Issuance of common stock for services, October 1998 ($.29 per share) - -
Net loss - -
-----------------------------------
Balance at December 31, 1998 - $ -
===================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 35
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TREASURY STOCK
ADDITIONAL DURING THE
- --------------------------------- ----------------------------
PAID-IN DEVELOPMENT
SHARES PAR VALUE SHARES COST TOTAL
CAPITAL STAGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- $ - $ 979,166 $ - - $ - $ 979,166
10,153,060 101,531 4,760,188 - - - 4,861,719
- - - 535,435 - - 535,435
- --------------------------------------------------------------------------------------------------------------------
22,479,679 224,797 17,752,416 (11,718,426) - - 6,258,787
625 6 423 - - - 429
- - - (442,676) - - (442,676)
- --------------------------------------------------------------------------------------------------------------------
22,480,304 224,803 17,752,839 (12,161,102) - - 5,816,540
(291,663) (2,916) 2,916 - - - -
7,048,712 70,487 2,925,187 - 3,423,627 (1,283,860) 1,711,814
50,000 500 14,000 - - - 14,500
- - - (2,833,687) - - (2,833,687)
- --------------------------------------------------------------------------------------------------------------------
29,287,353 $ 292,874 $20,694,942 $(14,994,789) 3,423,627 $(1,283,860) $4,709,167
====================================================================================================================
</TABLE>
33
<PAGE> 36
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
------------------------
TO
1997 1998 DECEMBER 31, 1998
---- ---- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (442,676) $(2,833,687) $(14,994,789)
Adjustments to reconcile net loss to net
cash used in development stage activities:
Depreciation and amortization of
property and equipment, net of
amortization of deferred gain on
sale/leaseback and equipment 80,688 99,230 296,095
Amortization of deferred credits (53,807) (70,830) (412,790)
Expense recorded on cashless exercise
of common stock options and
warrants - 1,711,814 1,711,814
Writedown of construction in progress - 174,400 174,400
Expense recorded on issuance of
common stock and vesting of options - 14,500 545,634
Changes in operating assets and liabilities:
Accounts and other receivables (570,585) 588,002 (78,251)
Prepaid expenses 148,044 152,651 17,553
Other assets (68,230) (5,714) (73,944)
Accounts payable and accrued
expenses 259,226 (47,579) 51,186
Deferred research and development (220,612) 5,314 528,900
Due from affiliate - - 420,448
---------- ----------- ------------
Net cash used in development stage activities (867,952) (211,899) (11,813,744)
---------- ----------- ------------
INVESTING ACTIVITIES
Purchase of property and equipment (202,745) (482,178) (988,356)
Decrease (increase) in restricted cash 300,000 (146,600) (146,600)
--------- ----------- -------------
Net cash provided by (used in)
investing activities 97,255 (628,778) (1,134,956)
---------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial
statements. (Continued)
34
<PAGE> 37
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
---------------------------
TO
1997 1998 DECEMBER 31, 1998
---- ---- -----------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from sales of common stock
and warrants and the exchange option $ - $ - $11,516,170
Net proceeds from exercise of warrants
and stock options 429 - 4,862,148
Proceeds from sale and leaseback
agreement - - 2,164,792
Principal repayments on sale and
leaseback agreement (451,412) - (2,164,792)
Proceeds from issuance of notes payable - - 500,000
Proceeds from sale of preferred stock - - 400,189
Proceeds from exercise of warrants - - 90,000
---------- ---------- -----------
Net cash provided by (used in)
financing activities (450,983) - 17,368,507
----------- ---------- -----------
Net increase (decrease) in cash and
cash equivalents (1,221,680) (840,677) 4,419,807
Cash and cash equivalents at
beginning of period 6,918,836 5,697,156 436,672
---------- ---------- ---------
Cash and cash equivalents at
end of period $5,697,156 $4,856,479 $4,856,479
========== ========== ==========
Supplemental cash flows disclosures:
Cashless exercise of common stock
options and warrants $ - $2,995,674 $2,995,674
Treasury stock acquired from cashless
exercise of common stock options and
warrants $ - $1,283,860 $1,283,860
Notes payable and accrued interest
converted to preferred stock $ - $ - $ 509,109
Sale and leaseback of property and
equipment $ - $ - $2,099,175
Capitalized equipment $ 152,832 $ 45,110 $ 197,942
Deferred compensation $ 38,216 $ 35,515 $ 264,920
Interest paid $ 10,123 $ - $ 699,248
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 38
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
1. BUSINESS AND FINANCING
BUSINESS
Antex Biologics Inc. (the "Company") is a biopharmaceutical company
committed to improving human health by developing new products to prevent and
treat infectious diseases and related disorders. With respect to its human
bacterial vaccine research and development, the Company currently has a
strategic alliance with SmithKline Beecham and technology license agreements
with Pasteur Merieux Connaught and the United States Navy.
Since inception, the Company's revenues have been generated solely in
support of its research and development activities and as of December 31, 1998,
the Company's research and products are not sufficiently developed to enable the
Company to generate sufficient revenues on an ongoing basis. As a result, the
Company is considered to be in the development stage.
FINANCING
In order to develop, manufacture, and market commercial products
effectively, the Company will require additional financing until such time that
product sales are of sufficient volume to generate positive cash flows from
operations. Based on the expected levels of operating and capital expenditures
for 1999 and 2000, in order to continue its operations, the Company will require
additional sources of cash before March 31, 2000. Possible sources of funds are
additional strategic alliances, increases in research and development funding by
SmithKline Beecham, additional equity or debt public offerings and private
placements, the sale and leaseback of existing assets, and additional grants and
contracts.
While the Company has previously been successful in raising additional
capital, there can be no assurance that it will be able to raise sufficient
capital to continue its operations. If the Company is unsuccessful in its
efforts to obtain sufficient financing to continue to fund its current
operations, the Company will be required to reduce or cease operations. The
Company may also seek to enter into a business combination transaction that
would involve the merger or sale of the Company in order to preserve shareholder
value. Accordingly, there exists a substantial doubt about the Company's ability
to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The financial statements include the accounts of Antex Biologics Inc.,
its wholly-owned inactive subsidiary, Antex Pharma Inc., incorporated in April
1998, and its 73.75% owned subsidiary, MicroCarb Human Vaccines Inc. All
intercompany transactions have been eliminated.
36
<PAGE> 39
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with a
maturity of three months or less on the date of purchase to be cash equivalents.
The Company invests its excess cash in a money market fund with a major bank.
This fund invests in securities of the U.S. Government and other short-term,
high quality fixed income, money market investments. The Company has not had any
losses on its cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment acquired are stated at cost and depreciated on a
straight-line basis over estimated useful lives of five years. When assets are
retired or sold, the cost and related accumulated depreciation are removed from
the accounts, and any related gain or loss is reflected in operations.
Expenditures for maintenance, repairs and minor renewals are charged to
operations.
EXCESS OF FAIR VALUE OVER COST OF NET ASSETS ACQUIRED
The excess of fair value over cost of net assets acquired resulting from
the acquisition of the Company on August 3, 1991 is being amortized over a
period of ten years, using the straight-line method, and is included in general
and administrative costs in the consolidated statements of operations. The
amounts of $28,236, $28,236, and $209,416 have been reflected as contra-expenses
for the years ended December 31, 1997 and 1998, and for the period August 3,
1991 (inception) to December 31, 1998, respectively.
REVENUE RECOGNITION
Cash payments received in advance of performing contracted research and
development services are recorded as deferred revenue until the services are
performed.
Revenue equal to expenses incurred by the Company which are directly
reimbursable pursuant to the provisions of the strategic alliance is recognized
when the related expenses are incurred.
Milestone payments are recognized as revenue when earned.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year
37
<PAGE> 40
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
end based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce net deferred tax assets to
the amount expected to be realized. Income tax expense is the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding after giving effect to all dilutive
potential common shares that were outstanding during the period. The Company did
not have any dilutive potential common shares during the years ended December
31, 1997 and 1998. Net loss as reported is applicable to common shareholders and
was not adjusted for the computation of basic or diluted earnings per share.
The following table reconciles the weighted average number of common
shares outstanding during each year with the number for basic and diluted
earnings per share.
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Weighted average shares outstanding 22,479,835 23,294,348
Escrowed shares (291,663) (110,273)
----------- -----------
Weighted average shares outstanding -
basic and diluted 22,188,172 23,184,075
========== ==========
</TABLE>
COMPREHENSIVE INCOME
The Company does not have items of comprehensive income other than net
loss.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
Accounting for Derivative Instruments and Hedging Activities, which becomes
effective for years beginning after June 15, 1999, requires that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company believes that the effect of adoption of
SFAS 133 will not be material to the Company's financial statements.
38
<PAGE> 41
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications were made to the 1997 financial statements to
conform to the 1998 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
---------- -----------
<S> <C> <C>
Research and development equipment $ 2,319,304 $ 2,510,524
Office equipment 93,709 113,013
Leasehold improvements 320,772 320,772
Construction in progress 24,400 166,764
---------- ----------
2,758,185 3,111,073
Accumulated amortization and depreciation (2,311,324) (2,445,631)
----------- -----------
$ 446,861 $ 665,442
========== ==========
</TABLE>
4. INCOME TAXES
Significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
generated $ 4,589,700 $ 5,010,500
Research and development tax credit
carryforwards 226,100 226,100
Other deferred tax assets 431,400 452,800
---------- ---------
5,247,200 5,689,400
Valuation allowance (5,247,200) (5,689,400)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
</TABLE>
39
<PAGE> 42
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
Management has provided a full valuation allowance against total deferred
tax assets as of the balance sheet dates because the Company's ability to
generate sufficient future taxable income is uncertain.
As of December 31, 1998, the Company had net operating loss carryforwards
of approximately $12,974,000 for federal and state tax reporting purposes which
will expire in years 2006 to 2013. Due to certain changes in ownership, the
Company's ability to utilize tax net operating loss carryforwards arising prior
to April 1995 is limited.
5. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATION
Effective December 1, 1998, the Company entered into a cancelable
operating lease for approximately 24,000 square feet expiring in November 2008,
with an option to extend an additional five years, covering its existing
research facilities/office space and additional undeveloped space. The lease
provides for a tenant improvement allowance, available through January 2000, for
renovation and expansion; such allowance being repayable as additional rent over
the term of the lease and option. The lease requires the Company to pay its
pro-rata share of building operating expenses and administrative charges, and
provides for an annual increase in the base rent.
The terms of the lease provide the Company a one-time right to terminate
at the forty-eighth month. If the Company elects to terminate and does not
relocate to another building owned by the landlord, as defined, then the Company
will be required to reimburse the landlord the unamortized balance of the tenant
improvement allowance, as defined, and the unamortized balance of the broker's
fee (approximately $84,000). Future minimum lease payments assuming the
termination right is exercised are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C> <C>
1999 $ 375,400
2000 427,400
2001 440,200
2002 414,600
-------
$1,657,600
=========
</TABLE>
40
<PAGE> 43
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
Rent expense was approximately $232,000, $219,000, and $1,569,000 for the
years ended December 31, 1997 and 1998, and the period August 3, 1991
(inception) to December 31, 1998, respectively.
FACILITY RENOVATION AND EXPANSION
The Company has funded the preconstruction costs related to the
renovation and expansion of its facilities, and continues to review its plans
for the leased space. The current estimated cost for the building improvements
and related equipment and furnishings is approximately $2.5 million, of which
approximately $1.6 million would be covered by the tenant improvement allowance
available from the landlord.
6. STRATEGIC ALLIANCE
Effective March 1996, the Company entered into definitive agreements with
SmithKline Beecham Corporation and SmithKline Beecham Biologicals Manufacturing
s.a. ("SmithKline") which established a corporate joint venture, MicroCarb Human
Vaccines Inc. ("MCHV"), to develop and commercialize human bacterial vaccines
utilizing the Company's proprietary technologies. At December 31, 1998, the
agreements provide for the following: the option by SmithKline to provide annual
funding of research and development activities for future years; an exchange
option granted by the Company to SmithKline enabling SmithKline to convert its
26.25% equity interest in MCHV for 3,595,264 shares of the Company's common
stock, under specified conditions; and a warrant granted by the Company to
SmithKline enabling SmithKline to acquire up to 5,730,802 shares of the
Company's common stock, under specified conditions, and only to the extent that
stipulated options and warrants previously granted and outstanding as of the
date of the establishment of the strategic alliance are exercised. The
agreements also provide for SmithKline to make milestone payments and pay
royalties to MCHV; and for SmithKline to reimburse the Company for expenses the
Company incurs for agreed upon production lots of vaccines for clinical trials,
the conduct of agreed upon clinical trials, and agreed upon prosecution and
maintenance of the Company's patents and patent applications. As further
stipulated in the agreements, SmithKline will be responsible for conducting
additional clinical trials, manufacturing, and sales and distribution.
The Company recognized revenue related to human bacterial vaccine
research and development and qualifying reimbursable expenses pursuant to these
agreements of $4,096,338, $3,847,977, and $9,841,766 for the years ended
December 31, 1997 and 1998, and for the period August 3, 1991 (inception) to
December 31, 1998, respectively.
41
<PAGE> 44
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
7. TECHNOLOGY LICENSE AGREEMENTS
In December 1994, the Company entered into a technology license agreement
with Pasteur Merieux Connaught , whereby the Company granted an exclusive
license to develop, produce and market any product using the Company's
Haemophilus influenzae nontypeable Hin47 adhesion protein in all countries other
than those of the Asia-Pacific region, as defined. The Company earned a license
fee in 1994 and is entitled to milestone payments based on the licensee's
performance or the passage of time. Three such milestone payments have
subsequently been earned, including a $500,000 milestone payment in December
1998. Upon commercialization, the licensee is obligated to pay a guaranteed
minimum annual royalty to the Company on sales of any product incorporating the
Company's technology. The licensee has successfully completed Phase IA and Phase
IB clinical trials. A Phase IC clinical trial is in progress. The Company is
currently finalizing the renegotiation of certain provisions of the license
agreement.
In August 1994, the Company entered into a Cooperative Research and
Development Agreement ("CRADA") with the United States Navy, whereby the Company
granted Government Purpose License Rights to its Campylobacter vaccine
technology. In exchange for the rights granted, the United States Navy agreed to
conduct and fund the costs involved in Phase I, II and III clinical trials for
the vaccine, subject to the availability of required funds. The Company retained
all commercial rights to develop, produce and market any product involving the
Campylobacter technology. Either party may terminate the CRADA upon thirty days
written notice. Two Phase I clinical trials have been successfully completed. A
final report on the results of a Phase II clinical trial is being completed.
8. CAPITAL TRANSACTIONS
INITIAL PUBLIC OFFERING
In December 1992, the Company closed an initial public offering of
1,200,000 units at $6.00 per unit, each unit consisting of one share of the
Company's common stock and one warrant to purchase one share of the Company's
common stock at $7.50 per share. In January 1993, the Company sold an additional
180,000 units at $6.00 per unit. In December 1997, the warrants related to these
units expired.
PRIVATE PLACEMENT
In April 1995, the Company completed a private placement resulting in
gross proceeds to the Company of $3,525,000. Pursuant to the terms of the
private placement, the Company issued 70.5 units, each unit consisting of
142,860 shares of common stock and an equal number of Class B warrants. Each
Class B warrant entitled the holder thereof to purchase one share of common
stock
42
<PAGE> 45
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
at an exercise price of $0.50 per share. The Class B warrants were exercised in
their entirety in 1996 resulting in gross proceeds to the Company of
approximately $5,072,000.
In connection with the private placement, the Company issued to the
Placement Agent a unit purchase option granting the Placement Agent and any of
its designees the option to purchase 24.67 units from the Company at a purchase
price of $50,000 per unit. Each warrant comprising the Placement Agent's units
had the same terms and conditions as did a Class B warrant, except that it was
not subject to redemption by the Company. The unit purchase option was
exercisable for a two-year period commencing on March 24, 1998.
In June 1998, the Company offered the Placement Agent and its designees
the opportunity to exercise the units in their entirety on a cashless basis at
the then current price of the Company's common stock of $0.875 per share. The
offer was subsequently accepted and the units were exercised in their entirety.
The Company issued 7,048,712 shares of common stock under the terms of the
Placement Agent's unit purchase option, including 3,524,356 common shares for
the assumed exercise of the Class B warrants. As consideration for the exercise
of the Placement Agent's unit purchase option, the Company withheld 3,423,627
shares of common stock based upon the total consideration due of $2,995,674 at
the June 1998 common stock price of $0.875 per share. The shares withheld were
recorded as treasury shares.
Because the fair value of the common stock at September 23, 1998, the
date of issuance of the common stock, was $0.375, the Company recorded a charge
of $1,711,814 in the consolidated statement of operations, representing the
excess of the cost of the treasury shares over the fair value of the common
stock.
REVERSE STOCK SPLIT
On June 9, 1998, the stockholders approved resolutions authorizing the
Board of Directors, at its discretion, to effect by amendment of the Certificate
of Incorporation, prior to the next Annual Shareholders Meeting, a reverse stock
split in the range of one-for-four to one-for-ten. To date, no reverse stock
split has been effected.
COMMON STOCK
As of December 31, 1998, common stock reserved for future issuance
includes the following:
<TABLE>
<S> <C>
Common Stock Warrants:
SmithKline 5,730,802
Common Stock Options:
Stock option plans 9,189,375
SmithKline exchange option 3,595,264
---------
Total 18,515,441
==========
</TABLE>
43
<PAGE> 46
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
9. STOCK OPTION PLANS
1992 DIRECTORS' STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan, as amended, provides for the grant of
options to purchase up to an aggregate of 1,700,000 shares of the Company's
common stock to nonemployee directors. Under the Directors' Plan, upon initial
election to the Board, a director is granted an option to purchase the number of
shares of common stock equal to $20,000 ($10,000 if elected on or after the
six-month anniversary of the most recent annual shareholders meeting) divided by
the greater of the market price of the common stock on the date of grant or
$0.50. At the time of reelection to serve or upon continuing to hold office for
the following year, a director is granted an additional option to purchase the
number of shares of common stock equal to $20,000 divided by the greater of the
market price of the common stock on the date of the grant or $0.50. For
directors who have served for at least three years, this basic annual grant is
supplemented every third year by an additional grant of an option to purchase a
number of shares of common stock equal to 150% of the number of shares covered
by the basic grant. Vesting occurs quarterly in four equal installments over a
period of one year following the date of grant. Options granted under the
Directors' Plan have a term of five years.
1992 STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Stock Option Plan (the "Plan"). The
Plan, as amended, provides for the grant of options to purchase up to an
aggregate of 7,500,000 shares of the Company's common stock. The Plan provides
for the issuance of incentive stock options ("ISOs") to employees and
non-qualified stock options ("NQSOs") to employees and others. The exercise
price of ISOs must be at least equal to the fair market value of the Company's
common stock on the date of grant. Under the Plan, ISOs and NQSOs may have a
term of up to ten years.
STOCK OPTIONS OUTSTANDING
Stock options outstanding under these plans are as follows:
44
<PAGE> 47
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
DIRECTORS' PLAN PLAN
--------------- ----
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ------- ------ -------
<S> <C> <C> <C> <C>
December 31, 1996 111,300 $2.40 3,700,011 $1.03
Granted 101,052 $0.59 456,000 $0.84
Expired (10,000) $6.00 (22,875) $0.68
Exercised - (625) $0.69
-------- ----------
December 31, 1997 202,352 $1.32 4,132,511 $1.01
Granted 120,001 $0.75 1,365,000 $0.29
Expired (8,000) $6.00 (151,336) $0.64
--------- ----------
December 31, 1998 314,353 $0.98 5,346,175 $0.84
======= =========
</TABLE>
The range of exercise prices for options outstanding as of December 31,
1998 was $0.59 to $3.75 and $0.29 to $6.00 for the Directors' Plan and the Plan,
respectively. Additional information regarding options outstanding and
exercisable as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE OUTSTANDING EXERCISE LIFE EXERCISABLE EXERCISE
PRICE SHARES PRICE REMAINING SHARES PRICE
------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
$0.29 1,290,000 $0.29 9.8 years 39,684 $0.29
$0.37 to $0.56 3,025,000 $0.48 6.8 years 2,823,569 $0.48
$0.59 to $0.87 595,053 $0.74 6.6 years 336,613 $0.73
$0.97 to $1.81 378,808 $1.12 6.8 years 191,308 $1.27
$2.00 to $4.00 36,667 $2.93 4.2 years 36,667 $2.93
$6.00 335,000 $6.00 5.0 years 335,000 $6.00
------- -------
5,660,528 $0.85 3,762,841 $1.00
========= =========
</TABLE>
STOCK-BASED COMPENSATION DISCLOSURE
The Company has adopted the disclosure-only provisions of SFAS 123 for
its stock options plans. The Plan provides for the issuance of stock options
that generally vest over a four year period and have a maximum term of ten
years. The Directors' Plan provides for the issuance of stock options that vest
over a one year period and have a maximum term of five years. Had compensation
cost for the Company's stock option plans been determined on the fair value at
the grant date for awards in 1997 and 1998, consistent with the provisions of
SFAS 123, the Company's net loss would have been adjusted to the pro forma
amounts indicated below.
45
<PAGE> 48
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C> <C>
Net loss -- as reported $ (442,676) $(2,833,687)
SFAS 123 pro forma adjustment (340,892) (564,452)
----------- -----------
Net loss -- pro forma $ (783,568) $(3,398,139)
=========== ===========
Loss per share - basic and diluted,
as reported $(0.02) $(0.12)
====== ======
Loss per share - basic and diluted,
proforma $(0.04) $(0.15)
====== ======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C> <C>
Expected life (years) 9.09 9.60
Interest rate 6.86% 4.32%
Volatility 166.7% 223.0%
Dividend yield 0% 0%
</TABLE>
The weighted average remaining contractual life of options outstanding is
7.78 years and 7.34 years at December 31, 1997 and 1998, respectively. The
weighted average fair value of the options granted was $0.78 and $0.33 per
option for 1997 and 1998, respectively. The expense related to the value
ascribed to the stock options is recognized over the vesting period of one to
four years.
10. 401(k) PLAN AND EXECUTIVE COMPENSATION BENEFITS
The Company has a 401(k) Plan which covers all employees who have
completed six months of service and are at least 21 years of age. Each eligible
employee may potentially contribute up to 15% of their salary, subject to
certain annual limits. The Company does not match employee contributions.
As part of a deferred compensation plan adopted in 1993, the Company
established a "Rabbi Trust". The Trust holds the assets of the deferred
compensation plan; which could be available to creditors in the event of a
liquidation. Accordingly, an asset and a corresponding liability have been
recorded for financial reporting purposes resulting from $125,000 of
compensation deferred by an officer and capital appreciation thereon. In 1999,
the Board of Directors approved the termination of the deferred compensation
plan and the Trust.
In 1993, the Company entered into Split Dollar Agreements with two
officers whereby the Company pays the premiums on split dollar life insurance
policies held by these individuals. Under the terms of the agreements, the
officers are required to reimburse the Company for these
46
<PAGE> 49
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
premiums. However, since it is possible that the Company may waive this
reimbursement, no asset for the premiums has been recorded. The Company paid
approximately $88,900 and $50,200 in premium payments in 1997 and 1998,
respectively. In 1999, the Board of Directors approved the cancellation of the
agreements and waived the reimbursement of the related premiums.
11. OPERATING SEGMENTS
Prior to 1998, the Company devoted substantially all its efforts to a
single product segment, bacterial vaccines. In 1998, the Company established a
second reportable product segment, therapeutics. The therapeutics segment
focuses on research and development of drugs for infectious diseases and related
disorders. For 1998, only direct costs and fixed asset acquisitions were
attributed to the therapeutics segment.
The following table presents information regarding the two segments for
1998:
<TABLE>
<CAPTION>
Bacterial Reconciling
Category Vaccines Therapeutics Items Total
-------- --------- ------------ ---------- -----
<S> <C> <C> <C> <C>
Revenues $4,286,664 $ - $ 220,365 $ 4,507,029
Research and development expenses $3,909,964 $ 615,808 $ - $ 4,525,772
Profit (loss) from
operations $ 376,700 $(615,808) $(1,136,828) $(1,375,936)
Fixed asset acquisitions $ 179,970 $ 11,250 $ 290,958 $ 482,178
</TABLE>
Reconciling items include reimbursable patent costs of $220,365, general and
administrative expenses net of reimbursable patent costs of $1,136,828, and
corporate fixed asset acquisitions and construction in progress expenditures of
$290,958.
47
<PAGE> 50
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
Information with respect to the identification of directors and
executive officers is contained under the captions "Election of Directors" and
"Executive Officers" in the Company's proxy statement for the 1999 Annual
Meeting of the Stockholders and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information with respect to executive compensation is contained under
the caption "Executive Compensation" in the Company's proxy statement for the
1999 Annual Meeting of the Stockholders and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information with respect to the security ownership of certain
beneficial owners and management is contained under the caption "Voting
Securities and Principal Stockholders" in the Company's proxy statement for the
1999 Annual Meeting of the Stockholders and is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
48
<PAGE> 51
EXHIBITS
Exhibit Description
No.
3.1 Certificate of Incorporation (1)
3.2 Certificate of Merger relating to merger of BioCarb
Inc. with and into the Registrant as filed with the
Delaware Secretary of State on September 21, 1992 (1)
3.3 Certificate of Amendment to Certificate of
Incorporation (6)
3.4 Certificate of Ownership and Merger Merging Virgo
Biologicals Inc. Into MicroCarb Inc., dated August 16,
1996 (effecting the change in the corporate name from
MicroCarb Inc. to Antex Biologics Inc.) (8)
3.5 ByLaws, as amended (3)
4.1 Form of Common Stock Certificate (3)
*10.1 Amended and Restated Stock Option Plan, as amended (7)
*10.2 1992 Directors' Stock Option Plan, as amended (7)
*10.3 Employment Agreement dated as of January 1, 1996 by
and between the Company and V. M. Esposito (4)
*10.4 Employment Agreement dated as of May 1, 1998 by and
between the Company and Gregory C. Zakarian (10)
*10.5 Employment Agreement effective as of October 1, 1997
by and between the Company and Theresa M. Stevens
(Smith) (9)
*10.6 Employment Agreement effective as of December 1, 1998
by and between the Company and Larry R. Ellingsworth
(11)
10.7 Form of Confidentiality Agreement by and between the
Company and its employees (1)
10.8 Form of Inventions Disclosure Agreement by and between
the Company and its employees (1)
10.9 Form of Non-disclosure and Invention Assignment
Agreement by and between the Company and its employees
(1)
49
<PAGE> 52
10.10 Stock Purchase Agreement dated as of July 17, 1991 by
and between BioCarb AB and Howard C. Krivan, Ph.D. (2)
10.11 Lease effective December 1, 1998 by and between
ARE-QRS Corp. and the Company (11)
10.12 MicroCarb Human Vaccines Inc. Stockholders Agreement
dated May 6, 1996, effective March 1, 1996, by and
between the Company, SmithKline Beecham Biologicals
Manufacturing s.a., and MicroCarb Human Vaccines
Inc. (5)
10.13 Stock Purchase Agreement dated May 6, 1996, effective March
1, 1996, by and between MicroCarb Human Vaccines Inc., the
Company and SmithKline Beecham Biologicals Manufacturing
s.a. (Certain confidential information omitted) (5)
10.14 SKB Transitory License Agreement dated May 6, 1996,
effective March 1, 1996, by and between the Company and
SmithKline Beecham Biologicals Manufacturing s.a. (Certain
confidential information omitted) (5)
10.15 MicroCarb Vaccines License Agreement dated May 6, 1996,
effective March 1, 1996, by and between MicroCarb Human
Vaccines Inc. and the Company (Certain confidential
information omitted) (5)
10.16 Assignment of Transitory License Agreement and Restatement
of Rights and Obligations Under the Vaccines License
Agreement dated May 6, 1996, effective March 1, 1996, by and
between SmithKline Beecham Biologicals Manufacturing s.a.,
MicroCarb Human Vaccines Inc. and the Company (5)
10.17 Research and Development, Research Support and License
Agreement dated May 6, 1996, effective March 1, 1996, by and
between MicroCarb Human Vaccines Inc., the Company and
SmithKline Beecham Corporation (Certain confidential
information omitted) (5)
10.18 Exchange Option Agreement dated May 6, 1996, effective
March 1, 1996, by and between SmithKline Beecham
Biologicals Manufacturing s.a., the Company and
MicroCarb Human Vaccines Inc. (5)
10.19 Warrant to Purchase Common Stock of the Company dated May 6,
1996, effective March 1, 1996, issued to SmithKline Beecham
Biologicals Manufacturing s.a. (Certain confidential
information omitted) (5)
10.20 Registration Rights Agreement dated May 6, 1996, effective
March 1, 1996, by and between the Company and SmithKline
Beecham Biologicals Manufacturing s.a. (5)
50
<PAGE> 53
21.1 Subsidiaries of Registrant (11)
23.1 Consent of PricewaterhouseCoopers LLP (11)
27.1 Financial Data Schedule (11)
* Management plan or compensatory plan or arrangement
- --------------------------------------------------------------------------------
(1) Incorporated by reference to an exhibit to the Company's
Registration Statement on Form S-1 (Reg No.
33-53774) filed on October 27, 1992.
(2) Incorporated by reference to an exhibit to
Amendment No. 1 to the Company's Registration Statement on
Form S-1 filed on December 2, 1992.
(3) Incorporated by reference to an exhibit to
Amendment No. 2 to the Company's Registration Statement on
Form S-1 filed on December 15, 1992.
(4) Incorporated by reference to an exhibit to Form 10-QSB for
the quarter ended March 31, 1996 filed on May 20, 1996.
(5) Incorporated by reference to an exhibit to Form 8-K filed
on May 22, 1996.
(6) Incorporated by reference to an exhibit to Form 10-QSB for
the quarter ended March 31, 1997 filed on May 14, 1997.
(7) Incorporated by reference to an exhibit to Form S-8
(Registration No. 333-32377) filed on July 30, 1997.
(8) Incorporated by reference to an exhibit to Form 8-K filed on
September 9, 1996.
(9) Incorporated by reference to an exhibit to Form 10-QSB for
the quarter ended September 30, 1997 filed on November 6,
1997.
(10) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended June 30, 1998 filed on August 12, 1998.
(11) Filed herewith.
- -------------------------------------------------------------------------------
REPORTS ON FORM 8-K
None
51
<PAGE> 54
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANTEX BIOLOGICS INC.
Date: March 24, 1999 By: /s/V.M. Esposito
--------------------------------
V.M. Esposito, President and Chief
Executive Officer
(Principal Executive Officer)
Date: March 24, 1999 By: /s/Gregory C. Zakarian
--------------------------------
Gregory C. Zakarian, Treasurer and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date: March 24, 1999 By: /s/V.M. Esposito
--------------------------------
V. M. Esposito, Director
Date: March 24, 1999 By: /s/Charles J. Coulter
--------------------------------
Charles J. Coulter, Director
Date: March 24, 1999 By: /s/Donald G. Stark
--------------------------------
Donald G. Stark, Director
52
<PAGE> 55
EXHIBIT INDEX
Exhibit
No. Description
- ------- ------------
10.6 Employment Agreement effective as of
December 1, 1998 by and between the
Company and Larry R. Ellingsworth
10.11 Lease effective December 1, 1998 by
and between ARE-QRS Corp. and the
Company
21.1 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
53
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
ANTEX BIOLOGICS INC.
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of
December 1, 1998 is entered into by Antex Biologics Inc., a Delaware
corporation with its principal place of business at 300 Professional Drive,
Gaithersburg, Maryland 20879 (the "Company"), and Larry R. Ellingsworth, Ph.D.,
residing at 2672 Golf Island Road, Ellicott City, Maryland 21042, (the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to employ the Employee, and the
Employee desires to be employed by the Company;
NOW THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ
the Employee, and the Employee hereby accepts employment with the Company, upon
the terms set forth in this Agreement, for the period commencing on December 1,
1998 (the "Commencement Date") and ending on November 30, 2001 (such period, as
it may be extended, the "Employment Period"), unless sooner terminated in
accordance with the provisions of Section 4 hereof. Upon the third anniversary
of the Commencement Date and upon every third anniversary of the Commencement
Date thereafter, the term of the Employment Period shall be extended
automatically for three (3) additional years unless, at least six months prior
to such anniversary, the Company shall have delivered to the Employee or, at
least six (6) months prior to such anniversary, the Employee shall have
delivered to the Company, written notice that the term of the Employee's
employment hereunder will not be extended.
2. Title; Capacity. The Employee shall serve as Vice
President, Research and Development or in such other position as the Company or
its Board of Directors (the "Board") may determine from time to time. The
Employee shall be based at the Company's headquarters in Gaithersburg,
Maryland, or such place or places in the continental United States as the Board
shall determine. The Employee shall be subject to the supervision of, and shall
have such authority as is delegated to him by, the Board or such officer of the
Company as may be designated by the Board.
The Employee hereby accepts such employment and agrees to
undertake the duties and responsibilities inherent in such position and such
other duties and responsibilities as the Board or
1
<PAGE> 2
its designee shall from time to time reasonably assign to him. The Employee
agrees to devote his entire business time, attention and energies to the
business and interests of the Company during the Employment Period. He shall
not engage in any other business activity, except as may be approved by the
Company. The Employee agrees to abide by the rules, regulations, instructions,
personnel practices and policies of the Company and any changes therein which
may be adopted from time to time by the Company. The Employee acknowledges
receipt of copies of all such rules and policies committed to writing as of the
date of this Agreement.
3. Compensation and Benefits.
3.1 Salary. The Company shall pay the Employee,
in semi-monthly installments on the 15th and month-end or on the last working
day of such month, an annual base salary (the "Annual Base Salary") of One
Hundred Fifty-five Thousand Dollars ($155,000) for the period commencing on the
Commencement Date. Thereafter, upon each anniversary of the Commencement Date
(including the first anniversary thereof), following an annual review by the
Board, the Board may adjust the Employee's Annual Base Salary as it determines
in its sole discretion; provided, however, that the Board of Directors shall
not reduce the Annual Base Salary.
3.2 Fringe Benefits. The Employee shall be
entitled to participate in all bonus, stock option, benefit and insurance
programs that the Company establishes and makes available to its employees, if
any, to the extent that Employee's position, tenure, salary, age, health and
other qualifications make him eligible to participate.
The Employee shall be entitled to twenty (20) days paid vacation per year, to
be taken at such times as may be approved by the Board or its designee.
3.3 Reimbursement of Expenses. The Company shall
reimburse the Employee for all reasonable travel, entertainment and other
expenses incurred or paid by the Employee in connection with, or related to,
the performance of his duties, responsibilities or services under this
Agreement, upon presentation by the Employee of documentation, expense
statements, vouchers and/or such other supporting information as the Company
may request; provided, however, that the amount available for such travel,
entertainment and other expenses may be fixed in advance by the Board.
3.4 Bonus. The Employer shall, subject to
approval of the Board, pay to the Employee an appropriate bonus (the "Bonus")
with respect to each completed year of employment. The Bonus shall be paid to
Employee in one lump sum on or prior to January 31 of each year for the
one-year period of employment, or portion thereof, ending on the preceding
December 31.
4. Employment Termination. The employment of the
Employee by the Company pursuant to this Agreement shall terminate upon the
occurrence of any of the following:
4.1 Expiration of the Employment Period in
accordance with Section 1 hereof and if the term is not extended in accordance
with Section 1 hereof, then the provisions of Section 4.4 hereof shall apply;
2
<PAGE> 3
4.2 At the election of the Company, for cause,
immediately upon written notice by the Company to the Employee. For the
purposes of this Section 4.2, cause for termination shall be deemed to exist
upon (a) a good faith finding by the Company of failure of the Employee to
perform his assigned duties for the Company, dishonesty, gross negligence or
misconduct, or (b) the conviction of the Employee of, or the entry of a
pleading of guilty or nolo contendere by the Employee to, any crime involving
moral turpitude or any felony;
4.3 Upon the death or ninety (90) days after the
disability of the Employee. As used in this Agreement, the term "disability"
shall mean the inability of the Employee, due to a physical or mental
disability, for a period of ninety (90) days, whether or not consecutive,
during any three hundred sixty (360)-day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Employee and the Company, provided that
if the Employee and the Company do not agree on a physician, the Employee and
the Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties;
4.4 At the election of the Company, upon not less
than six (6) months' prior written notice of termination to the Employee. At
the option of the Company and in lieu of such notice, the Company may pay to
Employee an amount equal to (i) six (6) months' salary computed on the basis of
the then current Annual Base Salary plus (ii) any bonus to which Employee is
entitled. If the Company elects to pay such amount in lieu of notice it shall,
at the expense of the Company, continue Employee's participation in all
benefits programs including but not limited to medical, dental and life
insurance programs provided by the Company to the Employee under Section 3.2
hereof on the date on which such amount is paid (the "Payment Date") until a
date six (6) months after the Payment Date. In the event Employee's termination
is related to a "change of control" and occurs within one (1) year of such
change of control the notice or salary in lieu of notice and participation in
the benefits program will be for twelve (12) months. In the event that Employee
commences employment or self-employment during the period the Company is making
payments then the salary payment maybe reduced by the amount the Employee
receives through employment or self-employment and the benefits will terminate
on the date Employee becomes eligible to participate in the benefits program
pursuant to employment or self-employment. The exercise of stock options and
any modifications to the exercise period will be in accordance with the
Company's Amended and Restated Stock Option Plan.
4.5 At the election of the Employee, upon not
less than six (6) months prior written notice of termination to the Company.
5. Effect of Termination.
5.1 Termination for Cause or at Election of
Either Party. In the event the Employee's employment is terminated for cause
pursuant to Section 4.2 hereof, or at the election of the Employee pursuant to
Section 4.5 hereof, the Company shall pay to the Employee the compensation and
benefits otherwise payable to him under Section 3 hereof through the last day
of his actual employment by the Company.
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<PAGE> 4
5.2 Termination for Death or Disability. If the
Employee's employment is terminated by death or because of disability pursuant
to Section 4.3 hereof, the Company shall pay to the estate of the Employee or
to the Employee, as the case may be, the compensation which would otherwise be
payable to the Employee up to the end of the month in which the termination of
his employment because of death or disability occurs.
5.3 Survival. The provisions of Sections 6 and 7
hereof shall survive the termination of this Agreement.
6. Non-Competition.
(a) During the Employment Period and for a period
of two (2) years after the termination or expiration thereof, the Employee will
not directly or indirectly:
(i) as an individual proprietor, partner,
stockholder, officer, employee, director, joint venturer, investor, lender, or
in any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), engage
in the business of developing, producing, marketing or selling products of the
kind or type developed or being developed, produced, marketed or sold by the
Company while the Employee was employed by the Company; or
(ii) recruit, solicit, or induce, or attempt to
induce, any employee or employees of the Company to terminate their employment
with, or otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to
divert or to take away, the business or patronage of any of the clients,
customers or accounts, or prospective clients, customers or accounts, of the
Company which were contacted, solicited or served by the Employee while
employed by the Company.
(b) If any restriction set forth in this Section
6 is found by any court of competent jurisdiction to be unenforceable because
it extends for too long a period of time or over too great a range of
activities or in too broad a geographic area, it shall be interpreted to extend
only over the maximum period of time, range of activities or geographic area as
to which it may be enforceable.
(c) The restrictions contained in this Section 6
are necessary for the protection of the business and goodwill of the Company
and are considered by the Employee to be reasonable for such purpose. The
Employee agrees that any breach of this Section 6 will cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Company
shall have the right to seek specific performance and injunctive relief.
7. Proprietary Information and Development.
7.1 Proprietary Information.
4
<PAGE> 5
(a) Employee agrees that all information and
know-how, whether or not in writing, or a private, secret or confidential
nature concerning the Company's business or financial affairs (collectively,
"Proprietary Information") is and shall be the exclusive property of the
Company. By way of illustration, but not limitation, Proprietary Information
may include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data, clinical
data, financial data, personnel data, computer programs, and customer and
supplier lists. Employee will not disclose any Proprietary Information to
others outside the Company or use the same for any unauthorized purposes
without written approval by an officer of the Company, either during or after
his employment, unless and until such Proprietary Information has become public
knowledge without fault by the Employee.
(b) Employee agrees that all files, letters,
memoranda, reports, records, data, sketches, drawings, laboratory notebooks,
program listings, or other written, photographic, or other tangible material
containing Proprietary Information, whether created by the Employee or others,
which shall come into his custody or possession, shall be and are the exclusive
property of the Company to be used by the Employee only in the performance of
his duties for the Company.
(c) Employee agrees that his obligation not to
disclose or use information, know-how and records of the types set forth in
paragraphs (a) and (b) above, also extends to such types of information,
know-how, records and tangible property of customers of the Company or
suppliers to the Company or other third parties who may have disclosed or
entrusted the same to the Company or to the Employee in the course of the
Company's business.
7.2 Developments.
(a) Employee will make full and prompt disclosure
to the Company of all inventions, improvements, discoveries, methods,
developments, software, and works of authorship, whether patentable or not,
which are created, made, conceived or reduced to practice by the Employee or
under his direction or jointly with others during his employment by the
Company, whether or not during normal working hours or on the premises of the
Company (all of which are collectively referred to in this Agreement as
"Developments").
(b) Employee agrees to assign and does hereby
assign to the Company (or any person or entity designated by the Company) all
his right, title and interest in and to all Developments and all related
patents, patent applications, copyrights and copyright applications. However,
this Section 7.2 (b) shall not apply to Developments which do not related to
the present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working hours,
not on the Company's premises and not using the Company's tools, devices,
equipment or Proprietary Information.
(c) Employee agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect to
the procurement, maintenance and enforcement of copyrights and patents (both in
the United States and foreign countries) relating to Developments. Employee
shall sign all papers, including, without limitation, copyright applications,
patent applications, declarations, oaths, formal assignments, assignment of
priority rights, and
5
<PAGE> 6
powers of attorney, which the Company may deem necessary or desirable in order
to protect its rights and interests in any Development.
7.3 Other Agreements. Employee hereby represents
that he is not bound by the terms of any agreement with any previous employer
or other party to refrain from using or disclosing any trade secret or
confidential or proprietary information in the course of his employment with
the Company or to refrain from competing, directly or indirectly, with the
business of such previous employer or any other party. Employee further
represents that his performance of all terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by him in
confidence or in trust prior to his employment with the Company.
8. Prior Agreements. This Agreement supersedes an
Employment Agreement dated as of December 1, 1997 by and between the Employer
and Employee (the "Prior Agreement") and, as of the date hereof, the Prior
Agreement shall be of no further force and effect.
9. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular forms of nouns and pronouns shall include the
plural, and vice versa.
11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
12. Amendment. This Agreement may be amended or modified
only by a written instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Maryland.
14. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of both parties and their respective successors
and assigns, including any corporation with which or into which the Company may
be merged to which may succeed to its assets or business, provided, however,
that the obligations of the Employee are personal and shall not be assigned by
him.
15. Miscellaneous.
15.1 No delay or omission by the Company in
exercising any right under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by the
6
<PAGE> 7
Company on any one occasion shall be effective only in that instance and shall
not be construed as a bar or waiver of any right on any other occasion.
15.2 The captions of the sections of this
Agreement are for convenience of reference only and in no way define, limit of
affect the scope or substance of any section of this Agreement.
15.3 In case any provision of this Agreement shall
be invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year set forth above.
ANTEX BIOLOGICS INC.
by /s/V. M. Esposito
------------------------------
V. M. Esposito, Ph.D.
President and CEO
Chairman of the Board of Directors
Employee
/s/Larry R. Ellingsworth
------------------------------
Larry R. Ellingsworth, Ph.D.
7
<PAGE> 1
Exhibit 10.11
LEASE
BY AND BETWEEN
ARE-QRS, CORP.
as Landlord
and
ANTEX BIOLOGICS INC.
as Tenant
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. Lease of Premises ....................................... -1-
2. Basic Lease Provisions .................................. -2-
3. Term .................................................... -4-
4. Possession and Commencement Date ........................ -4-
5. Rent .................................................... -6-
6. Rent Adjustments ........................................ -8-
7. Operating Expenses ...................................... -8-
8. Rentable and Usable Area ............................... -14-
9. Security Deposit ....................................... -15-
10. Use .................................................... -16-
11. Brokers................................................. -19-
12. Holding Over ........................................... -19-
13. Taxes on Tenant's Property ............................. -20-
14. Condition of Demised Premises .......................... -21-
15. Common Areas, Roof and Parking Facilities .............. -21-
16. Utilities and Services ................................. -22-
17. Alterations ............................................ -25-
18. Repairs and Maintenance ................................ -27-
19. Liens .................................................. -28-
20. Indemnification and Exculpation ........................ -29-
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<PAGE> 3
21. Insurance - Waiver of Subrogation ........................... -30-
22. Damage or Destruction ....................................... -32-
23. Eminent Domain .............................................. -34-
24. Defaults and Remedies ....................................... -35-
25. Assignment or Subletting .................................... -39-
26. Attorneys' Fees and Costs ................................... -42-
27. Bankruptcy .................................................. -42-
28. Estoppel Certificate ........................................ -43-
29. Intentionally Omitted ....................................... -43-
30. Definition of Landlord; Limitation of Landlord's Liability .. -43-
31. Project Control by Landlord ................................. -44-
32. Quiet Enjoyment ............................................. -45-
33. Quitclaim Deed .............................................. -45-
34. Rules and Regulations ....................................... -46-
35. Subordination and Attornment ................................ -46-
36. Surrender ................................................... -47-
37. Waiver and Modification ..................................... -47-
38. Waiver of Jury Trial and Counterclaims ...................... -47-
39. Intentionally Omitted ....................................... -48-
40. Hazardous Materials ......................................... -48-
41. Right to Extend Term ........................................ -51-
42. Tenant's Right for Early Termination ........................ -52-
ii
<PAGE> 4
43. Miscellaneous .................................................... -53-
iii
<PAGE> 5
LEASE
THIS LEASE is made as of December 1, 1998 ("Effective Date"), by and
between ARE-QRS CORP., a Maryland corporation ("Landlord") and ANTEX BIOLOGICS
INC., a Delaware ("Tenant").
RECITALS
A. On January 13, 1989, BioCarb AB, predecessor in interest to Tenant,
executed that certain Lease ("Existing Lease") for the "Existing Space"
(defined below) with Crown Pointe Center Venture, a Maryland single purpose
partnership, as landlord ("Prior Landlord") pursuant to which Tenant leases the
Existing Space.
B. Landlord is the owner of the "Building" (defined below) and has
succeeded to the interest of Prior Landlord under the Existing Lease.
C. On the Effective Date, Tenant and Landlord executed that certain
Lease Termination providing for the termination of the Existing Lease on the
Effective Date.
1. LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord upon the terms and conditions hereof, those certain premises including
the "Existing Space" and the "Expansion Space" (both as defined below,
collectively the "Demised Premises") within the building located at the address
set forth below (the "Building"). The Demised Premises are comprised of
approximately 15,054 rentable square feet of space on the first floor of the
Building (the "Existing Space") and approximately 4,461 rentable square feet of
adjacent and contiguous space on the first floor of the Building (the "Block A
Space") and approximately 4,649 rentable square feet of adjacent and contiguous
space on the first floor of the Building (the "Block B Space", the Block A
Space and the Block B Space being collectively referred to herein as the
"Expansion Space") crosshatched on the floor plan attached hereto as Exhibit
"A", and are situated on the floor and suite(s) of the Building as set forth in
Section 2.1.2. The real property upon which the Building is located and all
landscaping, parking facilities and other improvements and appurtenances
related thereto, are hereinafter collectively referred to as the "Land,"the
site plan and legal description for which is attached hereto as Exhibit "B".
All portions of the Building and Land which are for the non-exclusive use of
tenants of the Building, including, without limitation, driveways, sidewalks,
parking areas, landscaped areas, service corridors, stairways, elevators,
public restrooms and building lobbies, are hereinafter referred to as "Common
Area".
<PAGE> 6
2. BASIC LEASE PROVISIONS
2.1. For convenience of the parties, certain basic provisions of this
Lease are set forth herein. The provisions set forth herein are subject to the
remaining terms and conditions of this Lease and are to be interpreted in light
of such remaining terms and conditions.
<TABLE>
<S> <C> <C>
2.1.1 Address of the Building: 300 Professional Drive,
Gaithersburg, Maryland 20879
2.1.2 Designation of the Demised Premises:
Suite(s): 100
Floor(s): first
2.1.3 (a) Rentable Area of Demised Premises: 24,164 sq. ft.
(b) Rentable Area of Building: 47,558 sq. ft.
2.1.4 Initial Basic Annual Rent for the Demised Premises:
(24,164 sq.ft). x ($1.4275 per sq.ft.) x (12 months) = $413,929.32
(a) Initial Basic Annual Rent for Existing Space:
(15,054 sq.ft). x ($1.4275 per sq.ft.) x (12 months) = $257,875.02
(b) Initial Basic Annual Rent for Block A Space:
(4,461 sq.ft). x ($1.4275 per sq.ft.) x (12 months) = $ 76,416.93
(c) Initial Basic Annual Rent for Block B Space:
(4,649 sq.ft). x ($1.4275 per sq.ft.) x (12 months) = $ 79,637.37
2.1.5 Initial Monthly Rental Installments of Basic Annual
Rent for the Demised Premises:
(24,164 sq.ft). x ($17.13 per sq.ft.) /12 = $34,494.11
2.1.6 Tenant's Pro Rata Share: 50.81 %
2.1.7 (A) Term Commencement Date: As defined in Section 4.2 hereof.
(b) Rent Commencement Date: As defined in Section 4.2 hereof.
(c) Term Expiration Date: 120 calendar months
from the Term Commencement Date, subject to
extension or earlier termination as provided
herein.
</TABLE>
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<PAGE> 7
2.1.8 Security Deposit: $173,888.98 (i.e. 6 x (.1722 x
24,164 x $67/12) + 34,494.11) subject to adjustment
in accordance with Section 9 hereof; provided that
the security deposit held by Landlord under the
Existing Lease in the amount of $16,935.15, plus
interest in the amount of $10,355.35 shall be
retained by Landlord and applied toward this amount.
2.1.9 Permitted Use: Scientific research and development,
including facilities for animals and bio-hazard level
3 ("BL3") and other types of laboratories and related
office, conference, library, computer and storage
uses consistent with Section 10 hereof.
2.1.10 Address for Rent Payment (rent checks shall be made
payable to Landlord):
135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101
Attention: Accounts Receivable
Address for Notices to Landlord:
135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101
Attention: General Counsel
2.1.11 Address for Notices to Tenant:
300 Professional Drive, Suite 100
Gaithersburg, MD 20879
Attention: Greg Zakarian
With a copy to:
300 Professional Drive, Suite 100
Gaithersburg, MD 20879
Attention: V.M. Esposito
With a copy to:
Covington & Burling
1201 Pennsylvania Ave.
P.O. Box 1566
Washington, DC 20044
Attn: Alfred H. Moses, Esq.
2.1.12 Guarantor of Lease: None.
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<PAGE> 8
2.1.13 The following Exhibits are attached hereto and
incorporated herein:
<TABLE>
<S> <C> <C>
Exhibit "A" Demised Premises
Exhibit "B" Land
Exhibit "C" Work Letter
Exhibit "D-1" Commencement Date
Exhibit "D-2" Improvement Rent Commencement Date
Exhibit "E" Rules and Regulations
Exhibit "F" Existing Tenant Fixtures
Exhibit "G" Estoppel Certificate
</TABLE>
3. Term
3.1. This Lease shall take effect upon the Effective Date and,
except as specifically otherwise provided within this Lease, each of the
provisions hereof shall be binding upon and inure to the benefit of Landlord
and Tenant, and each of their respective successors and permitted assigns, from
the Effective Date.
3.2. The term of this Lease (the "Term") will be that period from
the Term Commencement Date as defined in Section 4.2 below through the Term
Expiration Date, as such may be terminated or extended as provided herein.
4. Possession and Commencement Date
4.1. Tenant is currently in possession of the Existing Space pursuant
to the Existing Lease and Tenant shall remain in possession of the Existing
Space on the Effective Date. Landlord shall tender possession of the Expansion
Space which includes both the Block A Space and the Block B Space, to Tenant
vacant and broom clean on or before the date which is 30 days after the
Effective Date (the date on which Landlord actually delivers the Expansion Space
to Tenant being referred to herein as the "Expansion Commencement Date"), it
being understood that Tenant's obligation to pay rent on the Expansion Space
shall not commence until the Block A Rent Commencement Date (as defined below)
and the Block B Rent Commencement date (as defined below), as the case may be.
Tenant agrees that in the event Landlord fails to tender possession of the
Expansion Space with Landlord's Work Substantially Completed on or before the
Expansion Completion Date, Landlord shall not be liable to Tenant for any loss
or damage resulting therefrom, and this Lease shall not be void or voidable
except as specifically provided in this Section 4.1. If Landlord has not
tendered possession of the Expansion Space with Landlord's Work Substantially
Completed on or before the date which is ninety (90) days after the Expansion
Commencement Date, then Tenant may, by written notice to Landlord delivered
within ten (10) days thereafter, elect to terminate this Lease. In the event
this Lease is terminated pursuant to this Section 4.1, the Security Deposit
shall be returned to Tenant and neither Landlord nor Tenant shall have any
further rights, duties or obligations under this Lease, except with respect to
provisions which, by their terms, survive termination of this Lease
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<PAGE> 9
4.2. the "Term Commencement Date" shall be the Effective Date.
tenant's obligation to pay rent on the Existing space shall commence on the
Effective Date (the "Existing Space Rent Commencement Date"). Tenant's
obligation to pay rent on the block a space shall commence 60 days after the
Expansion Commencement Date (the "Block A rent commencement date"). Tenant's
obligation to pay rent on the block b space shall commence 180 days after the
expansion commencement date (the "Block B Rent Commencement Date"). Landlord
and Tenant shall each execute and deliver to the other written acknowledgment
of the Term Commencement Date, the Block A Rent Commencement Date, the Block B
Rent Commencement Date, and the Term Expiration Date when each such date is
established and shall attach the acknowledgment to this Lease as part of
Exhibit "D-1"; provided, however, failure to execute and deliver such
acknowledgments shall not affect Landlord or Tenant's rights or liabilities
hereunder. The Existing Space Rent Commencement Date, the Block A Rent
Commencement Date and the Block B Rent Commencement Date, as applicable, are
sometimes referred to herein as the "Rent Commencement Date."
4.3. Tenant shall have the right to enter upon the Expansion Space
at any time following the Expansion Commencement Date (or earlier if available)
for the purpose of completing Tenant's Work (as defined in the Work Letter);
provided, however, that Tenant shall first furnish to Landlord evidence
satisfactory to Landlord that insurance coverages required of Tenant under the
provisions of Article 21 are in effect, and provided further that such entry
shall be subject to all the terms and conditions of this Lease other than the
payment of Basic Annual Rent or Tenant's Pro Rata Share of Operating Expense.
4.4. Tenant may, at the option of Tenant, cause to be constructed
one or more projects of tenant improvements to the Demised Premises
(collectively, the "Tenant Improvements"). The Tenant Improvements shall be
subject to the terms of Section 16 of this Lease and shall be completed in
accordance with the Work Letter. Tenant shall be reimbursed, in accordance with
the terms of the Work Letter, for the cost to construct the Tenant Improvements
in an aggregate amount for the Tenant Improvements not to exceed the sum of the
"Basic Allowance" (as defined below) plus the "Additional Allowance" (as
defined below) (the Basic Allowance plus the Additional Allowance being
collectively referred to in this lease as the "Tenant Improvement Allowance").
The "Basic Allowance" means the product of (a) Twenty Dollars ($20.00)
multiplied by (b) the rentable square footage of the Expansion Space. The
"Additional Allowance" means the product of (a) Sixty Seven Dollars ($67.00)
multiplied by (b) the rentable square footage of the entire Dismised Premises.
The Tenant Improvement Allowance shall include the amount of eighteen thousand
dollars ($18,000) (which amount shall constitute Additional Rent) for the cost
of construction, project management by Landlord, cost of space planning,
architect, engineering and other related services, building permits and other
planning and inspection fees. If Landlord reasonably determines that the total
cost of the Tenant Improvements will exceed the Tenant Improvement Allowance,
then Tenant shall immediately, and as a condition to Landlord's obligation to
expend or disburse any portion of the Tenant Improvement Allowance, deposit
with Landlord an amount sufficient to pay such excess costs ("Tenant Excess
Cost Deposit") in cash or a Letter of Credit (as defined in Section 43.14).
Tenant shall have until the date which is twelve (12) months after the Block A
Rent Commencement Date to expend the
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<PAGE> 10
unused portion of the Tenant Improvement Allowance, after which date Landlord's
obligation to fund the Tenant Improvement Allowance shall expire.
1. Rent
5.1 Basic Annual Rent. Tenant shall pay annual rent as follows
("Basic Annual Rent"):
5.1.1. Commencing on the Term Commencement Date, Tenant
shall pay to Landlord as Basic Annual Rent for the Existing Space, the sum set
forth in Section 2.1.4(a) subject to the rental increases provided in Section 6
hereof;
5.1.2. Commencing on the Block A Rent Commencement Date,
Tenant shall pay to Landlord as Basic Annual Rent for the Block A Space, the
sum set forth in Section 2.1.4(b) subject to the rental increases provided in
Section 6 hereof.
5.1.3. Commencing on the Block B Rent Commencement Date,
Tenant shall pay to Landlord as Basic Annual Rent for the Block B Space, the
sum set forth in Section 2.1.4(c) subject to the rental increases provided in
Section 6 hereof.
Basic Annual Rent shall be paid in the equal monthly installments set forth in
Section 2.1.5, subject to the rental increases provided in Section 6 hereof,
each in advance on the first day of each and every calendar month during the
Term. Notwithstanding anything to the contrary set forth herein, Tenant shall
have no obligation to pay Basic Annual Rent for any period prior to the Term
Commencement Date.
5.2. Additional Rent. In addition to Basic Annual Rent, Tenant
agrees to pay to Landlord as additional rent ("Additional Rent") at times
hereinafter specified in this Lease (i) Tenant's pro rata share, as set forth
in Section 2.1.6 ("Tenant's Pro Rata Share") of Operating Expenses as provided
in Section 7 and (ii) any other amounts that Tenant assumes or agrees to pay
under the provisions of this Lease that are owed to Landlord, including,
without limitation, any and all other sums that may become due by reason of any
default of Tenant or failure on Tenant's part to comply with the agreements,
terms, covenants and conditions of this Lease to be performed by Tenant, after
notice and lapse of applicable cure period.
5.3. Improvement Rent
5.3.1. In the event and to the extent that Tenant elects
to receive any portion of the Tenant Improvement Allowance pursuant to Section
4.4, in addition to the Basic Annual Rent, Tenant further agrees to pay to
Landlord as additional rent the "Improvement Rent" (defined below), calculated
in accordance with this Section 5.3.
5.3.2. The "Improvement Rent" for each year during the
Lease Term shall be equal to the product of (a) Seventeen and twenty-two
one-hundredths percent (17.22%) multiplied by (b) the aggregate amount of the
Additional Allowance actually distributed to or on
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behalf of Tenant as of the Improvement Rent Commencement Date (as defined
below). The Improvement Rent shall commence on the Improvement Rent
Commencement Date.
5.3.3. The "Improvement Rent Commencement Date" shall be
the earliest of (i) the date Tenant has Substantially Completed the Tenant
Improvements; (ii) the date Tenant is open for business in both the Block A
Space and Block B Space; (iii) the date the certificates of occupancy (either
temporary or permanent) have been issued for both the Block A Space and Block B
Space by the municipal agency having jurisdiction over the Demised Premises;
(iv) the date which is twelve (12) months after the Effective Date, or (v) such
earlier date as provided in the Work Letter or as the parties hereto may agree.
Landlord and Tenant shall each execute and deliver to the other written
acknowledgment of the Improvement Rent Commencement Date when such is
established and shall attach the acknowledgment to this Lease as part of
Exhibit "D-2"; provided, however, failure to execute and deliver such
acknowledgment shall not affect Landlord or Tenant's rights or liabilities
hereunder.
5.3.4. The Improvement Rent shall be paid in equal monthly
installments, each in advance on the first day of each and every calendar month
during the Term subsequent to the Improvement Rent Commencement Date.
5.3.5. Prior to the Improvement Rent Commencement Date,
Tenant shall pay Landlord, as Additional Rent, a monthly amount equal to one
percent (1.00%) of the average aggregate amount of the Additional Allowance
theretofore distributed to or on behalf of Tenant and outstanding during such
month (the "Additional Allowance Charge"). The Additional Allowance Charge
shall be payable monthly in arrears commencing with the first day of the month
following the first date upon which a distribution of the Additional Allowance
is made, and ending on the Improvement Rent Commencement Date (the
"Construction Period"). Landlord shall deduct the Additional Allowance Charge
from the Additional Allowance on a monthly basis during the Construction
Period. In the event the full amount of the Additional Allowance has been
distributed, Tenant shall pay the Additional Allowance Charge due for the
preceding month in cash on the first day of each month during the Construction
Period.
5.1. Rent Credit. So long as no default exists or is continuing
hereunder, Tenant shall be entitled to a credit against Basic Annual Rent an
amount equal to Two Thousand Three Hundred Thirty-Five Dollars ($2,335.00) per
month for each of the 120 calendar months after the Term Commencement Date.
5.5. Rent. Basic Annual Rent, Improvement Rent and Additional Rent
shall together be denominated "Rent". Except as provided in Section 5.4, Rent
shall be paid to Landlord, without abatement, deduction, or offset, in lawful
money of the United States of America, at the office of Landlord as set forth
in Section 2.1.10 or to such other person or at such other place as Landlord
may from time designate in writing. In the event the Term commences or ends on
a day other than the first day of a calendar month, then the Rent for such
fraction of a month shall be prorated for such period on the basis of the
actual number of days in such month and shall be paid at the then current rate
for such fractional month.
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6. Rent Adjustments
6.1. Basic Annual Rent shall be adjusted upward on the first day of
the calendar month following the expiration of the first twelve (12) full
calendar months following the Term Commencement Date, and on such date every
year thereafter during the Term (each, a "Rent Adjustment Date") in an amount
equal to three percent (3.0%) of the prior year's Basic Annual Rent as the same
may be adjusted upward from time to time.
7. Operating Expenses
7.1. As used herein, the term "Operating Expenses" shall include:
7.1.1. Government impositions including, without limitation,
property tax costs consisting of real and personal property taxes and
assessments including amounts due under any improvement bond upon the Building
or the Land, including the parcel or parcels of real property upon which the
Building are located or assessments levied in lieu thereof imposed by any
governmental authority or agency; any tax on or measured by gross rentals
received from the rental of space in the Building (unless such tax is a tax on
Landlord's income from the Building or a tax in lieu thereof), or tax based on
the square footage of the Demised Premises or the Building as well as any
parking charges, utilities surcharges, or any other costs levied, assessed or
imposed by, or at the direction of, or resulting from statutes or regulations,
or interpretations thereof, promulgated by any federal, state, regional,
municipal or local government authority in connection with the use or occupancy
of the Building or the parking facilities serving the Building; any tax on this
transaction or any document to which Tenant is a party creating or transferring
an interest in the Demised Premises; any fee for a business license to operate
an office building; and any expenses, including the reasonable cost of attorneys
or experts, reasonably incurred by Landlord in seeking reduction by the taxing
authority of the applicable taxes, less tax refunds obtained as a result of an
application for review thereof. Operating Expenses shall not include any net
income, franchise, capital stock, estate or inheritance taxes or taxes which are
the personal obligation of Tenant or of another tenant of the Building.
7.1.2 All other costs of any kind paid or incurred by
Landlord in connection with the operation and maintenance of the Building and
Land including, by way of examples and not as a limitation upon the generality
of the foregoing, costs of repairs and replacements to the Building or the
other improvements within the Building or Land as appropriate to maintain the
Building and Land as required hereunder including cost of funding such
reasonable reserves as Landlord, consistent with good business practice, may
establish to provide for future repairs and replacements costs of utilities
furnished to the Common Areas; sewer fees; trash collection; cleaning,
including windows; heating; ventilation; air-conditioning; maintenance of
landscape and grounds; maintenance of drives and parking areas; security
services and devices; building supplies; maintenance for and replacement of
equipment utilized for operation and maintenance of the Building and Land;
license, permit and inspection fees; sales, use and excise taxes on goods and
services purchased by Landlord in connection with the operation, maintenance or
repair of the Building systems and on-site equipment; telephone, postage,
stationary supplies and other
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expenses incurred in connection with the operation, maintenance, or repair of
the Building; accounting, legal and other professional fees and expenses
incurred in connection with the operation of the Building; the cost of
furniture, draperies, carpeting, landscaping and other customary and ordinary
items of personal property provided by Landlord for use in Common Areas;
capital expenditures (amortized using a ten percent (10%) interest rate over a
period equal to the shorter of (i) the useful life of the item as determined by
reference to the vendor's or manufacturer's suggested useful life for such
capital improvements or, where such reference does not exist, by reference to
generally accepted accounting principles, consistently applied, and (ii) seven
years); costs of complying with any applicable laws or hazardous waste
remediation rules or regulations which are first enacted after the date hereof
or which are incurred in connection with an act or omission of Tenant, its
agents, employees, contractors or invitees; insurance premiums, including
premiums for public liability, property casualty, earthquake and environmental
coverages; portions of insured losses paid by Landlord as part of the
deductible portion of such losses by reason of insurance policy terms; service
contracts; costs of services of independent contractors retained to do work of
nature or type herein referenced; and costs of compensation (including
employment taxes and fringe benefits) of all persons at or below the level of
property manager who perform regular and recurring duties connected with the
day-to-day operation and maintenance of the Building, its equipment, the
adjacent walks, landscaped areas, drives, and parking areas, including without
limitation, janitors, floor waxers, window-washers, watchmen, gardeners,
sweepers, and handymen and costs of management services, which costs of
management services shall not exceed three percent (3%) of the Basic Annual
Rent (excluding Improvement Rent) due from Tenant.
7.1.3 Not withstanding the foregoing, Operating Expenses
shall not include any of the following (but the exclusion of any such items
from Operating Expenses shall not prohibit Landlord from charging Tenant
therefor as Additional Rent to the extent otherwise expressly provided herein):
(l) Payments of principal, interest, or other finance charges
made on any debt, or the amortization of funds borrowed by Landlord;
(2) Ground rent, master lease rent, or other rental payments made
under any ground lease or other underlying lease;
(3) Costs of leasing commissions, legal, space planning, construction,
and other expenses incurred in procuring tenants for the Building or with
respect to other individual tenants or occupants of the Building;
(4) Costs of painting, redecorating, or other services or work
performed for the benefit of another tenant or occupant (other than for Common
Areas);
(5) Salaries, wages, or other compensation paid to officers or
executives of Landlord;
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(6) Management fees in excess of three percent (3%) of the Gross
Revenues for all tenants. For the purposes of this subsection, Gross Revenues
shall mean: annual base rentals paid by Building tenants; amounts of such
tenant's rental abatement; and other income from the use or occupancy of the
Building, accrued or collected with respect to the Building, but shall exclude
revenue from parking and/or other Building concessions;
(7) Non-cash items, such as deductions for depreciation and
amortization of the Building and the Building equipment, interest on capital
invested, and bad debt losses, rent losses and reserves for such losses;
(8) Any wages, salaries, fees, fringe benefits, or other compensation
paid to (i) off-site employees of any property management organization being
paid a fee by Landlord for its services, (ii) off-site employees of Landlord
who are not assigned to the operation, management, maintenance, or repair of
the Building on a full-time or part-time basis, including any accounting or
clerical personnel and other overhead expenses of Landlord), or (iii)
administrative and executive personnel or officers, partners, members,
shareholders, interestholders, or directors of Landlord or of Landlord's
managing agent above the grade of building manager; provided, however, that
Operating Expenses may include Landlord's reasonable allocation of wages,
salaries, fees, fringe benefits or other compensation paid to the individual
Building manager or other employees of the property manager, whether on-site or
off-site, who are assigned full-time or part-time to the operation, management,
maintenance or repair of the Building.
(9) Costs of advertising and public relations and promotional costs
associated with the Building's promotion, leasing, or tenant retention efforts,
and costs of signs in or on the Building identifying the owners of the Building
or any tenant of the Building;
(10) Any costs, fines or penalties incurred due to the violation by
Landlord of any governmental rule or authority and not caused or contributed to
by Tenant;
(11) Any other expense for which Landlord actually receives
reimbursement from insurance, condemnation awards, other tenants or any other
source;
(12) Costs incurred in connection with negotiations or disputes with
other tenants, other occupants, or prospective tenants, or costs and expenses
incurred in connection with negotiations or disputes with employees,
consultants, management agents, leasing agents, purchasers or mortgagees of the
Building;
(13) Allowances, concessions, permits, licenses, inspections, and
other costs and expenses incurred in completing, fixturing, furnishing,
renovating or otherwise improving, decorating or redecorating space for tenants
(including Tenant), prospective tenants or other occupants or prospective
occupants of the Building, or vacant leasable space in the Building, or
constructing or finishing demising walls and public corridors with respect to
any such space;
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(14) Costs relating to another tenant's or occupant's space which (A)
were incurred in rendering any service or benefit to such tenant that Landlord
was not required, or was in excess of the service that Landlord was required,
to provide Tenant hereunder; and (B) were in excess of the standard services
then being provided by Landlord to all tenants or other occupants of the
Building, whether or not such other tenant or occupant is actually charged
therefor by Landlord;
(15) Costs incurred in connection with the sale, financing,
refinancing, mortgaging, selling or change of ownership of the Building;
(16) Costs, fines, interest, penalties, legal fees or costs of
litigation incurred due to Landlord's failure to pay any taxes, utility bills
or other costs when due;
(17) Legal, accounting and other professional fees and costs incurred
by Landlord which are associated with the operation of the business of the
legal entity which constitutes Landlord as the same is separate and apart from
the cost of the operation of the Building, including legal entity formation and
legal entity accounting (including the incremental accounting fees relating to
the operation of the Building to the extent incurred separately in reporting
operating results to the Building's owners or lenders);
(18) General overhead and general administrative expenses and
accounting, record-keeping and clerical support of Landlord or the management
agent, except for those cost and expenses attributable to the management of the
Building;
(19) All amounts which would otherwise be included in Operating
Expenses which are paid to any affiliate or subsidiary of Landlord, or any
representative, employee or agent of same, to the extent the costs of such
services exceed the competitive rates for similar services of comparable
quality rendered by persons or entities of similar skill, competence and
experience;
(20) Costs or expenses of utilities directly metered to tenants of the
Building and payable separately by such tenants;
(21) Moving expense costs of tenants of the Building;
(22) Consulting costs and expenses paid by Landlord unless they relate
exclusively to the management or operation of the Building;
(23) Costs, other than those incurred in ordinary maintenance (for
such objects as may be located within the Common Areas) for sculpture,
paintings or other objects of art;
(24) Costs of overtime HVAC service provided to any other tenant of
the Building;
(25) Costs incurred in connection with any bankruptcy proceedings of
Landlord, Tenant or any other tenant or occupant of the Building;
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(26) Costs or payments associated with Landlord's obtaining air rights
or other development rights;
(27) Compensation paid to clerks, attendants or other persons in
commercial concessions operated for profit by Landlord or in the parking garage
of the Building, if any;
(28) Costs incurred to correct violations by Landlord of any law,
rule, order or regulation which was in effect as of the date the Building's
certificate of occupancy was validly issued;
(29) Costs arising from the presence of Hazardous Substances in or
about or below the Land or the Building, including without limitation,
Hazardous Substances in the groundwater or soil (unless introduced into or
caused by Tenant) which existed prior to Tenant's occupancy of any portion of
the Demised Premises or the Building; and
(30) Costs incurred in connection with the operation of retail
operations owned, operated or subsidized by Landlord, if any.
7.2. Tenant shall pay to Landlord on the first day of each calendar
month of the Term, as Additional Rent, Landlord's good faith, reasonable
estimate of Tenant's Pro Rata Share of Operating Expenses with respect to the
Building for such month which estimate Landlord shall deliver prior to the
commencement of each calendar year during the Term and shall be based upon the
actual Operating Expenses for the previous calendar year, plus a good faith,
reasonable estimate of the increase or decrease in such expenses for the
ensuing calendar year.
7.2.1 Within ninety (90) days after the conclusion of each
calendar year, (or such longer period as may be reasonably required, but in no
event more than 120 days) Landlord shall furnish to Tenant a statement showing
in reasonable detail the actual Operating Expenses and Tenant's Pro Rata Share
of Operating Expenses for the previous calendar year. Any additional sum due
from Tenant to Landlord shall be immediately due and payable. If the amounts
paid by Tenant pursuant to Section 7.2 exceeds Tenant's Pro Rata Share of
Operating Expense for the previous calendar year, Landlord shall, at Landlord's
option, either (i) credit the excess amount to the next succeeding installments
of estimated Additional Rent, or (ii) pay the excess to Tenant within thirty
(30) days after delivery of such statements.
7.2.2 Any amount due under Section 7.2 for any period which
is less than a full month shall be prorated (based on the actual number of days
in such month) for such fractional month.
7.3. Landlord's annual statement shall be final and binding upon
Tenant unless Tenant, within ninety (90) days after Tenant's receipt thereof,
shall contest any item therein by giving written notice to Landlord, specifying
each item contested and the reason therefor. If, during such ninety (90) day
period, Tenant reasonably and in good faith questions or contests the
correctness of Landlord's statement of Tenant's Pro Rata Share of Operating
Expenses, Landlord
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will provide Tenant with access to such Landlord's books and records and such
information as Landlord reasonably determines to be responsive to Tenant'
questions. In the event that after Tenant's review of such information,
Landlord and Tenant cannot agree upon the amount of Tenant's Pro Rata Share of
Operating Expenses, then Tenant shall have the right to have an independent
public accounting firm selected and hired by Tenant (at Tenant's sole cost and
expense) and approved by the Landlord (which approval shall not be unreasonably
withheld or delayed) audit and/or review Landlord's books and records for the
Building and the Land for the year in question and the immediately preceding
year (the "Independent Review"). The results of any such Independent Review
shall be binding on Landlord and Tenant. If the Independent Review shows that
Tenant's Pro Rata Share of Operating Expenses actually paid for the calendar
year in question exceeded Tenant's obligations for such calendar year, Landlord
shall at Landlord's option either (1) credit the excess amount to the next
succeeding installments of estimated Additional Rent or (2) pay the excess to
Tenant within thirty (30) days after the completion of such audit and/or
review. If the Independent Review shows that Tenant's payments of Tenant's Pro
Rata Share of Operating Expenses for such calendar year were less than Tenant's
obligation for the calendar year, Tenant shall pay the deficiency to the
Landlord within thirty (30) days after delivery of such statement. If the
Independent Review shows that Tenant's payments of Tenant's Pro Rata Share of
Operating Expenses for such calendar year were more than five percent (5%) in
excess of Tenant's actual obligation for the calendar year and such excess
amount was at least $1,000, Landlord shall promptly reimburse Tenant for the
cost of the Independent Review, not to exceed $5,000.00.
7.4. Tenant shall not be responsible for Operating Expenses
applicable to the Expansion Space before the Block A Rent Commencement Date
with respect to the Block A Space and the Block B Rent Commencement Date with
respect to the Block B Space. The responsibility of Tenant for Tenant's Pro
Rata Share of Operating Expenses shall continue to the later of (i) the date of
termination of the Lease, (ii) the date Tenant has fully vacated the Demised
Premises (including, without limitation, the removal of all items required
hereby to be removed and the completion of all procedures necessary to fully
release and terminate any permits or licenses restricting the use of the
Demised Premises in any manner), or (iii) if termination of the Lease is due to
the default of Tenant, the date of rental commencement of a replacement tenant.
7.5. Operating Expenses for the calendar year in which Tenant's
obligation to share therein commences and in the calendar year in which such
obligation ceases, shall be prorated on the basis of the actual number of
calendar months (or portion thereof) in such partial calendar year. Expenses
such as taxes, assessments and insurance premiums which are incurred for an
extended time period shall be prorated based upon time periods to which
applicable so that the amounts attributed to the Demised Premises relate in a
reasonable manner to the time period wherein Tenant has an obligation to share
in Operating Expenses.
7.6. Notwithstanding anything set forth herein to the contrary, in
the event the Building is not at least ninety-five percent (95%) occupied on
average during any year of the Term, an adjustment shall be made by Landlord in
computing Tenant' Pro Rata Share of Operating Expenses for such year so that
Tenant's Pro Rata Share of Operating Expenses shall be computed
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for such year as though the Building had been ninety-five percent (95%)
occupied on average during such year.
7.7. The parties agree that statements in this Lease to the effect
that Landlord is to perform certain of its obligations hereunder at its own
cost and expense shall not be interpreted as excluding any cost from Operating
Expenses if such cost is an Operating Expense pursuant to the terms of this
Lease.
7.8. Landlord shall cause, during the entire Term of this Lease and
as part of the Operating Expenses, an electronic security access system to be
installed, maintained and operated for the Building.
8. Rentable and Usable Area
8.1. As used herein, the terms "Rentable Area" and "Usable Area"
shall be calculated in accordance with the 1996 Standard Method for Measuring
Floor Area in Office Building as adopted by the Building Owners and Managers
Association.
8.2. The Rentable Area of the Building is the total of Rentable Area
of all buildings located on the Land.
8.3. The term "Rentable Area" when applied to Tenant is that area
equal to the Usable Area of the Demised Premises plus an equitable allocation
of Rentable Area within the Building which is not then utilized or expected to
be utilized as Usable Area, including but not limited to the portion of the
Building devoted to corridors, equipment rooms, restrooms, elevator, lobby,
atrium and mailroom. In making such allocations, consideration will be given to
tenants benefitted by space allocated such that area which primarily serve
tenants of only one floor, such as corridors and restrooms upon such floor,
shall be allocated to Usable Area of the Building as a whole.
8.4. Review of allocations of Rentable Areas as between tenants of
the Building may be made as frequently as in Landlord's opinion appears
appropriate in order to facilitate an equitable apportionment of Operating
Expenses. Such review shall be performed by a licensed architect and the
allocations certified as true and correct by such licensed architect Tenant
may, at its sole cost and expense and prior to the Effective Date, have an
architect of Tenant's choosing verify the calculations and measurements made or
performed by Landlord's architect.
9. Security Deposit
9.1. Tenant has deposited with Landlord (in cash or the Letter of
Credit, as defined in Section 43.14 hereof) the sum set forth in Section 2.1.8
(the "Security Deposit") which Security Deposit shall be held by Landlord as
security for the performance by Tenant of all of the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the Term. If
Tenant defaults with respect to any provision of this Lease, including, but not
limited to, any
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provision relating to the payment of Rent, Landlord may (but shall not be
required to) use, apply or retain all or any part of the Security Deposit for
the payment of any Rent or any other sum in default, or to compensate Landlord
for any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
shall, upon demand therefor, deposit cash with Landlord in an amount sufficient
to restore the Security Deposit to its original amount, and Tenant's failure to
do so shall be a material breach of this Lease. Landlord shall keep any cash
constituting the Security Deposit separate from its general fund in an
interest-bearing account. Tenant shall be entitled to any interest on the
Security Deposit (to be credited to and added to the Security Deposit) at the
rate as may be actually earned thereon by Landlord from time to time. Tenant
shall provide Landlord or its designee with such information and instruments
(including, without limitation, Tenant's taxpayer identification number) as
Landlord may reasonably require in order to maintain the Security Deposit in an
interest-bearing account.
9.2. In the event that upon Landlord's review of the Hazardous
Materials List (as defined in Section 40.1.1 hereof) Landlord or any of
Landlord's insurers or lenders reasonably determines that Tenant's use of
Hazardous Materials at the Demised Premises increases the risk of damage to or
contamination of the Demised Premises, the Building or the Land, then upon
Tenant's receipt of written notice of such determination from the Landlord,
Tenant shall deposit an additional amount with the Landlord as Landlord may
reasonably determine, which amount shall be added to and treated as part of the
Security Deposit.
9.3. So long as no default exists or is continuing, on the first day
of the first full calendar month which is forty-eight (48) months after the
Term Commencement Date, the Security Deposit shall be reduced to any amount
equal to the quotient of (a) the Basic Annual Rent then in effect divided by
(b) 12.
9.4. In the event of bankruptcy or other debtor-creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for all periods prior to the
filing of such proceedings.
9.5. Landlord may deliver the Security Deposit to any purchaser of
Landlord's interest in the Demised Premises and thereupon Landlord shall be
discharged from any further liability with respect to the Security Deposit.
This provision shall also apply to any subsequent transfers.
9.6. If Tenant shall fully perform every provision of this Lease to
be performed by Tenant, the Security Deposit, or any balance thereof, shall be
returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's
interest hereunder) within forty-five (45) days after the expiration or earlier
termination of this Lease.
10. Use
10.1 Tenant shall use the Demised Premises for the purpose set forth
in Section 2.1.9 (the "Permitted Use") and shall not use the Demised
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Premises, or permit or suffer the Demised Premises to be used, for any other
purpose without the prior written consent of Landlord which consent shall not
be unreasonably withheld or delayed.
10.2. Tenant shall not use or occupy the Demised Premises in
violation of any federal, state and local laws and regulations, zoning
ordinances, or the certificate of occupancy issued for the Demised Premises,
and shall, upon five (5) days' written notice from Landlord, discontinue any
use of the Demised Premises which is declared by any governmental authority
having jurisdiction to be a violation of law, regulation or zoning ordinance or
of such certificate of occupancy, or which in the reasonable opinion of
Landlord violates law, regulation or zoning ordinance or the certificate of
occupancy. Tenant shall comply with any direction of any governmental authority
having jurisdiction which shall, by reason of the nature of Tenant's use or
occupancy of the Demised Premises, impose any duty upon Tenant or Landlord with
respect to the Demised Premises or with respect to the use or occupation
thereof.
10.3. Landlord acknowledges that so long as Tenant's intended use of
the Demised Premises is consistent with its past use of the Existing Space, to
Landlord's actual knowledge, there shall be no invalidation or cost increase of
any insurance policy covering the Building. Notwithstanding the above, Tenant
shall not do or permit to be done anything which will invalidate or increase
the cost of any fire, environmental, extended coverage or any other insurance
policy covering the Building and shall comply with all rules, orders,
regulations, and requirements of the insurers of the Building and Tenant shall
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Section 10.3.
10.4. Tenant shall keep all doors opening onto public corridors
closed, except when in use for ingress and egress.
10.5. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by Tenant nor shall any changes be made in existing
locks or the mechanism thereof without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, conditioned or delayed.
Tenant must, upon termination of this Lease return to Landlord all keys to
offices and restrooms, either furnished to, or otherwise procured by Tenant. In
the event any key so furnished is lost, Tenant shall pay to Landlord the cost
of replacing the same or of changing the lock or locks opened by such lost key
if Landlord shall deem it necessary to make such change.
10.6. No awnings or other projection shall be attached to any outside
wall of the building. No curtains, blinds, shades or screens which are visible
from the Common Areas or from outside the Building shall be attached to or hung
in, or used in connection with, any window or door of the Demised Premises
other than Landlord's standard window coverings, if any. Neither the interior
nor exterior of any windows shall be coated or otherwise sunscreened without
the express written consent of Landlord, such consent not to be unreasonably
withheld, nor shall any bottles, parcels, or other articles be placed on the
windowsills. No equipment, furniture or
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other items of personal property shall be placed on any exterior balcony
without the express written consent of Landlord, such consent not to be
unreasonably withheld.
10.7. No sign, advertisement, or notice shall be exhibited, painted
or affixed by Tenant on any part of the Demised Premises or the Building
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed. Tenant may on a non-exclusive
basis place signage on the exterior of the Building and Tenant's logo in the
Common Area of the Building on the floor occupied by Tenant; provided that (a)
Landlord and Tenant agree upon the size, design and location of such exterior
signage and (b) all such signage complies with all applicable laws, ordinances,
codes, rules and regulations of the government authorities with jurisdiction
over such matters. Interior signs on doors and the directory tablet shall be
inscribed, painted or affixed for Tenant by Landlord at the expense of Tenant,
and shall be of a size, color and type reasonably acceptable to Landlord. The
directory tablet shall be provided exclusively for the display of the name and
location of tenants only. Nothing may be placed on the exterior of corridor
walls or corridor doors other than Landlord's standard lettering and Tenant's
logo, which may be placed on its corridor walls in a location and in a size,
color and type acceptable to Landlord in Landlord's reasonable discretion.
10.8. Tenant shall cause any office equipment or machinery to be
installed in the Demised Premises so as to reasonably prevent sounds or
vibrations therefrom from extending into Common Areas, or other space in the
Building. Further, except for equipment located within the Existing Space on
the Effective Date and set forth in Exhibit "F", no equipment weighing five
hundred (500) pounds or greater shall be placed upon the Demised Premises
without advance notice to and consent by Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed. Placement of such equipment, if
approved by Landlord, shall be only at a location designed to carry the weight
of such equipment.
10.9. Tenant shall not do or permit anything to be done in or about
the Demised Premises which shall in any way obstruct or interfere with the
rights of other tenants or occupants of the Building, or injure them, or use or
allow the Demised Premises to be used for any unlawful purpose. Tenant shall
not knowingly cause, maintain or permit any nuisance or waste in, on, or about
the Demised Premises, Building or the Land. Tenant may use a portion of the
Common Area for an atrium area in accordance with Section 15.
Landlord shall use its reasonable efforts to include a provision
similar to the first two sentences of this Section 10.9 in all leases for any
other tenants of the Building entered into from and after the Effective Date.
Furthermore, Landlord agrees not to lease any space in the Building to a tenant
whose primary and principal intended use of such space is any of the following:
an employment agency, physician or dentist office, video or amusement arcade,
indoor playground, bar, video store, repair shop, bowling alley, fast food
restaurant, pawn shop, convenience store, liquor store, gym, fitness center or
health club and/or beauty salon or spa.
10.10. Other than costs which shall be included in Operating Expenses
pursuant to Article 7 associated with causing the Demised Premises to comply
with any retroactively effective law,
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code, rule or regulation where noncompliance does not result from any use or
alterations to the Demised Premises by Tenant, Tenant shall be responsible for
all liabilities, costs and expenses arising out of or in connection with the
compliance of the Demised Premises (as distinguished from the Common Areas
and/or the Building) with the Americans With Disabilities Act, 42 U.S.C.
Section 12101, et seq. (together with regulations promulgated pursuant thereto,
"ADA") which provisions are first enacted after the Effective Date, or the
compliance thereof is required as a result of an act or omission of Tenant, its
agents, employees, contractors or invitees or as a result of Tenant's (as
opposed to another tenant's) leasing of the Demised Premises; and Tenant shall
indemnify, defend and hold Landlord harmless from and against any loss, cost,
liability, or expense, (including reasonable attorneys fees and disbursements)
arising out of any failure of the Demised Premises (as distinguished from the
Common Areas and/or the Building) to comply with the ADA in accordance with
this sentence.
11. Brokers.
11.1. Tenant and Landlord each represents and warrants to the other
that it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease other than Scheer Partners, Inc. ("Broker"),
and that it knows of no other real estate broker or agent who is or might be
entitled to a commission in connection with this Lease. If and when the Term
Commencement Date has occurred, Landlord shall pay to Broker a brokerage fee
pursuant to a separate agreement between Landlord and Broker.
11.2. Tenant hereby indemnifies and shall defend, hold and save
Landlord harmless from and against any and all claims for any commissions or
fees in connection with this Lease made by any broker or finder having worked,
or claiming to have worked, on behalf Tenant, other than Broker.
11.3. Landlord hereby indemnifies and shall defend, hold and save
Tenant harmless from and against any and all claims for any commissions or fees
in connection with this Lease made by Broker and any other broker or finder
having worked, or claiming to have worked, on behalf of Landlord.
11.4. Tenant represents and warrants that no broker or agent has made
any representation or warranty relied upon by Tenant in Tenant's decision to
enter into this Lease other than as contained in this Lease.
11.5. Tenant acknowledges and agrees that the employment of brokers
by Landlord is for the purpose of solicitation of offers of lease from
prospective tenants and no authority is granted to any broker to furnish any
representation (written or oral) or warranty from Landlord unless expressly
contained within this Lease. Landlord in executing this Lease does so in
reliance upon Tenant's representations and warranties contained within Sections
11.1 and 11.4 hereof.
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12. Holding Over
12.1. If, with Landlord's express written consent, Tenant holds
possession of all or any part of the Demised Premises after the expiration or
earlier termination of the Term, Tenant shall become a tenant from
month-to-month upon the date of such expiration or earlier termination, and in
such case Tenant shall continue to pay Basic Annual Rent in the amount payable
upon the date of the expiration or earlier termination of this Lease or such
other amount as Landlord may indicate, in Landlord's sole and absolute
discretion, in such written consent, and all other provisions, representations,
covenants and agreements contained herein, other than with respect to the Term
and any extensions thereof, but specifically including, without limitation, the
adjustment of Basic Annual Rent pursuant to Section 6 hereof, shall remain in
full force and effect.
12.2. Notwithstanding the foregoing, if Tenant remains in possession
of the Demised Premises after the expiration or earlier termination of the Term
without the express written consent of Landlord, Tenant shall become a tenant
at sufferance upon the terms of this Lease except that the monthly rental shall
(i) for the first thirty (30) days after the expiration of the Term be equal to
one hundred twenty-five percent (125%) of the Basic Annual Rent and Additional
Rent in effect during the last thirty (30) days of the Term; and (ii)
thereafter, be equal to one hundred fifty percent (150%) of the Basic Annual
Rent and Additional Rent in effect during the last thirty (30) days of the
Term. In addition to the foregoing amounts, from and after the sixtieth (60th)
day after the expiration of the Term, Tenant shall also be responsible for all
damages suffered by Landlord resulting from or occasioned by Tenant's holding
over.
12.3. Acceptance by Landlord of Rent after such expiration or earlier
termination shall not result in a renewal or reinstatement of this Lease.
12.4. The foregoing provisions of this Article 12 are in addition to
and do not affect Landlord's right to re-entry or any other rights of Landlord
hereunder or as otherwise provided by law.
13. Taxes on Tenant's Property
13.1. Tenant shall pay, prior to delinquency, any and all taxes
levied against any personal property or trade fixtures placed by Tenant in or
about the Demised Premises.
13.2. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or, if the assessed
valuation of the Building is increased by the inclusion therein of a value
attributable to Tenant's personal property or trade fixtures, and if Landlord,
after written notice to Tenant (including a copy of the relevant tax bill),
pays the taxes based upon such increase in the assessed valued, then Tenant
shall upon demand repay to Landlord the taxes so levied against Landlord.
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13.3. If any improvements in or alterations to the Demised Premises,
whether owned by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which improvements
conforming to Landlord's "Building Standard" improvements in other spaces in
the Building are assessed, then the real property taxes and assessments levied
against Landlord or the Building by reason of such excess assessed valuation
shall be deemed to be taxes levied against personal property of Tenant and
shall be governed by the provisions of Section 13.2 above. Any such excess
assessed valuation due to improvements in or alterations to space in the
Building leased by other tenants of Landlord shall not be included in the
Operating Expenses defined in Section 7.1, but shall be treated, as to such
other tenants, as provided in this Section 13.3. If the records of the County
Assessor are available and sufficiently detailed to serve as a basis for
determining whether said Tenant improvements or alterations are assessed at a
higher valuation than Landlord's "Building Standard," such records shall be
binding on both Landlord and Tenant. As used herein, "Building Standard" means
the quality and standard of improvements (including generic laboratory
improvements) provided to a majority of tenants (by square footage) in the
Building without payment by such tenants of a premium in excess of their stated
basic annual rents.
13.4. Landlord shall cooperate with Tenant in advising the applicable
taxing authority as to the distinction between Tenant's personal property and
trade fixtures for valuation purposes. Tenant, at Tenant's sole cost and
expense, shall have the right to protest or appeal the tax assessment for the
Building. In the event Tenant protests or appeals the tax assessment as
permitted in this section, Tenant hereby agrees to indemnify, defend and save
Landlord harmless from and against any and all demands, claims, liabilities,
losses, costs, expenses, actions, causes of action, damages or judgment, and
all reasonable expenses incurred by Landlord in connection with any such appeal
or protest of Tenant.
14. Condition of Demised Premises
14.1. Except as set forth in Section 14.2, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the condition of the Demised Premises or the Building,
or with respect to the suitability for the conduct of Tenant's business and
Tenant accepts the Existing Premises in its condition on the Effective Date.
The taking of possession of the Demised Premises by Tenant shall, except as
otherwise agreed in writing by Landlord and Tenant, conclusively establish that
the Demised Premises and Building were at such time in good, sanitary and
satisfactory condition and repair.
14.2. Landlord represents and warrants to Tenant that, to Landlord's
knowledge as of the Effective Date, all "Building Systems" in the Building are
in good working order and repair. As used in this Lease, "Building Systems"
means heating, ventilating, air conditioning, water, sewer, electrical, gas and
telephone facilities and equipment servicing the Building, including the
Demised Premises.
15. Common Areas, Roof and Parking Facilities
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15.1. Tenant shall have the non-exclusive right, in common with
others, to use the Common Areas, subject to the rules and regulations adopted
by Landlord and attached hereto as Exhibit "E" together with such other
reasonable and nondiscriminatory rules and regulations as are hereafter
promulgated by Landlord in its discretion (the "Rules and Regulations").
15.2. Tenant shall have the non-exclusive right, in common with
others, to use the portion of the Common Area (the "Atrium Area") set forth on
the site plan as an atrium area of the Demised Premises. Use by Tenant of the
Atrium Area is subject to all of the Rules and Regulations and additional
particular restrictions Landlord may reasonably determine to be necessary in
connection with the use of the Atrium Area.
15.3. As an appurtenance to the Demised Premises, Tenant shall have a
non-exclusive license to use Tenant's Pro Rata Share of the non-handicapped
parking spaces of the parking facilities serving the Building in common on a
non-reserved basis with other tenants of the Building. Landlord shall designate
five (5) non-exclusive parking spaces near the front entrance to the Building
specifically for the use of "visitors;" provided, however, that Landlord shall
have no responsibility for enforcing the rights of Tenant or its visitors to
use such spaces.
15.4. As an appurtenance to the Demised Premises, Tenant shall have a
non-exclusive revocable license to use certain portions of the roof of the
Building and surrounding sites serving the Building in common with certain
other tenants of the Building. Tenant's license with respect to the roof of the
Building and surrounding sites serving the Building shall be limited to the
right to install and maintain mechanical and other equipment in such locations.
Tenant's license to use the roof shall be subject to the Rules and Regulations.
Tenant's right to install or maintain any equipment on the roof is subject to
Tenant's obligations regarding alterations set forth in Section 17.
15.5. Tenant agrees not to unreasonably overburden the parking
facilities and agrees to cooperate with Landlord and other tenants in the use
of parking facilities. Landlord reserves the right to determine that parking
facilities are becoming overcrowded and to limit Tenant's use thereof. Upon
such determination, Landlord may reasonably allocate parking spaces among
Tenant and other tenants. In the alternative, if Landlord determines that
Tenant's customers, clients, or invitees appear to be using more than the
number of parking spaces that would otherwise be attributable to a reasonable
number of parking spaces for Tenant's use, Landlord may require Tenant and its
employees to obtain parking outside the Building for such unreasonable excess
uses. However, nothing in this Section 15.5 is intended to create an
affirmative duty on Landlord's part to monitor parking.
15.6. Landlord reserves the right to modify Common Areas including
the right to add or remove exterior and interior landscaping; provided that
Tenant's use of the Demised Premises in accordance with Section 10 is not
materially adversely affected.
16. Utilities and Services
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16.1. Tenant shall pay for all water, (including the cost to service,
repair and replace reverse osmosis, deionized and other treated water, if any)
gas, heat, light, power, telephone and other utilities supplied to the Demised
Premises, together with any fees, surcharges and taxes thereon. If any such
utility is not separately metered to Tenant, Tenant shall pay a reasonable
proportion to be determined by Landlord of all charges jointly metered with
other premises as part of Tenant's Pro Rata Share of Operating Expenses, or in
the alternative, Landlord may, at its option, monitor the usage of such
utilities by Tenant and charge Tenant with the cost of purchasing, installing
and monitoring such metering equipment, which shall be paid by Tenant as
Additional Rent.
16.2. Landlord shall not be liable for, nor shall any eviction of
Tenant result from, the failure to furnish any such utility or service whether
or not such failure is caused by accident, breakage, repairs, strikes, lockouts
or other labor disturbances or labor disputes of any character, governmental
regulation, moratorium or other governmental action, inability despite the
exercise of reasonable diligence or by any other cause, including the gross
negligence of Landlord. In the event of such failure, Tenant shall not be
entitled to any abatement or reduction of Rent, nor be relieved from the
operation of any covenant or agreement of this Lease. Notwithstanding the
foregoing, in the event that the failure or interruption in services which has
a material adverse effect upon Tenant's ability to use and enjoy the Demised
Premises for the Permitted Use continues for a period in excess of ninety (90)
days and is not caused by or contributed to by Tenant, beginning on the
ninety-first (91st) day Rent shall be abated based upon the extent to which
Tenant's use of the Demised Premises has decreased due to such failure or
interruption in services. In the event of a failure or interruption in services
which has a material adverse effect upon Tenant's ability to use and enjoy the
Demised Premises for the Permitted Use continues for a period in excess of
fifteen (15) months and is not caused by or contributed to by Tenant, Tenant
shall have the right to terminate this Lease prior to the restoration of such
services upon not less than thirty (30) days prior written notice to Landlord.
16.3. Tenant shall pay directly to the applicable utility or service
provider, prior to delinquency, for any separately metered utilities and
services which may be furnished to Tenant or the Demised Premises during the
Term.
16.4. Tenant shall not, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed (but
which may be conditioned in accordance with Section 16.5), use any device in
the Demised Premises, including, but without limitation, data processing
machines, which will in any way increase the amount of ventilation, air
exchange, gas, steam, electricity or water beyond the existing capacity of the
Building as proportionately allocated to the Demised Premises based upon
Tenant's Pro Rata Share as usually furnished or supplied for the use set forth
in Section 2.1.6 or be in excess of Tenant's Pro Rata Share of the Building's
capacity to provide such utilities or services.
16.5. If Tenant shall require services in excess of that usually
furnished or supplied for similar space in the Building, by reason of equipment
operated and/or extended hours of business operation, then Tenant shall first
procure the consent of Landlord for use thereof, which consent
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Landlord may condition upon the availability of such excess utilities or
services and Tenant's payment as Additional Rent of an amount equal to the cost
to provide such excess services and utility capacity.
Tenant hereby acknowledges and agrees that any changes or upgrades in
the electrical service furnished or supplied to the Demised Premises and/or the
Building, including but not limited to upgrades or changes to the transformer,
service panel or switch gears, caused by the Tenant Improvements, shall be at
Tenant's sole cost and expense and shall not be considered part of Tenant's
Work, as described in the Work Letter. Any such changes or upgrades in the
electrical service servicing the Demised Premises shall be subject to the prior
consent of Landlord which consent shall not be unreasonably withheld or
delayed.
16.6 Landlord shall provide water in Common Areas for drinking and
lavatory purposes only, but if Tenant requires, uses or consumes water for any
purpose in addition to ordinary drinking and lavatory purposes, Landlord may
install a water meter and thereby measure Tenant's water consumption for all
purposes. Tenant shall pay Landlord for the cost of the meter and the cost of
the installation thereof and throughout the duration of Tenant's occupancy,
Tenant shall pay Landlord's cost to keep said meter and installation equipment
in good working order and repair. Tenant agrees to pay for water consumed, as
shown on said meter, as and when bills are rendered (a reasonable allocation
for water usage for the Building shall be included in Tenant's Pro Rata Share),
and on default in making such payment, Landlord may pay such charges and
collect the same from Tenant. Any such costs or expenses incurred, or payments
made by Landlord for any of the reasons or purposes herein above stated shall
be deemed to be Additional Rent payment by Tenant and collectible by Landlord
as such.
16.7. The services provided by Landlord to the Building (the costs of
which shall be payable by Tenant as part of Operating Expenses pursuant to
Section 7.1) shall include the following: utilities to the Common Areas; trash
collection; cleaning, including windows; maintenance of plumbing, electric,
heating, ventilation and air conditioning systems (other than those systems
contained within or exclusively servicing the Demised Premises); landscaping
and maintenance of landscaping and grounds; maintenance of drives and parking
area, including snow removal; and security services and security devices for
the Common Areas.
16.8. Landlord reserves the right to stop service of the elevator,
plumbing, ventilation, air conditioning and electric systems, when necessary,
by reason of accident or emergency or for repairs, alterations or improvements,
in the reasonable judgment of Landlord desirable or necessary to be made, until
said repairs, alterations or improvements shall have been completed. Landlord
shall have no responsibility or liability for failure to supply elevator
facilities, plumbing, ventilation, air conditioning or electric service, when
prevented from doing so by strike or accident, or by laws, rules, order,
ordinances, directions, regulations or requirements of any federal, state,
country or municipal authority or failure to deliver gas, oil or other suitable
fuel supply or inability by exercise of reasonable diligence to obtain gas, oil
or other suitable fuel. It is expressly understood and agreed that any
covenants on Landlord's part to furnish any service pursuant to any of the
terms, covenants, conditions, provisions or agreements of this Lease, or to
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perform any act or thing for the benefit of Tenant, shall not be deemed
breached if Landlord is unable to furnish or perform the same by virtue of a
strike or labor trouble or any act of God. Landlord shall use its commercially
reasonable efforts to minimize the disruption to Tenant's business as a result
of Landlord causing any service or utility to be interrupted (for any reason)
to the Demised Premises or the Building. Notwithstanding the foregoing, in the
event that the failure or interruption in services which has a material adverse
effect upon Tenant's ability to use and enjoy the Demised Premises for the
Permitted Use, which shall continue for a period in excess of fifteen (15)
months and is not caused by or contributed to by Tenant, Tenant shall have the
right to terminate this Lease prior to the restoration of such services upon
not less than thirty (30) days prior written notice to Landlord.
17. Alterations
17.1. Other than Tenant's Work, Tenant shall make no alterations,
additions or improvements in or to the Demised Premises the cost of which
exceeds $10,000.00 in the aggregate in any twelve (12) month period without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed (provided, however, that in the event any
proposed alteration, addition or improvement (including those which costs do
not exceed $10,000.00) adversely affects (i) any structural portions of the
Building including exterior walls, roof, foundation and core of the Building,
(ii) the exterior of the Building or (iii) any Building systems, including
elevator, plumbing, air conditioning, heating electrical, security, life safety
and power, then Landlord may withhold its consent with respect thereto in its
sole and absolute discretion), and then only by architects, contractors,
suppliers or mechanics approved by Landlord in Landlord's reasonable
discretion. Tenant shall provide Landlord, at least fourteen (14) days in
advance of any proposed construction (including those which costs do not exceed
$10,000.00), with plans, specifications, bid proposals, work contracts and such
other information concerning the nature and cost of the alterations as may be
reasonably requested by Landlord.
17.2. Tenant agrees that there shall be no construction of partitions
or other obstructions which might interfere with free access to mechanical
installation or service facilities of the Building or interfere with the moving
of Landlord's equipment to or from the enclosures containing said installations
or facilities without Landlord's prior written consent, which approval shall
not be unreasonably withheld.
17.3. Tenant agrees that any work by Tenant shall be accomplished in
such a manner as to permit any fire sprinkler system and fire water supply
lines to remain fully operable at all times, unless otherwise agreed to in
advance in writing by the Landlord.
17.4. All such work shall be done at such times and in such manner as
Landlord may from time to time designate. Tenant covenants and agrees that all
work done by Tenant shall be performed in full compliance with all laws, rules,
orders, ordinances, directions, regulations, and requirements of all
governmental agencies, offices, departments, bureaus and boards having
jurisdiction, and in full compliance with the rules, orders, directions,
regulations, and requirements
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of any applicable fire rating bureau. Tenant shall provide Landlord with
"as-built" plans showing any change in the Demised Premises.
17.5. Before commencing any work, Tenant shall give Landlord at least
fourteen (14) days prior written notice of the proposed commencement of such
work and shall, if required by Landlord, secure at Tenant's own cost and
expenses a completion and lien indemnity bond reasonably satisfactory to
Landlord for said work.
17.6. All alterations, attached equipment, decorations, fixtures,
trade fixtures, additions and improvements, subject to Section 17.8, attached
to or built into the Demised Premises, made by either of Landlord or Tenant,
including (without limiting the generality of the foregoing) the Existing
Tenant Fixtures, all floor and wallcovering, built-in cabinet work and
paneling, plumbing fixtures, exterior venting fume hoods and walk-in freezers
and refrigerators, clean rooms, climatized rooms, ductwork, conduits,
electrical panels and circuits (collectively, the "Tenant Alterations"), shall
become the property of Landlord upon the expiration or earlier termination of
the term of this Lease, and shall remain upon and be surrendered with the
Demised Premises as a part thereof; provided, however, that Landlord may, at
any time, elect to cause Tenant to remove any such Tenant Alteration from the
Demised Premises upon the expiration or earlier termination of this Lease, and,
if Landlord so elects, Tenant shall, at its sole cost and expenses, remove such
Tenant Alterations, attached equipment, decorations, fixtures, trade fixtures,
additions and improvements upon the expiration or earlier termination of this
Lease and restore any damage caused by or occasioned as a result of such
removal.
Notwithstanding the foregoing, upon written request by Tenant made
prior to the installation of any Tenant Alteration, Landlord agrees to make the
determination whether Tenant shall be required to cause such Tenant Alteration
to be removed in the event that Landlord determines to require removal, upon
the expiration or earlier termination of this Lease; provided, however, that
such determination is revocable by Landlord at any time in Landlord's sole
discretion.
17.7. Tenant shall repair any damage to the Demised Premises caused
by Tenant's removal of any property from the Demised Premises. During any such
restoration period, Tenant shall pay Rent to Landlord as provided herein as if
said space were otherwise occupied by Tenant.
17.8. Except as to the Existing Tenant Fixtures (defined below), all
business and trade fixtures, built-in furniture and cabinets, together with all
additions and accessories thereto, installed in and upon the Demised Premises
shall be and remain the property of Landlord and shall not be removed by Tenant
at any time during the Term, except that items which wear out or become
obsolete may be removed and replaced by Tenant with items of at least equal
quality. If Tenant shall fail to remove from the Demised Premises its personal
property and all items required to be removed by Tenant in accordance with
Landlord's election pursuant to Section 17.6 prior to expiration or earlier
termination of this Lease, then Landlord may, at its option, remove the same in
any manner that Landlord shall choose, and store said effects without liability
to Tenant for loss thereof or damage thereto, and Tenant agrees to pay Landlord
upon demand any expenses
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reasonably incurred in connection with such removal and storage or Landlord
may, at its option, without notice, sell said property or any of the same, at
private sale and without legal process, for such price as Landlord may obtain
and apply the proceeds of such sale against any amounts due under this Lease
from Tenant to Landlord and against any reasonable expenses incident to the
removal, storage and sale of said personal property.
17.9. Notwithstanding any other provision of this Article 17 to the
contrary, in no event may Tenant remove any improvement from the Demised
Premises as to which Landlord contributed payment, including without
limitation, the Tenant Improvements made pursuant to the Work Letter without
Landlord's prior written consent, which may be withheld in Landlord's sole
discretion.
17.10. Tenant shall pay to Landlord as Additional Rent an amount equal
to three percent (3%) of the cost to Tenant of all charges incurred by Tenant
of its contractors or agents in connection with any alterations, additions or
improvements to the Demised Premises to cover Landlord's overhead and expenses
for plan review, coordination, scheduling and supervision thereof. For purposes
of payment of such sum, Tenant shall submit to Landlord copies of all bills,
invoices, and statements covering the costs of such charges, which will be
accompanied by payment to Landlord of the percentage fee set forth above.
Tenant shall reimburse Landlord for any extra expense incurred by Landlord by
reason of faulty work done by Tenant or its contractors, or by reason of delays
caused by such work, or by reason of inadequate cleanup.
18. Repairs and Maintenance
18.1. Landlord shall repair and maintain the structural and exterior
portions of the Building (including the roof and any structural or exterior
portions of Common Areas in the Demised Premises) and the structural and
exterior and interior portions of the Common Areas, including, without
limitations, roofing and covering materials, foundations, exterior walls, the
plumbing, fire sprinkler system (if any), heating, ventilating, air
conditioning, elevator, and electrical systems (excluding any Building Systems
exclusively serving the Demised Premise) installed or furnished by Landlord
(and the full cost thereof shall be included as a part of Operating Expenses),
unless such maintenance or repairs are required in whole or in part because of
any act, neglect, fault of or omissions of any duty by Tenant, its agents,
servants, employees or invitees, in which case Tenant shall pay to Landlord the
cost of such maintenance and repairs.
18.2. Subject to Section 22 and except for services of Landlord, if
any, required by Sections 18.1, Tenant shall at Tenant's sole cost and expense
keep the Demised Premises and every part thereof in good condition and repair,
damage thereto from ordinary wear and tear excepted, including, without
limitation, all Building Systems exclusively serving the Demised Premises.
Subject to Section 22, Tenant shall, upon the expiration or earlier termination
of this Lease, surrender the Demised Premises to Landlord in as good as
condition as when received, ordinary wear and tear excepted. Other than as
specifically set forth in Section 18.1 and in the Work Letter, Landlord shall
have no obligation to alter, remodel, improve, repair, decorate or paint the
Demised Premises or any part thereof.
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18.3. Landlord shall not be liable for any failure to make any
repairs or to perform any maintenance which is an obligation of Landlord unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. Tenant
waives the rights under any applicable law, statute or ordinance now or
hereafter in effect to make repairs at Landlord's expense.
18.4. Repairs under this Article 18 which are obligations of Landlord
are subject to allocation among Tenant and other tenants as Operating Expenses.
18.5. This Article 18 relates to repairs and maintenance arising in
ordinary course of operation of the Building and any related facilities. In the
event of fire, earthquake, flood, vandalism, war, or similar cause of damage or
destruction, this Article 18 shall not be applicable and the provisions of
Article 22 shall apply and control.
19. Liens
19.1. Subject to the immediately succeeding sentence, Tenant shall
keep the Demised Premises, the Building and the Land free from any liens
arising out of work performed, materials furnished or obligations incurred by
Tenant. Tenant further covenants and agrees that except with respect to
Landlord's Work, Landlord's services or Landlord's repair obligations, any
mechanic's lien filed against the Demised Premises, the Building or against the
Land for work claimed to have been done for, or materials claimed to have been
furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within
twenty (20) days after the filing thereof, at the sole cost and expense of
Tenant.
19.2. Should Tenant fail to discharge any lien of the nature
described in Section 19.1, Landlord may at Landlord's election pay such claim
or post a bond or otherwise provide security to eliminate the lien as a claim
against title and the cost thereof shall be immediately due from Tenant as
Additional Rent.
19.3. In no event may Tenant allow any mortgage, deed of trust,
financing statement, encumbrance, lease, hypothecation or any lien to encumber
any of the Tenant Improvements, without Landlord's prior written consent, such
consent not to be unreasonably withheld, conditioned or delayed; provided that
Tenant provides Landlord evidence satisfactory to Landlord, in Landlord's sole
discretion, that any such lien is not applicable to Landlord's interest in the
Building, the Land nor to the Tenant Improvements.
19.4. In the event Tenant shall lease or finance the acquisition of
office equipment, furnishings, or other personal property of a removable nature
utilized by Tenant in the operation of Tenant's business, Tenant warrants that
any Uniform Commercial Code Financing Statement executed by Tenant will upon
its face or by exhibit thereto indicate that such Financing Statement is
applicable only to removable personal property of Tenant located within the
Demised Premises. In no event shall the address of the Building be furnished on
the statement without qualifying language as to applicability of the lien only
to removable personal property, located in an
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identified suite held by Tenant. Should any holder of a Financing Statement
executed by Tenant record or place of record a Financing Statement which
appears to constitute a lien against any interest of Landlord or against
equipment which may be located other than within the Demised Premises, Tenant
shall within ten (10) days after filing such Financing Statement (i) cause a
copy of the Security Agreement or other documents to which Financing Statement
pertains to be furnished to Landlord to facilitate Landlord's being in a
position to show such lien is not applicable to Landlord's interest nor to any
of the Tenant Improvements, and (ii) cause Tenant's lender to amend any
documents of record so as to clarify that such lien is not applicable to any
interest of Landlord in the Building, the Land nor any interest of Tenant in
any of the Tenant Improvements.
19.5. Landlord shall subordinate its landlord's lien to any
encumbrance which is expressly permitted by Section 19.4.
20. Indemnification and Exculpation
20.1. Tenant hereby indemnifies and agrees to defend and save
Landlord harmless from and against any and all demands, claims, liabilities,
losses, costs, expenses, actions, causes of action, damages or judgments, and
all reasonable expenses incurred in investigating or resisting the same
(including, without limitation, reasonable attorneys' fees, charges and
disbursements), for injury or death to person or injury to property occurring
within or about the Demised Premises, arising directly or indirectly out of
Tenant's, it's employees, agents or guests use or occupancy of the Demised
Premises or a breach or default by Tenant in the performance of any of its
obligations hereunder, unless caused solely by the willful act or gross
negligence of the Landlord.
20.2. Landlord shall not be liable to Tenant and Tenant assumes all
risk of damage to personal property or scientific research, including loss of
records kept within the Demised Premises if the cause of such damage is of a
nature which, if Tenant had elected to maintain fire and theft insurance with
extended coverage and business records endorsement available on a commercially
reasonable basis, would be a loss subject to settlement by the insurance
carrier, including, but not limited to, damage or losses caused by fire,
electrical malfunctions, gas explosion, and water damage of any type,
including, but not limited to, broken water lines, malfunction of fire
sprinkler system, roof leakage or stoppages of lines, unless and except if such
loss is due to Landlord's willful misconduct or the willful disregard of
Landlord after written notice by Tenant of need for a repair which Landlord is
responsible to make for an unreasonable period of time. Tenant further waives
any claim for injury to Tenant's business or loss of income relating to any
such damage or destruction of personal property including any loss of records.
20.3. Landlord shall not be liable for any damages arising from any
act, omission or neglect of any other tenant in the Building or of any other
third party.
20.4. Security devices and services, if any, while intended to deter
crime may not in given instances prevent theft or other criminal acts. Tenant
acknowledges and agrees that Landlord shall not be liable for injuries or
losses caused by criminal acts of third parties and the
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risk that any security device or service may malfunction or otherwise be
circumvented by a criminal is assumed by Tenant. Tenant shall at Tenant's cost
obtain insurance coverage to the extent Tenant desires protection against such
criminal acts.
21. Insurance - Waiver of Subrogation
21.1. Landlord, as part of Operating Expenses, shall carry insurance
upon the Building (including the Tenant Improvements), in an amount equal to
full replacement cost (exclusive of the costs of excavation, foundations, and
footings, and without reference to depreciation taken by Landlord upon its
books or tax returns) or such lesser coverage as Landlord may elect provided
such coverage is not less than ninety percent (90%) of such full replacement
cost or, if higher, the amount of such insurance Landlord's mortgage lender
requires Landlord to maintain, providing protection against any peril generally
included within the classification "Fire and Extended Coverage" together with
insurance against sprinkler damage (if applicable), vandalism and malicious
mischief. Landlord, subject to availability thereof and, as part of Operating
Expenses, shall further insure as Landlord deems appropriate coverage against
flood, environmental hazard and earthquake, loss or failure of building
equipment, rental loss during the period of repair or rebuild, workmen's
compensation insurance and fidelity bonds for employees employed to perform
services. Notwithstanding the foregoing, Landlord may, but shall not be deemed
required to, provide insurance as to any improvements installed by Tenant or
which are in addition to the standard improvements customarily furnished by
Landlord without regard to whether or not such are made a part of the Building.
21.2. Landlord, as part of Operating Expenses, shall further carry
public liability insurance with a single loss limit of not less than Two
Million Dollars ($2,000,000.00) for death or bodily injury, or property damage
with respect to the Building and all Tenant Improvements.
21.3. Tenant at its own cost shall procure and continue in effect
from the Term Commencement Date and continuing throughout the Term (and
occupancy by Tenant, if any, after the expiration or earlier termination of
this Lease) comprehensive public liability insurance with limits of not less
than Two Million Dollars ($2,000,000.00) per occurrence for death or bodily
injury and not less than Two Million Dollars ($2,000,000.00) for property
damage with respect to the Demised Premises.
21.4. The aforesaid insurance required of Tenant shall name Landlord,
its officers, employees and agents, as an additional insured. Said insurance
shall be with companies having a rating of not less than policyholder rating of
A and financial category rating of at least Class XII in "Best's Insurance
Guide." Tenant shall obtain for Landlord from the insurance companies or cause
the insurance companies to furnish certificates of coverage to Landlord. No
such policy shall be cancelable or subject to reduction of coverage or other
modification or cancellation except after thirty (30) days prior written notice
to Landlord from the insurer. All such policies shall be written as primary
policies, not contributing with and not in excess of the coverage which
Landlord may carry. Tenant's policy may be a "blanket policy" which
specifically provides that the amount of insurance shall not be prejudiced by
other losses covered by the policy. Tenant
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shall, at least twenty (20) days prior to the expiration of such policies,
furnish Landlord with renewals or binders. Tenant agrees that if Tenant does
not take out and maintain such insurance, Landlord may (but shall not be
required to) procure said insurance on Tenant's behalf and at its cost to be
paid as Additional Rent.
21.5. Tenant assumes the risk of damage to any fixtures, goods,
inventory, merchandise, equipment, and leasehold improvements, and Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom relative to such damage all as more particularly heretofore set forth
within this Lease. Tenant at Tenant's cost shall carry such insurance as Tenant
desires for Tenant's protection with respect to personal property of Tenant or
business interruption.
21.6. In each instance where insurance is to name Landlord as
additional insured, Tenant shall upon written request of Landlord also
designate and furnish certificates so evidencing Landlord as additional insured
to (i) any lender of Landlord holding a security interest in the Building or
the Land, and/or (ii) the landlord under any lease wherein Landlord is tenant
of the real property whereupon the Building is located if the interest of
Landlord is or shall become that of a tenant under a ground lease rather than
that of a fee owner, and/or (iii) any management company retained by Landlord
to manage the Building.
21.7. Landlord and Tenant each hereby waive any and all rights of
recovery against the other or against the officers, directors, employees,
agents, and representatives of the other, on account of loss or damage
occasioned to such waiving party or its property or the property of others
under its control to the extent that such loss or damage is insured against
under any fire and extended coverage insurance policy which either may have in
force at the time of such loss or damage. Such waivers shall continue as long
as their respective insurers so permit. Any termination of such a waiver shall
be by written notice of circumstances as hereinafter set forth. Landlord and
Tenant, upon obtaining the policies of insurance required or permitted under
this Lease, shall give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease. If such
policies shall not be obtainable with such waiver or shall be so obtainable
only at a premium over that chargeable without such waiver, the party seeking
such policy shall notify the other thereof, and the latter shall have ten (10)
days thereafter to either (i) procure such insurance with companies reasonably
satisfactory to the other party or (ii) agree to pay such additional premium
(in the Tenant's case, in the proportion which the area of the Demised Premises
bears to the insured area). If neither (i) nor (ii) are done, this Section 21.7
shall have no effect during such time as such policies shall not be obtainable
or the party in whose favor a waiver of subrogation is desired refuses to pay
the additional premium. If such policies shall at any time be unobtainable, but
shall be subsequently obtainable, neither party shall be subsequently liable
for a failure to obtain such insurance until a reasonable time after
notification thereof by the other party. If the release of either Landlord or
Tenant, as set forth in the first sentence of this Section 21.7 shall
contravene any law with respect to exculpatory agreements, the liability of the
party in question shall be deemed not released but shall be secondary to the
other's insurer.
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21.8. Landlord may require insurance policy limits to be raised to
conform with (a) the requirements of Landlord's lender and/or (b) the coverage
limits then being required of new tenants within the Building.
22. Damage or Destruction
22.1. Except as provided in Sections 22.6 and 22.8 hereof, in the
event of a partial destruction of the Building by fire or other perils covered
by extended coverage insurance, not exceeding twenty-five percent (25%) of the
full insurable value thereof, and if the damage thereto is such that the
Building may be repaired, reconstructed or restored within a period of six (6)
months from the date of the happening of such casualty and Landlord will
receive insurance proceeds sufficient to cover the cost of such repairs (except
for any deductible amount provided by Landlord's policy, which deductible
amount if paid by Landlord shall be an Operating Expense), Landlord shall
commence and proceed diligently with the work of repair, reconstruction and
restoration and this Lease shall continue in full force and effect.
22.2. In the event of any damage to or destruction of the Building,
other than as provided in Section 22.1, Landlord may elect to repair,
reconstruct and restore the Building, in which case this Lease shall continue
in full force and effect. If Landlord elects not to repair then this Lease
shall terminate as of the date of destruction.
22.3. Landlord shall give written notice to Tenant of its election
not to repair, reconstruct or restore the Building within the sixty (60) day
period following the date of damage or destruction.
22.4. Upon any termination of this Lease under any of the provisions
of this Article, the parties shall be released thereby without further
obligation to the other from the date possession of the Demised Premises is
surrendered to the Landlord except for items which have theretofore occurred.
22.5. In the event of repair, reconstruction and restoration as
herein provided, the rental provided to be paid under this Lease shall be
abated proportionately based on the extent to which Tenant's use of the Demised
Premises is impaired during the period of such repair, reconstruction or
restoration, unless Landlord provides Tenant with other space during the period
of repair, which in Tenant's reasonable opinion is suitable for the temporary
conduct of Tenant's business.
22.6. Notwithstanding anything to the contrary contained in this
Article, should Landlord be delayed or prevented from completing the repair or
restoration of the damage to the Demised Premises after the occurrence of such
damage or destruction by reason of acts of God or war, governmental
restrictions, inability to procure the necessary labor or materials, strikes,
or other uses beyond the control of Landlord, the time for Landlord to commence
or complete repairs shall be extended, provided, at the election of Landlord,
Landlord shall be relieved of its obligation to make such repairs or
restoration and Tenant shall be released from its obligation
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under this Lease as of the end of eight (8) months from date of destruction, if
repairs required to provide Tenant use of the Demised Premises are not then
substantially complete.
22.7. If Landlord is obligated to or elects to repair or restore as
herein provided, Landlord shall be obligated to make repairs or restoration
only of those portions of the Building and the Demised Premises which were
originally provided at Landlord's expense, including the Tenant Improvements;
the repair and restoration of items (other than the Tenant Improvements) not
provided at Landlord's expense shall be the obligation of Tenant. In the event
Tenant elected to upgrade certain improvements from the standard normally
provided by Landlord, Landlord shall, upon the need for replacement due to an
insured loss, provide only the standard Landlord improvements unless Tenant
shall elect to again upgrade and pay any additional cost of such upgrades,
except to such extent as insurance proceeds which, if received, the excess
proceeds are adequate to provide such upgrades, in addition to providing for
basic reconstruction and standard improvements.
22.8. Notwithstanding anything to the contrary contained in this
Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Demised Premises when the damage resulting from any
casualty covered under this Article occurs during the last twenty-four (24)
months of the Term, or to the extent that insurance proceeds are not available
therefor.
22.9. Notwithstanding anything to the contrary contained in this
Article, in the event Landlord makes the determination that the repair or
restoration of the damage to the Demised Premises resulting from a casualty
covered by this Article, shall take in excess of fifteen (15) months from the
date of such damage to complete, within ten (10) days after Landlord has
notified Tenant of its determination and prior to the commencement of any such
repairs of the damages, Tenant shall have the right to terminate this Lease
upon not less than thirty (30) days prior written notice to Landlord.
23. Eminent Domain
23.1. In the event the whole of the Demised Premises, or such part
thereof as shall substantially interfere with the Tenant's use and occupancy
thereof, shall be taken for any public or quasi-public purpose by any lawful
power or authority by exercise of the right of appropriation, condemnation or
eminent domain, or sold to prevent such taking, Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to said authority.
23.2. In the event of a partial taking of the Building or of drives,
walkways, and parking areas serving the Building for any public or quasi-public
purpose by any lawful power or authority by exercise of right of appropriation,
condemnation, or eminent domain, or sold to prevent such taking, then without
regard as to whether any portion of the Demised Premises occupied by Tenant was
so taken, Landlord may elect to terminate this Lease as of such taking if such
taking is, in the sole opinion of Landlord, of a material nature such as to
make it uneconomical to continue use of the unappropriated portion for purposes
of office rentals or laboratory space.
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23.3. Tenant shall be entitled to any award which is specifically
awarded as compensation for the taking of Tenant's personal property, which was
installed at Tenant's expense and for costs of Tenant moving to a new location.
Except as before set forth, any award for such taking shall belong to Landlord.
23.4. If, upon any taking of the nature described in this Article 23,
this Lease continues in effect, the Landlord shall promptly proceed to restore
the Demised Premises and the Building to substantially their same condition
prior to such partial taking. To the extent such restoration is feasible, as
determined by Landlord in its reasonable discretion, the Rent shall be abated
proportionately based upon the extent to which Tenant's use of the Demised
Premises has decreased on the basis of the percentage of the rental value of
the Demised Premises after such taking and the rental value of the Demised
Premises prior to such taking.
24. Defaults and Remedies
24.1. Late payment by Tenant to Landlord of Rent and other sums due
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult and impracticable to ascertain.
Such costs include, but are not limited to, processing and accounting charges
and late charges which may be imposed on Landlord by the terms of any mortgage
or trust deed covering the Demised Premises. Therefore, if any installment of
Rent due from Tenant is not received by Landlord within five (5) days after the
date such payment is due, Tenant shall pay to Landlord an additional sum of six
percent (6%) of the overdue Rent as a late charge. The parties agree that this
late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant. In addition to the
late charge, Rent not paid when due shall bear interest from the 5th day after
date due until paid at the lesser of (i) twelve percent (12%) per annum or (ii)
the maximum rate permitted by law.
24.2. No payment by Tenant or receipt by Landlord of a lesser amount
than the Rent payment herein stipulated shall be deemed to be other than on
account of the Rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such Rent or pursue any other
remedy provided. If at any time a dispute shall arise as to any amount or sum
of money to be paid by Tenant to Landlord, Tenant shall have the right to make
payment "under protest" and such payment shall not be regarded as a voluntary
payment, and there shall survive the right on the part of Tenant to institute
suit for recovery of the payment paid under protest.
24.3. If Tenant fails to pay any sum of money required to be paid by
it hereunder, or shall fail to perform any other act on its part to be
performed hereunder, Landlord may, without waiving or releasing Tenant from any
obligations of Tenant, but shall not be obligated to, make such payment or
perform such act. Landlord shall provide Tenant with written notice within a
reasonable period of time in advance of the date on which Landlord intends to
make such payment or perform such act. All sums so paid or incurred by
Landlord, together with interest thereon,
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from the date such sums were paid or incurred, at the annual rate equal to
twelve percent (12%) per annum or highest rate permitted by law, whichever is
less, shall be payable to Landlord on demand as Additional Rent.
24.4. The occurrence of any one or more of the following events shall
constitute a "Default" hereunder by Tenant:
24.4.1. The abandonment or vacation of the Demised Premises by
Tenant;
24.4.2. The failure by Tenant to make any payment of Rent or
Additional Rent within 5 days after same shall be due;
24.4.3. The failure by Tenant to observe or perform any
obligation or covenant contained herein (other than described in Section 24.4.1
and 24.4.2) to be performed by Tenant, where such failure shall continue for a
period of fifteen (15) days after written notice thereof from Landlord to
Tenant. Such notice shall be in lieu of, and not in addition to, any notice
required under any applicable law; provided that if the nature of Tenant's
default is such that it reasonably requires more than fifteen (15) days to
cure, then Tenant shall not be deemed to be in default if Tenant shall commence
such cure within said fifteen (15) day period and thereafter diligently
prosecute the same to completion, provided, however, that such cure is
completed no later than forty-five (45) days from the date of written notice;
24.4.4. Tenant makes a general assignment for the benefit of
creditors;
24.4.5. A receiver, trustee or custodian is appointed to, or
does, take title, possession or control of all, or substantially all, of
Tenant's assets which is not dismissed within 90 days;
24.4.6. Tenant files a voluntary petition under the Bankruptcy
Code (or any similar law) or an order for relief is entered against Tenant
pursuant to a voluntary or involuntary proceeding commenced under any chapter
of the Bankruptcy Code which is not dismissed within 90 days;
24.4.7. Any involuntary petition if filed against the Tenant
under any chapter of the Bankruptcy Code and is not dismissed or bonded against
to Landlord's reasonable satisfaction or as may be required by law within
ninety (90) days; or
24.4.8. Tenant's interest in this Lease is attached, executed
upon, or otherwise judicially seized and such action is not released or bonded
against to Landlord's reasonable satisfaction or as may be required by law
within ninety (90) days of the action.
Notices given under this Section 24.4 shall specify the alleged default and
shall demand that Tenant perform the provisions of this Lease or pay the Rent
that is in arrears, as the case may be,
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within the applicable period of time, or quit the Demised Premises. No such
notice shall be deemed a forfeiture or a termination of this Lease unless
Landlord elects otherwise in such notice.
24.5. In the event of a Default by Tenant, and at any time thereafter,
with or without notice or demand and without limiting Landlord in the exercise
of any right or remedy which Landlord may have, Landlord shall be entitled to
terminate Tenant's right to possession of the Demised Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Demised Premises to Landlord. In such event,
Landlord shall have the immediate right to re-enter and remove all persons and
property, and such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of Tenant. In the event that
Landlord shall elect to so terminate this Lease, then Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including:
24.5.1. The worth at the time of award of any unpaid Rent which
had been earned at the time of such termination; plus
24.5.2. The worth at the time of award of the amount by which
the unpaid Rent which would have been earned after termination until the time
of award exceeds that portion of such rental loss which Tenant proves could
have been reasonably avoided; plus
24.5.3. The worth at the time of award of the amount by which
the unpaid Rent for the balance of the term after the time of award exceeds
that portion of such rental loss which Tenant proves could have been reasonably
avoided; plus
24.5.4. Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligation under the Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to, the cost of restoring
the Demised Premises to the condition required under the terms of this Lease,
leasing commissions, advertising and any other costs of re-letting; plus
24.5.5. At the Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law.
As used in Sections 24.5.1 and 24.5.2 above, "worth at the time of award" shall
be computed by allowing interest at the rate specified in Section 24.1. As
used in Section 24.5.3 above, the "worth at the time of the award" shall be
computed by taking the present value of such amount, by using the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award plus six
(6) percentage points.
24.6. If Landlord does not elect to terminate this Lease as provided
in this Section, then Landlord may, from time to time, recover all Rent as it
becomes due under this Lease. At any time thereafter, Landlord may elect to
terminate this Lease and to recover damage to which Landlord is entitled.
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24.7. In the event Landlord elects to terminate this Lease and relet
the Demised Premises, it may execute any new lease in its own name. Tenant
hereunder shall have no right or authority whatsoever to collect any Rent from
such tenant except as provided below. The proceeds of any such reletting shall
be applied as follows:
First, to the payment of any indebtedness other than Rent due
hereunder from Tenant to Landlord, including, but not limited to,
storage charges or brokerage commissions owing from Tenant to Landlord
as the result of such reletting;
Second, to the payment of the costs and expenses of reletting
the Demised Premises, including alterations and repairs which Landlord
deems reasonably necessary and advisable and reasonable attorneys'
fees, charges and disbursements incurred by Landlord in connection with
the retaking of the Demised Premises and such reletting;
Third, to the payment of Rent and other charges due and unpaid
hereunder; and
Fourth, to the payment of future Rent and other damages payable
by Tenant under this Lease.
24.8. All rights, options, and remedies of Landlord contained in this
Lease shall be construed and held to be nonexclusive and cumulative. Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by law, whether or not stated in this
Lease. No waiver of any default of Tenant hereunder shall be implied from any
acceptance by Landlord of any Rent or other payments due hereunder or any
omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver.
24.9. Termination of this Lease or Tenant's right to possession by
Landlord shall not relieve Tenant from any liability to Landlord which has
theretofore accrued or shall arise based upon events which occurred prior to
the last to occur of (i) the date of Lease termination or (ii) the date
possession of Demised Premises is surrendered.
24.10. Except as may otherwise be provided in this Lease, Landlord
shall not be in default unless Landlord fails to perform obligations required
of Landlord within a reasonable time, but in no event shall such failure to
continue be for more than thirty (30) days after written notice by Tenant
specifying wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.
24.11. In the event of any default on the part of Landlord, Tenant will
give notice by registered or certified mail to any beneficiary of a deed of
trust or mortgagee or a mortgage covering the Demised Premises and to any
landlord of any lease of any building in which Demised Premises is located
whose name and address shall have been furnished to Tenant in writing, and
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Tenant shall offer such beneficiary, mortgagee and/or landlord a reasonable
opportunity to cure the default, including time to obtain possession of the
Building by power of sale or a judicial action if such should prove necessary
to effect a cure, provided the Landlord shall have furnished to Tenant in
writing the names and addresses of all such persons who are to receive such
notices.
25. Assignment or Subletting
25.1. Except as hereinafter provided, Tenant shall not, either
voluntarily or by operation of law, directly or indirectly, sell, hypothecate,
assign, pledge, encumber or otherwise transfer this Lease, or sublet the
Demised Premises or any part thereof, or permit or suffer the Demised Premises
or any part thereof to be used or occupied as work space, storage space,
mailing privileges, concession or otherwise by anyone other than Tenant or
Tenant's employees, without the prior written consent of Landlord in each
instance, which consent shall not be unreasonably withheld, conditioned or
delayed. Notwithstanding the foregoing, Tenant may sublease up to twenty
percent (20%) of the useable square footage of the Demised Premises to third
parties collaborating or consulting with Tenant; provided that Tenant notify
Landlord in writing of such subleases prior to the commencement of such
subleases.
25.2. If Tenant is a corporation, the shares of which are not actively
traded upon a stock exchange or in the over-the-counter market, a transfer or
series of transfers whereby twenty-five percent (25%) or more of the issued and
outstanding shares of such corporation are, or the voting control is,
transferred (but excepting transfers upon deaths of individual shareholders)
from a person or persons or entity or entities which were owners thereof at
time of execution of this Lease shall be deemed an assignment of this Lease
requiring the consent of Landlord as provided in Section 25.1 above.
25.3. If Tenant desires to assign this Lease to any entity into which
Tenant is merged, with which Tenant is consolidated, or which acquires all or
substantially all of the assets of Tenant, provided that the assignee first
executes, acknowledges and delivers to Landlord an agreement whereby the
assignee agrees to be bound by all of the covenants and agreements in this
Lease and that the assignee has a net worth (determined in accordance with
generally accepted accounting principles consistently applied) immediately
after such assignment which is at least equal to the net worth (as so
determined) of Tenant immediately prior to the assignment, then Landlord, upon
receipt of proof of foregoing shall, consent to such assignment.
25.4. In the event Tenant desires to assign, sublease, hypothecate or
otherwise transfer this Lease or sublet the Demised Premises, then at least
forty-five (45) days, but not more than ninety (90) days, prior to the date
when Tenant desires the assignment or sublease to be effective (the "Assignment
Date"), Tenant shall give Landlord a notice (the "Assignment Notice")
containing information (including references) concerning the character of the
proposed assignee or sublessee, the Assignment Date, any ownership or
commercial relationship between Tenant and the proposed assignee or sublessee,
and the consideration and all other material terms and conditions of the
proposed assignment or sublease along with such other information as Landlord
may reasonably require, all in such detail as Landlord shall reasonably
require. Tenant shall also
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reimburse Landlord for Landlord's reasonable attorneys fees and other actual
out-of-pocket costs paid by Landlord in reviewing Tenant's request for such
assignment or sublease.
25.5. Landlord in making its determination as to whether consent
should be given to a proposed assignment or sublease, may give consideration to
the financial strength of such successor (notwithstanding the assignor
remaining liable for Tenant's performance), any change in use which such
successor proposes to make in use of Demised Premises. In no event shall
Landlord be deemed to be unreasonable for declining to consent to transfer to a
successor of poor reputation, lacking financial qualifications, or seeking
change in use.
25.6. As conditions precedent to Landlord considering a request by
Tenant to Tenant's transfer of rights or subletting of the Demises Premises,
Landlord may require any or all of the following:
25.6.1. Tenant shall remain fully liable under this Lease
during the unexpired Term;
25.6.2. Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord respecting the relevant business experience and
financial responsibility and status of the third party concerned;
25.6.3. Tenant shall reimburse Landlord for Landlord's actual
out-of-pocket costs and expenses, including, without limitation, reasonable
attorneys' fees, charges and disbursements incurred in connection with the
review, processing and documentation of such request;
25.6.4. If Tenant's transfer of rights or subletting of the
Demised Premises provides for the receipt by, on behalf or on account of Tenant
of any consideration of any kind whatsoever (including, but not by way of
limitation, a premium rental for a sublease or lump sum payment for an
assignment) in excess of (a) the Rent and Additional Rent under this Lease and
(b) any costs of subleasing such space, including, but not limited to, brokers'
commissions and tenant improvement costs paid by Tenant (amortized over the
remaining Term of the Lease), Tenant shall pay fifty percent (50%) of said
excess to Landlord. If said consideration consists of cash paid to Tenant,
said payment to Landlord shall be made upon receipt by Tenant of said cash
payment;
25.6.5. Written agreement from any third party concerned that
in the event Landlord gives such third party notice that Tenant is in default
under this Lease, such third party shall thereafter make all payments otherwise
due Tenant directly to Landlord, which payments will be received by Landlord
without any liability on Landlord except to credit such payment against those
due under the Lease, and any such third party shall agree to attorn to Landlord
or its successors and assigns should this Lease be terminated for any reason;
provided, however, that in no event shall Landlord or its successors or assigns
be obligated to accept such attornment;
25.6.6. Any such transfer and consent shall be effected on
forms reasonably approved by Landlord as to form and substance;
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25.6.7. Tenant shall not then be in default hereunder in any
respect;
25.6.8. Such third party's proposed use of the Demised Premises
shall be the same as Tenant's permitted use in Section 2.1.9;
25.6.9. Landlord shall not be bound by any provision of any
agreement pertaining to Tenant's transfer of rights or subletting of the
Demised Premises;
25.6.10 Any agreement pertaining to Tenant's transfer of this
Lease or subletting of any portion of the Demised Premises shall be in a form
reasonably acceptable to Landlord in Landlord's reasonable discretion (which
shall be deemed to include the determination by Landlord's REIT advisor that
any such agreement may interfere with compliance by Landlord of its obligations
as a real estate investment trust), and any such agreement shall not be
modified or amended without Landlord's prior written consent, which may not be
unreasonably withheld or delayed;
25.6.11 Tenant shall deliver to Landlord one original executed
copy of any and all written instruments evidencing or relating to Tenant's
transfer of rights or subletting of the Demised Premises; and
25.6.12 A list of Hazardous Materials, certified by the
proposed sublessee to be true and correct, which the proposed sublessee intends
to use or store in the Demised Premises. Additionally, Tenant shall deliver to
Landlord, on or before the date any proposed sublessee takes occupancy of the
Demised Premises, all of the items relating to Hazardous Materials of such
proposed sublessee.
25.7. Any sale, assignment, hypothecation or transfer of this Lease or
subletting of the Demised Premises that is not in compliance with the
provisions of this Article 25 shall be void and shall, at the option of
Landlord, terminate this Lease.
25.8. The consent by Landlord to an assignment or subletting shall not
relieve Tenant or any assignees of this Lease or sublessee of the Demised
Premises from obtaining the consent of Landlord to any further assignment or
subletting nor shall it release Tenant or any assignee or sublessee of Tenant
from full and primary liability under the Lease.
25.9. Notwithstanding any subletting or assignment, Tenant shall
remain fully and primarily liable for the payment of all Rent and other sums
due, or to become due hereunder, and for the full performance of all other
terms, conditions, and covenants to be kept and performed by Tenant. The
acceptance of Rent or any other sum due hereunder, or the acceptance of
performance of any other term, covenant, or condition thereof, from any other
person or entity shall not be deemed to be a waiver of any of the provisions of
this Lease or a consent to any subletting, assignment or other transfer of the
Demised Premises.
25.10. [Intentionally Omitted]
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25.11. If Tenant shall sublet the Demised Premises or any part, Tenant
hereby immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any subletting of all or a
part of the Demised Premises and Landlord as assignee and as attorney-in-fact
for Tenant, or a receiver for Tenant appointed on Landlord's application, may
collect such rent and apply it toward Tenant's obligations under this Lease;
except that, until the occurrence of an act of default by Tenant, Tenant shall
have the right to collect such rent.
26. Attorneys' Fees and Costs
26.1. Tenant shall be responsible for (i) all of Tenant's legal and
related costs and fees in connection with this Lease, and (ii) all of
Landlord's reasonable legal and related costs and fees if Landlord is required
to consult an attorney regarding the enforcement of this Lease.
26.2. If either party commences an action against the other party
arising out of or in connection with this Lease, the prevailing party shall be
entitled to have and recover from the non-prevailing party reasonable
attorneys' fees, charges and disbursements and costs of suit.
27. Bankruptcy
27.1. In the event a debtor, trustee, or debtor in possession under
the Bankruptcy Code, or other person with similar rights, duties and powers
under any other law, proposes to cure any default under this Lease or to assume
or assign this Lease, and is obliged to provide adequate assurance to Landlord
that (i) a default will be cured, (ii) Landlord will be compensated for its
damages arising from any breach of this Lease, or (iii) future performance
under this Lease will occur, then adequate assurance shall include any or all
of the following, as designated by Landlord:
27.1.1. Those acts specified in the Bankruptcy Code or other
law as included within the meaning of adequate assurance, even if this Lease
does not concern a shopping center or other facility described in such laws;
27.1.2. A prompt cash payment to compensate Landlord for any
monetary defaults or actual damages arising directly from a breach of this
Lease;
27.1.3. A cash deposit in an amount at least equal to the
Security Deposit as referenced in 2.1.8 originally required at time of
execution of this Lease.
27.1.4. The assumption or assignment of all of Tenant's
interest and obligations under this Lease.
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28. Estoppel Certificate
Tenant or Landlord shall within fifteen (15) days of written notice
from Landlord or Tenant, as the case may be, execute, acknowledge and deliver a
statement in writing substantially in the form attached to this Lease as
Exhibit "G" with the blanks filled in, and on any other form reasonably
requested by a proposed lender or purchaser, (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease as so modified is in full
force and effect) and the dates to which the rental and other charges are paid
in advanced, if any, (ii) acknowledging that there are not, to such party's
knowledge, any uncured defaults on the part of Landlord or Tenant, as the case
may be, hereunder, or specifying such defaults if any are claimed and (iii)
setting forth such further information with respect to this Lease or the
Demised Premises as may be reasonably requested thereon. Any such statement
may be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the real property of which the Demised Premises are a part. Either
party's failure to deliver such statement within such time shall, at the option
of the other party, constitute a Default under this Lease, and, in any event,
shall be conclusive upon Tenant or Landlord, as the case may be, that the Lease
is in full force and effect and without modification except as may be
represented by such party in any certificate delivered to the other party for
execution.
29. Intentionally Omitted
30. Definition of Landlord; Limitation of Landlord's Liability
30.1. The term "Landlord" as used in this Lease, so far as covenants
or obligations on the part of Landlord are concerned, shall be limited to mean
and include only Landlord or the successor-in-interest of Landlord under this
Lease at the time in question. In the event of any transfer, assignment or the
conveyance of Landlord's fee title or leasehold interest, the landlord herein
named (and in case of any subsequent transfers or conveyances, the then
grantor) shall be automatically freed and relieved from, and after the date of
such transfer, assignment or conveyance, of all liability for the performance
of any covenants or obligations contained in this Lease thereafter to be
performed by Landlord and, without further agreement, the transferee of such
title or leasehold shall be deemed to have assumed and agreed to observe and
perform any and all obligations of Landlord hereunder during its ownership or
ground lease of the Demised Premises. Landlord may transfer its interest in
the Demised Premises or this Lease without the consent of Tenant and such
transfer or subsequent transfer shall not be deemed a violation on the part of
Landlord or the then grantor of any of the terms or conditions of this Lease.
30.2. If Landlord is in default of this Lease, and as a consequence,
Tenant recovers a money judgment against Landlord, the judgment shall be
satisfied only out of the proceeds of sale received on execution of the
judgment and levy against the right, title and interest of Landlord in the
Building, and out of rent or other income from such real property receivable by
Landlord or out of the consideration received by Landlord from the sale,
financing, refinancing, or other disposition of all or any part of Landlord's
right, title, and interest in the Building.
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30.3. Landlord shall not be personally liable for any deficiency. If
Landlord is a partnership, limited liability company or joint venture, the
members of such limited liability company or the partners of such partnership
shall not be personally liable and no member or partner of Landlord shall be
sued or named as a party in any suit or action or service of process be made
against any partner of Landlord except as may be necessary to secure
jurisdiction of the partnership, limited liability company or joint venture.
If Landlord is a corporation, the shareholders, directors, officers, employees,
and/or agents of such corporation shall not be personally liable and no
shareholder, director, officer, employee or agent of Landlord shall be sued or
named as a party in any suit or action or service of process made against any
shareholder, director, officer, employee or agent of Landlord. No partner,
member shareholder, director, employee, or agent of Landlord shall be required
to answer or otherwise plead to any service of process and no judgment will be
taken or writ of execution levied against any partner, member, shareholder,
director, employee or agent of Landlord.
30.4. Each of the covenants and agreements of this Article 30 shall be
applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or by common law and shall survive the termination
of this Lease.
31. Project Control by Landlord
31.1. Subject to Sections 2.1.9 and 10, Landlord reserves full control
over the Building to the extent not inconsistent with Tenant's enjoyment of the
Demised Premises under the terms of this Lease. This reservation includes but
is not limited to right of Landlord to expand the Building into a larger
project, subdivide the real property upon which the Building is located,
convert the Building to condominium units, the right to grant easements and
licenses to others and the right to maintain or establish ownership of the
Building separate from fee title to the Land.
31.2. Landlord further reserves the right to combine the Building with
any other project in the area of the Building and owned by Landlord or its
affiliates.
31.3. Tenant shall, should Landlord so request, promptly join with
Landlord in execution of such documents as may be reasonably appropriate to
assist Landlord to implement any such action, provided that Tenant need not
execute any document which is of nature wherein liability is created or
increased in Tenant or, if by reason of the terms of such document, Tenant will
be deprived of the quiet enjoyment and use of the Demised Premises as granted
by this Lease.
31.4. Landlord may, at any and all reasonable times during
non-business hours (or during business hours if Tenant so requests), and upon
reasonable advance notice of not less than 24 hours (provided that no time
restrictions shall apply or advance notice need be given if an emergency
necessitates an immediate entry), enter the Demised Premises to (a) inspect the
same and to determine whether Tenant is in compliance with its obligations
hereunder, (b) supply any service Landlord is required to provide hereunder,
(c) show the Demised Premises to prospective lenders, insurers, investors,
purchasers or, during the last 9 months of the Term, tenants, (d) post
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notices of nonresponsibility, (e) access the telephone equipment, electrical
substation and fire risers, and (f) alter, improve or repair any portion of the
Building other than the Demised Premises, but for which access to the Demised
Premises is necessary. In connection with any such alteration, improvement or
repair, Landlord may erect in the Demised Premises or elsewhere in the Building
scaffolding and other structures reasonably required for the work to be
performed. In no event shall Tenant's Rent abate as a result of any such entry
or work; provided, however, that all such work shall be done in such a manner
as to cause as little interference to Tenant as reasonably possible. Landlord
shall at all times retain a key with which to unlock all of the doors in the
Demised Premises. If an emergency necessitates immediate access to the Demised
Premises, Landlord may use whatever force is necessary to enter the Demised
Premises and any such entry to the Demised Premises shall not constitute a
forcible or unlawful entry to the Demised Premises, an unlawful detainer of the
Demised Premises, or an eviction of Tenant from the Demised Premises, or any
portion thereof.
32. Quiet Enjoyment
So long as Tenant is not in default beyond any applicable notice and
cure periods, Landlord covenants that Landlord or anyone acting through or
under Landlord will not disturb Tenant's occupancy of the Demised Premises
except as permitted by the provisions of this Lease.
33. Quitclaim Deed
Tenant shall execute and deliver to Landlord on the expiration or
termination of this Lease, immediately on Landlord's request, in recordable
form, a quitclaim deed to the Demised Premises or such other documentation
reasonably requested by Landlord evidencing termination of this Lease.
34. Rules and Regulations
Tenant shall faithfully observe and comply with the Rules and
Regulations attached hereto as Exhibit "E" and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. To the extent Landlord enforces any of the Rules
and Regulations, Landlord shall use its reasonable efforts to enforce the Rules
and Regulations in a non-discriminatory fashion against all tenants of the
Building, but shall not be responsible to Tenant for the violation or
non-performance by any other tenant or any agent, employee or invitee thereof
of any of said Rules and Regulations.
35. Subordination and Attornment
35.1. Subject to Section 35.4, this Lease shall be subject and
subordinate to the lien of any mortgage, deed of trust, or lease in which
Landlord is tenant now or hereafter in force against the Building and to all
advances made or hereafter to be made upon the security thereof without the
necessity of the execution and delivery of any further instruments on the part
of Tenant to effectuate such subordination.
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35.2. Subject to Section 35.4, Tenant shall execute and deliver upon
demand such further instrument or instruments evidencing such subordination of
this Lease to the lien of any such mortgage or mortgages or deeds of trust or
lease in which Landlord is tenant as may be reasonably required by Landlord.
However, if any such mortgagee, beneficiary or Landlord under lease wherein
Landlord is tenant so elects, this Lease shall be deemed prior in lien to any
such lease, mortgage, or deed of trust upon or including the Demised Premises
regardless of date and Tenant will execute a statement in writing to such
effect at Landlord's request. If Tenant fails to execute any document required
from Tenant under this Section within ten (10) days after written request
therefor, Tenant hereby constitutes and appoints Landlord or its special
attorney-in-fact to execute and deliver any such document or documents in the
name of Tenant. Such power is coupled with an interest and is irrevocable.
35.3. In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or deed of
trust made by the Landlord covering the Demised Premises, the Tenant shall at
the election of the purchaser at such foreclosure or sale attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease.
35.4. Tenant's subordination of this Lease shall be subject to
receiving a commercially reasonable non-disturbance agreement (a
"Non-Disturbance Agreement") from such mortgagee, beneficiary or lessor which
Non-Disturbance Agreement provides that Tenant's possession of the Demised
Premises, and this Lease, including any options to extend the term hereof, will
remain in full force and effect, so long as Tenant is not in Default hereof,
after any applicable grace and cure periods.
36. Surrender
36.1. No surrender of possession of any part of the Demised Premises
shall release Tenant from any of its obligations hereunder unless accepted by
Landlord.
36.2. The voluntary or other surrender of this Lease by Tenant shall
not work a merger, unless Landlord consents and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies.
36.3. The voluntary or other surrender of any ground or underlying
lease that now exists or may hereafter be executed affecting the Building, or a
mutual cancellation, thereof, or of Landlord's interest therein, shall not work
a merger and shall, at the option of the successor of Landlord's interest in
the Building, operate as an assignment of this Lease.
36.4. Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Demised Premises to Landlord broom clean and free of
debris; with all of the "Existing Tenant Fixtures" (defined below) in place, in
good working order and repair, but with all of Tenant's other personal property
and effects removed therefrom; with all alterations, improvements and fixtures
required by Landlord pursuant to this Lease to be removed from the Demised
Premises
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(including any portion of the Existing Tenant Fixtures Landlord may designate)
actually removed and all damage as a result of or caused by such removal
repaired (all at the sole cost and expense of Tenant); and with all licenses,
permits and similar items which restrict or affect the used of the Demised
Premises released and fully terminated.
36.5. As used in the Lease, "Existing Tenant Fixtures" means all of
the personal property and fixtures listed on Exhibit "F" to this Lease.
37. Waiver and Modification
No provision of this Lease may be modified, amended or added to except
by an agreement in writing. The waiver by Landlord of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
any subsequent breach of the same or any other term, covenant or condition
herein contained.
38. Waiver of Jury Trial and Counterclaims
THE PARTIES HERETO SHALL AND THEY HEREBY DO WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO
AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S
USE OR OCCUPANCY OF THE DEMISED PREMISES, AND OR ANY CLAIM OF INJURY OR DAMAGE.
39. Intentionally Omitted
40. Hazardous Materials
40.1. Prohibition/Compliance. Subject to Section 40.2, Tenant shall
not cause or permit any Hazardous Materials (as hereinafter defined) to be
brought upon, kept or used in or about the Demised Premises, the Building or
the Land in violation of applicable law by Tenant, its agents, employees,
contractors or invitees. If Tenant breaches the obligation stated in the
preceding sentence, or if the presence of Hazardous Materials during the term
of this Lease or any extension or renewal hereof or holding over hereunder
results in the contamination of the Demised Premises, the Building, the Land or
any adjacent property, Tenant hereby indemnifies and shall defend and hold
Landlord, its officers, directors, employees, agents and contractors harmless
from any and all claims, judgments, damages, penalties, fines, costs,
liabilities, or losses (including, without limitation, diminution in value of
the Demised Premises or any portion of the Building or Land, damages for the
loss or restriction on use of rentable or usable space or of any amenity of the
Demised Premises or the Building, damages arising from any adverse impact on
marketing of space in the Demised Premises or the Building, and sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees) which
arise during or after the Lease term as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site conditions or any
cleanup, remedial, removal,
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or restoration work required by any federal, state or local governmental agency
or political subdivision because of Hazardous Materials present in the air,
soil or ground water above on or under the Demised Premises. Without limiting
the foregoing, if the presence of any Hazardous Materials on the Demised
Premises, the Building, the Land or any adjacent property, caused or permitted
by Tenant results in any contamination of the Demised Premises, the Building,
the Land or any adjacent property, Tenant shall promptly take all actions at
its sole expense as are necessary to return the Demised Premises, the Building,
the Land or any adjacent property to the condition existing prior to the time
of such contamination, provided that Landlord's approval of such action shall
first be obtained, which approval shall not unreasonably be withheld,
conditioned or delayed, so long as such actions would not potentially have any
material adverse long-term or short-term effect on the Demised Premises, the
Building or the Land; provided, however, that Tenant shall have no obligation
to take any action with respect to any adjacent property until such time as a
claim is made by a party in interest of any such adjacent property.
40.2. Business. Landlord acknowledges that it is not the intent of
this Article 40 to prohibit Tenant from operating its business as described in
Section 2.1.9 above. Tenant may operate its business according to the custom
of the industry so long as the use or presence of Hazardous Materials is
strictly and properly monitored according to all applicable governmental
requirements. As a material inducement to Landlord to allow Tenant to use
Hazardous Materials in connection with its business, Tenant agrees to deliver
to Landlord prior to the Term Commencement Date a list identifying each type of
Hazardous Materials to be present on the Demised Premises and setting forth any
and all governmental approvals or permits required in connection with the
presence of such Hazardous Materials on the Demised Premises ("Hazardous
Materials List"). Tenant shall deliver to Landlord an updated Hazardous
Materials List at least once a year and shall also deliver an updated list
before any new Hazardous Materials is brought onto the Demised Premises.
Tenant shall deliver to Landlord true and correct copies of the following
documents (the "Documents") relating to the handling, storage, disposal and
emission of Hazardous Materials prior to the Term Commencement Date, or if
unavailable at that time, concurrent with the receipt from or submission to a
governmental agency: permits; approvals; reports and correspondence; storage
and management plans, notice of violations of any laws; plans relating to the
installation of any storage tanks to be installed in or under Building or the
Land (provided, said installation of tanks shall only be permitted after
Landlord has given Tenant its written consent to do so, which consent may be
withheld in Landlord's sole and absolute discretion); and all closure plans or
any other documents required by any and all federal, state and local
governmental agencies and authorities for any storage tanks installed in, on or
under the Building or the Land for the closure of any such tanks. Tenant is
not required, however, to provide Landlord with any portion(s) of the Documents
containing information of a proprietary nature which, in and of themselves, do
not contain a reference to any Hazardous Materials or hazardous activities. It
is not the intent of this Section to provide Landlord with information which
could be detrimental to Tenant's business should such information become
possessed by Tenant's competitors. At the written request of Landlord, Tenant
agrees that it shall enter into a written agreement with other tenants at the
Building concerning the equitable allocation of fire control areas (as defined
in the Uniform Building Code, and adopted by the City of Gaithersburg ("UBC"))
within the Building for the storage of Hazardous Materials. In the event that
Tenant's
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use of Hazardous Materials is such that it utilizes fire control areas in the
Building in excess of Tenant's Pro Rata Share of the Building as set forth in
Section 2.1.6 above, Tenant agrees that it shall, at its own expense, and upon
the written request of Landlord, establish and maintain a separate area of the
Demised Premises classified by the UBC as an "H" occupancy area, for the use
and storage of Hazardous Materials, or take such other action so that its share
of the fire control areas of the Building is not greater than Tenant's Pro Rata
Share of the Building.
40.3. Termination of Lease/Withholding Approval of Assignment or
Sublease. Notwithstanding the provisions of Section 40.1 above, if Tenant or
any existing sublessee of Tenant, with respect to the Demised Premises or the
Building, or any proposed assignee or sublessee, with respect to the Demised
Premises, is subject to an uncured enforcement order issued by any governmental
authority in connection with the use, disposal or storage of Hazardous
Materials, Landlord shall have the right, with respect to any such matter
involving Tenant or an existing sublessee of Tenant, to terminate this Lease in
Landlord's sole and absolute discretion, and, with respect to any such matter
involving a proposed assignee or sublessee, it shall not be unreasonable for
Landlord to withhold its consent to any proposed assignment or subletting.
Notwithstanding the foregoing, after the first occurrence of any event with
respect to Tenant or any existing sublessee of Tenant described above (a
"Termination Event"), Landlord shall deliver written notice to Tenant, and such
sublessee, if applicable, of the occurrence of such event and Tenant shall have
thirty (30) days after receipt of such notice to cure, or cause to be cured,
the condition causing such Termination Event. After the expiration of such
thirty (30) day period, or upon the occurrence of any subsequent Termination
Event, Landlord shall have the right to terminate this Lease in Landlord's sole
and absolute discretion.
40.4. Testing. At any time, and from time to time, prior to the
expiration or earlier termination of the Term, Landlord shall have the right to
conduct appropriate tests of the Demised Premises, the Building or the Land to
demonstrate that contamination has occurred as a result of Tenant's use of the
Demised Premises. In the event such test determines that any contamination
exists in, on or around the Demised Premises, the Building or the Land as a
result of Tenant's actions, Tenant shall pay for the cost of the tests of the
Demised Premises.
40.5. Testing of Expansion Space. Prior to delivery of possession of
the Expansion Space to Tenant, Landlord shall retain a qualified contractor to
perform an inspection of the Expansion Space to determine whether any Hazardous
Materials exist within the Expansion Space. The cost of such contractor to
perform the inspection shall be shared equally by Landlord and Tenant. Landlord
shall deliver possession of the Expansion Space to Tenant free of any Hazardous
Materials identified by such contractor.
40.6. Underground Tanks. If underground or other storage tanks
storing Hazardous Materials are located on the Demised Premises or are
hereafter placed on the Demised Premises by any party, Tenant shall monitor the
storage tanks, maintain appropriate records, implement reporting procedures,
properly close any underground storage tanks, and take or cause to be taken all
other steps necessary or required under the applicable federal, state, and
local rules,
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regulations, laws, statues, ordinances relating to Hazardous Materials in
Maryland, as they now exist or may hereafter be adopted or amended.
40.7. Tenant's Obligations. Tenant's obligations under this Article
40 with respect to contamination caused by Tenant during the Term shall survive
the expiration or earlier termination of the Lease. During any period of time
employed by Tenant or Landlord after the termination of this Lease to complete
the removal from the Demised Premises of any such Hazardous Materials and the
release and termination of any licenses or permits restricting the use of the
Demised Premises, Tenant shall continue to pay the full Rent in accordance with
this Lease, which Rent shall be prorated daily.
40.8. Definition of "Hazardous Materials." As used herein, the term
"Hazardous Materials" means any hazardous or toxic substance, material or waste
which is or becomes regulated by any local governmental authority, the State of
Maryland or the United States government and includes, without limitation, any
material or substance which is (i) defined as a "hazardous waste, " "extremely
hazardous waste" or "restricted hazardous waste" under any applicable law, (ii)
defined as a "hazardous substance" under any applicable law, (iii) defined as a
"hazardous material," "hazardous substance" or "hazardous waste" under Maryland
Environmental Code Ann., Title 7, Subtitle 2 (1993), as amended with
regulations promulgated thereunder and defined as "oil" under Maryland
Environment Code Ann., Section 4-401(g) (1993), (v) petroleum, (vi) asbestos,
(vii) designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. Section 1317), (viii) defined as
a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conversation and Recovery Act, 42 U.S.C. Section 6901, et. seq. (42 U.S.C.
Section 6903), or (ix) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response Compensation and Liability Act,
42 U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601). For purposes of this
Lease, the term "Hazardous Materials" shall not be deemed to include substances
and materials commonly used by tenants of commercial office space in compliance
with all applicable laws. Nonetheless, Tenant shall only store reasonable
quantities of such substances and materials and shall store, use and dispose of
the same in compliance with all applicable laws and insurance and labeling
requirements.
41. Right to Extend Term
Tenant shall have the right to extend the Term of the Lease upon the
following terms and conditions:
41.1. Tenant shall have one (1) right (an "Extension Right") to extend
the term of this Lease for five (5) years (an "Extension Term") on the same
terms and conditions as the Lease. During the Extension Term, Basic Annual
Rent shall be payable at the Renewal Rate (as defined below), but in no event
less than the Basic Annual Rent payable on the date immediately preceding the
commencement such Extension Term, as adjusted pursuant to Section 6 hereof.
Basic Annual Rent shall be adjusted on the commencement of each Extension Term
and on each one (1) year anniversary of the commencement such Extension Term in
accordance with Section 6 above.
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As used herein, "Renewal Rate" shall mean the then existing Basic Annual Rent
plus the then existing Improvement Rent, if applicable, adjusted upward in an
amount equal to three percent (3.0%) of the then existing Basic Annual Rent
plus the then existing Improvement Rent, if applicable.
41.2. Extension Rights are personal to Antex Biologics Inc. and are
not assignable separate and apart from this Lease.
41.3. Extension Rights are conditional upon Tenant giving Landlord
written notice of its election to exercise its Extension Right at least nine
(9) months prior to the expiration of the initial term of the Lease.
41.4. Notwithstanding anything set forth above to the contrary,
Extension Rights shall not be in effect and Tenant may not exercise any of the
Extension Rights:
41.4.1. during any period of time that Tenant is in default
under any provision of this Lease which is monetary in nature; or
41.4.2. if Tenant has been in default under any provision of
this Lease three (3) or more times, whether or not the defaults are cured,
during the twelve (12) month period immediately prior to the date that Tenant
intends to exercise an Extension Rights.
41.5. The Extension Rights shall terminate and be of no further force
or effect even after Tenant's due and timely exercise of an Extension Right,
if, after such exercise, but prior to the commencement date of an Extension
Term, (1) Tenant fails to timely cure any default by Tenant under this Lease;
or (2) Tenant has defaulted three (3) or more times during the period from the
date of the exercise of an Extension Right to the date of the commencement of
the Extension Term, whether or not such defaults are cured.
42. Tenant's Right for Early Termination
Tenant shall have a one-time right to terminate this Lease upon the
following terms and conditions:
42.1. Tenant must notify Landlord, in writing, no later than the date
which is thirty-six (36) months after the Effective Date, of Tenant's election
(the "Termination Election") to terminate this Lease.
42.2. If Tenant makes the Termination Election, all of the following
shall apply:
(A) This Lease shall terminate on the date which is forty-eight
(48) months after the Term Commencement Date;
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(B) Subject to exclusion under Section 42.3, Tenant shall pay
to Landlord an amount equal to the sum of (a) the "Unamortized Allowance"
(defined below) plus (b) the "Unamortized Brokers' Fee" (defined below);
(C) Landlord shall pay to Tenant the sum of One Hundred Seventy
Thousand and Fifty Dollars ($170,050) as compensation for the Existing Tenant
Fixtures. If Landlord elects to have Tenant remove any of the Existing Tenant
Fixtures pursuant to Section 36.4, the Fixture Payment shall be reduced by the
amount indicated on Exhibit "F" as the "Value" of such item being removed.
42.3. If Tenant makes the Termination Election and relocates to a
building of not less than 35,000 rentable square feet owned by Landlord or an
affiliate of Landlord, Tenant shall not be obligated to pay the Unamortized
Allowance nor the Unamortized Brokers' Fee.
42.4. As used in this Lease, "Unamortized Allowance" means, as of a
date of measurement, (a) the Additional Allowance that is actually paid by
Landlord multiplied by (b) a fraction, the numerator of which is (i) the
difference of 120 and the number of months from the Term Commencement Date to
the Improvement Rent Commencement Date minus (ii) the number of full calendar
months that have elapsed since the Improvement Rent Commencement Date, and the
denominator of which is 120. As used in this Lease, "Unamortized Brokers' Fee"
means the sum of One Hundred Thirty-nine Thousand Four Hundred Fifty-four and
59/100 Dollars ($139,454.59) multiplied by a fraction, the numerator of which
is (i) 120 minus (ii) the number of full calendar months that have elapsed
since the Term Commencement Date, and the denominator of which is 120.
43. Miscellaneous
43.1. Terms and Headings. Where applicable in this Lease, the
singular includes the plural and the masculine or neuter includes the
masculine, feminine and neuter. The section headings of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
43.2. Examination of Lease. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
43.3. Time. Time is of the essence with respect to the performance of
every provision of this Lease in which time of performance is a factor.
43.4. Covenants and Conditions. Each provision of this Lease
performable by Tenant shall be deemed both a covenant and a condition.
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43.5. Consents. Whenever consent or approval of either party is
required, that party shall not unreasonably withhold such consent or approval,
except as may be expressly set forth to the contrary.
43.6. Entire Agreement. The terms of this Lease are intended by the
parties as a final expression of their agreement with respect to the terms as
are included herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement. The Basic Lease Provisions, General Provisions,
Work Letter, and Exhibits all constitute a single document and are incorporated
herein.
43.7. Severability. Any provision of this Lease which shall prove to
be invalid, void, or illegal in no way affects, impairs or invalidates any
other provision hereof, and such other provisions shall remain in full force
and effect.
43.8. Recording. Landlord may, but shall not be obligated to, record
a short form memorandum hereof without the consent of Tenant. Neither party
shall record this Lease.
43.9. Impartial Construction. The language in all parts of this Lease
shall be in all cases construed as a whole according to its fair meaning and
not strictly for or against either Landlord or Tenant.
43.10. Inurement. Each of the covenants, conditions and agreements
herein contained shall inure to the benefit of and shall apply to and be
binding upon the parties hereto and their respective heirs, legatees, devisees,
executors, administrators, successors, assigns, sublessees, or any person who
may come into possession of said Demised Premises or any part thereof in any
manner whatsoever. Nothing in this Section 43.10 contained shall in any way
alter the provisions against assignment or subletting in this Lease provided.
43.11. Notices. Any notice, consent, demand, bill, statement, or other
communication required or permitted to be given hereunder must be in writing
and may be given by personal delivery or reputable overnight courier, and if
given by other means shall be deemed given when received, addressed to Tenant
at the Demised Premises, or to Tenant or Landlord at the addresses shown in
Sections 2.1.10 and 2.1.11 of the Basic Lease Provisions. Either party may, by
notice to the other given pursuant to this Section, specify additional or
different addresses for notice purposes.
43.12. Jurisdiction. This Lease has been negotiated and entered into
in the State of Maryland and shall be governed by, construed and enforced in
accordance with the laws of the State of Maryland, applied to contracts made in
Maryland to be wholly performed in Maryland.
43.13. Authority. That individual or those individuals signing this
Lease guarantee, warrant and represent that said individual or individuals have
the power, authority and legal capacity to sign this Lease on behalf of and to
bind all entities, corporations, partnerships, joint
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venturers or other organizations and/or entities on whose behalf said
individual or individuals have signed.
43.14. Letters of Credit. In lieu of depositing cash for (i) the
Tenant Excess Cost Deposit for purposes of Section 4.4, or (ii) the Security
Deposit for purposes of Section 9.1, Tenant shall have the right, but not the
obligation, to deliver to Landlord an unconditional, irrevocable standby letter
of credit in the amount of the Tenant Excess Cost Deposit for purposes of this
Section 4.4 and in the amount of the Security Deposit for purposes of Section
9.1 (either letter of credit shall be referred to as "Letter of Credit"), which
Letter of Credit shall (u) be in a form reasonably acceptable to Landlord, (v)
be issued by LC Bank , and confirmed by Confirming Bank ,
or such other financial institution selected by Tenant and reasonably
acceptable to Landlord, (w) be for the benefit of Landlord, but shall be
assignable by Landlord to any subsequent purchaser or encumbrancer of the
Building, (x) be automatically renewable from year to year until the Tenant
Improvements are substantially complete, in case of the Letter of Credit issued
pursuant to Section 4.4, and from year to year throughout the term of the Lease
in the case of the Letter of Credit issued in pursuant to Section 9.1, (y) be
payable by draft sight in Pasadena, California, upon presentation of a
certification signed by an officer of Landlord which states that a default
under the Lease has occurred and has not been cured within any applicable cure
period, and (z) be payable in the event such Letter of Credit is not renewed on
or before the date which is thirty (30) days prior to its expiration.
43.15. No Third-Party Rights. Except as may specifically set forth in
this Lease, nothing in this Lease shall confer any right upon any other person
or other entity other than the parties hereto and their successors and
permitted assigns.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
Landlord:
ARE-QRS, CORP.,
a Maryland corporation
By: /s/Lynn Anne Shapiro
------- ---- -------
Name: Lynn Anne Shapiro
---- ---- -------
Its: General Counsel
------- -------
Tenant:
ANTEX BIOLOGICS INC.,
a Delaware corporation
By: /s/ Gregory C. Zakarian
----------- -- ---------
Name: Gregory C. Zakarian
------- -- --------
Its: Vice President & Chief Financial Officer
---- --------- -- ---- --------- -------
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EXHIBITS
EXHIBIT "A" DEMISED PREMISES
EXHIBIT "B" LAND
EXHIBIT "C" WORK LETTER
EXHIBIT "D-1" COMMENCEMENT DATE
EXHIBIT "D-2" IMPROVEMENT RENT COMMENCEMENT DATE
EXHIBIT "E" RULES AND REGULATIONS
EXHIBIT "F" EXISTING TENANT FIXTURES
EXHIBIT "G" ESTOPPEL CERTIFICATE
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EXHIBIT "A"
DEMISED PREMISES
(see attached)
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EXHIBIT "B"
LAND
Legal Description of the Land
All that lot or parcel located in the 9th Election District of
Montgomery County, Maryland and described as follows:
Parcel I:
Lot 3, Block A, in the Subdivision known as "Gaithersburg North Research &
Development Center" as per Plat recorded in Plat Book 148 at Plat 16933, among
the Land Records of Montgomery County, Maryland. Together with the
nonexclusive right of way and easement for storm water discharge facility as
set forth and described in Liber 10423, Folio 668, subject to the conditions
and limitations contained therein.
Parcel I.D. No.: 9-201-2774107
Parcel II:
Lot 1, Block B, in the Subdivision known as "Gaithersburg North Research &
Development Center" as per Plat recorded in Plat Book 138 at Plat 15921, among
the Land Records of Montgomery County, Maryland.
Parcel I.D. No.: 9-201-2636295
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<PAGE> 61
EXHIBIT "C"
WORK LETTER
THIS WORK LETTER (this "Work Letter") is made and entered into as of
December 1, 1998, by and between ARE-QRS CORP., a Maryland corporation
("Landlord"), and ANTEX BIOLOGICS INC., a Delaware corporation ("Tenant"), and
is attached to and made a part of that certain Lease, dated as of December 1,
1998 (the "Lease"), by and between Landlord and Tenant, for the premises
("Demised Premises") located at 300 Professional Drive, Gaithersburg, Maryland
(the "Building"). All capitalized terms used but not otherwise defined herein
shall have the meanings given them in the Lease.
1. General Requirements.
1.1 Tenant's Authorized Representative. Tenant designates William
Gaudreau of Gaudreau, Inc. ("Tenant's Authorized Representative") as the person
authorized to initial all plans, drawings, change orders and approvals pursuant
to this Work Letter. Landlord shall not be obligated to respond to or act upon
any such item until such item has been initialed by Tenant's Authorized
Representative. Neither Tenant nor Tenant's Authorized Representative shall be
authorized to direct Landlord's contractors in the performance of Landlord's
Work (as hereinafter defined) other than as specifically provided herein.
1.2 Development Schedule. The schedule for design and development
of Landlord's Work and Tenant's Work (as hereinafter defined), including
without limitation the time periods for preparation and review of construction
documents, approvals and performance, whether by Landlord or by Tenant, shall
be in accordance with this Work Letter.
2. Landlord's Work.
2.1 Completion Date. If required by the applicable City or County
building authorities, Landlord agrees to complete the construction, purchase
and/or installation of the items listed on Schedule A to this Work Letter
("Landlord's Work" ). Other than Landlord's Work, Landlord shall not have any
obligation whatsoever with respect to the finishing of the Demised Premises or
any other portion of the Building for Tenant's use and occupancy.
2.2 Commencement. Tenant shall cooperate and assist Landlord (at no
cost or expense to Tenant) in obtaining the Landlord Building Permit, which
Landlord Building Permit shall be obtained at Landlord's expense. In the event
that governmental or quasi-governmental authorities having jurisdiction over
the construction of Landlord's Work or any permit, license or approval required
in connection therewith shall impose terms or conditions to the Landlord
Building Permit that are inconsistent with Landlord's obligations hereunder or
which materially increase the cost of constructing Landlord's Work or Tenant's
Work, or which will materially delay the construction of Landlord's Work or
Tenant's Work, Landlord and Tenant shall make all
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reasonable and good faith efforts to agree upon an approach, strategy or course
of action to mitigate or remove any such terms and conditions.
2.3 Landlord's Architects and Consultants. The architect,
engineering consultants, design team, general contractor and all subcontractors
responsible for the construction of Landlord's Work shall be selected by
Landlord in Landlord's reasonable discretion.
2.4 Performance of Landlord's Work. On or before Substantial
Completion (as hereinafter defined) of the Phase I Work (as hereinafter
defined), but subject to Tenant-Caused Delays and Force-Majeure Delays (each as
hereinafter defined), Landlord shall complete (subject to non-material
punch-list items) Landlord's Work in a good and workmanlike manner and in
accordance with applicable law, and subject to the terms of this Work Letter.
As used herein, (i) the term "Tenant-Caused Delays" shall mean any delays
caused by Tenant or any agent of Tenant, (ii) the term "Force-Majeure Delays"
shall mean any delays resulting from influences, events or circumstances
outside the control of Landlord, and (iii) the term "Substantially Complete(d)"
and "Substantial Completion" shall mean the latest of (a) the date of issuance
of a temporary certificate of occupancy for the Demised Premises subject only
to such minor work as would not unreasonably interfere with Tenant's occupancy
and use of the Demised Premises for the purposes for which it is to be used,
and (b) the date Tenant receives a Certificate of Substantial Completion in the
form of the American Institute of Architects document G704 executed by
Landlord's Architect.
2.5 Cost of Landlord's Work. Landlord shall bear all costs,
expenses and fees incurred by or on behalf of Landlord in connection with the
completion and construction of Landlord's Work, subject to the terms hereof and
the terms of the Lease.
3. Tenant's Work. All work to be performed, with the exception of
Landlord's Work, shall be performed by Tenant ("Tenant's Work") at Tenant's
sole cost and expense (except for the Tenant Improvement Allowance). Tenant
shall complete the first phase of Tenant's Work (the "Phase I Work") in
accordance with design drawings, plans and specifications approved by Landlord
in accordance with this Work Letter (the "Phase I Work Plans") and if Tenant
elects to proceed with the second phase of Tenant's Work (the "Phase II Work"),
Tenant shall complete the Phase II Work in accordance with design drawings,
plans and specifications approved by Landlord in accordance with this Work
Letter (the "Phase II Work Plans;" the Phase I Work Plans together with the
Phase II Work Plans shall be collectively referred to as the "Tenant Work
Plans"). The scope of the Phase I Work is generally described on Schedule B to
this Work Letter and the scope of the Phase II Work is generally described on
Schedule C to this Work Letter. The Tenant Work Plans shall comply with the
drawing format and specifications determined by Landlord, and shall be subject
to Landlord's approval, such approval not to be unreasonably withheld,
conditioned or delayed.
3.1 Selection of Tenant's Architect and Engineer. The Tenant
Work Plans shall be prepared by architects and engineers selected by Tenant and
approved by Landlord, Landlord's approval not to be unreasonably withheld,
conditioned or delayed. Landlord hereby approves
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Gaudreau, Inc. as Tenant's architect ("Tenant's Architect") and Kibart, Inc. as
Tenant's engineer ("Tenant's Engineer") for the Phase I Work Plans.
3.2 Delivery of Tenant Work Plans.
3.2.1. Prior to the commencement of the Phase I Work, Tenant
shall deliver to Landlord for Landlord's approval (which approval shall not be
unreasonably withheld, conditioned or delayed) the Phase I Work Plans prepared
in conformity with the applicable provisions of this Work Letter. The Phase I
Work Plans shall contain sufficient information to convey Tenant's proposed
design to Landlord, including a layout and designation of all offices,
laboratories, rooms and other partitioning, their intended use, and equipment
to be contained therein. The Phase I Work Plans shall be sufficiently detailed
to show the impact of the Phase I Work upon the base Building.
3.2.2. In the event that Tenant elects to proceed with the
Phase II Work, prior to the commencement of the Phase II Work, Tenant shall
deliver to Landlord for Landlord's approval (which approval shall not be
unreasonably withheld, conditioned or delayed) the Phase II Work Plans prepared
in conformity with the applicable provisions of this Work Letter and the scope
of work described in Schedule C hereto. The Phase II Work Plans shall contain
sufficient information to convey Tenant's proposed design to Landlord,
including a layout and designation of all offices, laboratories, rooms and
other partitioning, their intended use, and equipment to be contained therein.
The Phase II Work Plans shall be sufficiently detailed to show the impact of
the Phase II Work upon the base Building.
3.3 Landlord's Approval. Landlord shall notify Tenant of any
objections to the Phase I Work Plans or the Phase II Work Plans, as the case
may be, within ten (10) business days after receipt thereof. If Landlord makes
objections to the Phase I Work Plans or the Phase II Work Plans, as the case
may be, Tenant shall cause such objections to be remedied within ten (10) days
of Tenant's receipt of Landlord's objections. Any subsequent changes,
modifications or alterations to either of the Tenant Work Plans, following
Landlord's and Tenant's approval of same shall be processed in the manner
provided in Section 5 of this Work Letter.
3.4 Budget For Tenant's Work.
4.3.1 .Prior to the commencement of the construction of the
Phase I Work, Tenant shall provide Landlord with a detailed breakdown, by
trade, of the final costs to be incurred or which have been incurred, in
connection with the design and construction of the Phase I Work and the Phase
II Work (the "Budget"), which costs form the basis for the amount of the
construction contract for the Tenant's Work. That portion of the Budget
attributable to the Phase I Work shall show a detailed breakdown, by trade, of
the final costs to be incurred or which have been incurred, in connection with
the design and construction of the Phase I Work ("Phase I Allocation"), which
costs form the basis for the amount of the construction contract attributable
to the Phase I Work. The Phase I Allocation shall be based upon the Phase I
Work Plans approved by Landlord. Landlord shall give Tenant notice of its
approval or disapproval of the
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Phase I Allocation, including any individual line item contained therein,
within ten (10) business days after Landlord's receipt thereof.
3.4.2 .That portion of the Budget attributable to the Phase II
Work shall show a detailed breakdown, by trade, of the final costs to be
incurred or which have been incurred, in connection with the design and
construction of the Phase II Work ("Phase II Allocation"), which costs form the
basis for the amount of the construction contract attributable to the Phase II
Work. The Phase II Allocation shall be based upon the Phase II Work Plans
approved by Landlord. Landlord shall give Tenant notice of its approval or
disapproval of the Phase II Allocation, including any individual line item
contained therein, within ten (10) business days after Landlord's receipt
thereof.
Tenant shall supply Landlord with satisfactory evidence of its ability
to pay the difference between $2,100,000 and the Tenant Improvement Allowance
("Over-Allowance Amount") prior to commencing construction of the Phase I Work
by providing (i) cash (to be deposited with Landlord and disbursed in
accordance herewith), (ii) a Letter of Credit, or (iii) evidence satisfactory
to Landlord that Tenant has paid for certain of the costs of the Phase I Work
before the date hereof and is not seeking reimbursement for such costs from the
Landlord out of the Tenant Improvement Allowance; provided, however, that for
every increase in the Phase I Allocation over $2,003,795 (based upon the Budget
prepared by Gaudreau, Inc. dated October 2, 1998), the Over-Allowance Amount
shall increase dollar for dollar with every such increase; provided further,
however, that there shall be no decrease in the Over-Allowance Amount in the
event the Phase I Allocation decreases. That portion of the Over-Allowance
Amount held in cash shall be disbursed proportionately with the Tenant
Improvement Allowance by Landlord prior to the disbursement of any of the then
remaining Tenant Improvement Allowance, pursuant to the procedure set forth in
Section 6 hereof.
3.5 Commencement of Phase I Work. Tenant agrees to commence
construction of the Phase I Work promptly following approval of the Phase I
Work Plans by the applicable City or County building department (the "Tenant
Building Permit"). Landlord shall reasonably cooperate with and assist Tenant
in obtaining the Tenant Building Permit, which Tenant Building Permit shall be
obtained at Tenant's expense.
3.6 Completion of the Phase I Work. The Phase I Work Plans and the
Phase I Allocation shall be approved by Landlord prior to the commencement of
the Phase I Work. Tenant will perform and complete the Phase I Work in a good
and workmanlike manner in compliance with this Lease, the Budget, the Phase I
Work Plans, such rules and regulations as Landlord may reasonably make and in
accordance with all applicable laws, orders, regulations and requirements of
all governmental authorities, Landlord's insurance carriers and the board of
fire underwriters having jurisdiction. The Phase I Work shall be subject to
Landlord's or Landlord's representative's reasonable approval. Tenant shall be
solely responsible for ensuring that the Phase I Work Plans reflect Tenant's
requirements for the Phase I Work.
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3.7 Commencement and Completion of the Phase II Work. In the
event that Tenant elects to proceed with the Phase II Work, prior to commencing
the Phase II Work, Tenant agrees to provide Landlord with performance and
completion bonds covering both the obligations of Tenant and the contractor
under the construction contract for the Phase II Work in amounts necessary to
cover 100% of the costs of the Phase II Work or such other evidence
satisfactory to Landlord of Tenant's ability to complete the Phase II Work in
accordance with the Phase II Plans. If Tenant does not commence construction
of the Phase II Work on or before the date that is twenty-four (24) months
after the Block B Rent Commencement Date (the "Phase II Outside Date"), the
construction of the Phase II Work shall not be governed by this Work Letter but
shall be governed by the terms of Article 17 of the Lease.
In the event that Tenant elects to proceed with the Phase II Work, the
Phase II Work Plans and the Phase II Allocation shall be approved by Landlord
prior to the commencement of the Phase II Work. Tenant will perform and
complete the Phase II Work in a good and workmanlike manner in compliance with
this Lease, the Budget, the Phase II Work Plans, such rules and regulations as
Landlord may reasonably make and in accordance with all applicable laws,
orders, regulations and requirements of all governmental authorities,
Landlord's insurance carriers and the board of fire underwriters having
jurisdiction. The Phase II Work shall be subject to Landlord's or Landlord's
representative's reasonable approval. Tenant shall be solely responsible for
ensuring that the Phase II Work Plans reflect Tenant's requirements for the
Phase II Work.
3.8 Approval and Completion. In the event of any dispute regarding
the design or construction of Tenant's Work, which dispute is not settled
within five (5) days after notice of such dispute is delivered by one party to
the other, Landlord shall have the right to make the final decision regarding
the design or construction in question provided that Landlord acts reasonably
and such final decision is consistent with either Landlord's or Tenant's
position in such dispute (or a compromise position based therein in whole or
part).
4. Tenant Access.
4.1 Interference With Landlord. In no event shall Tenant or its
employees, consultants, agents, architects, engineers, contractors, and
suppliers interfere with the performance of Landlord's Work, nor with any
inspections or issuance of final approvals by the applicable City or County.
4.2 Obligations of Tenant Before Lease Term Begins. Tenant shall
observe and perform all of its obligations under this Lease (excepting its
obligations to pay Basic Annual Rent, Additional Rent and Improvement Rent)
from the date upon which the Demised Premises (or part thereof) are made
available to Tenant for Tenant's Work until the applicable Rent Commencement
Date in the same manner as though the Term began when the Demised Premises (or
part thereof) were so made available to Tenant.
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5.. Changes. Any changes requested by Landlord or Tenant to Tenant's Work
after the date of mutual approval of the applicable Tenant Work Plans, shall be
requested and instituted in accordance with the provisions of this Section 5
and shall be subject to the written approval of the party not requesting the
change.
5.1 Tenant Change Requests.
5.1.1 In the event that, after the Tenant Work Plans have been
approved by Landlord and Tenant, Tenant shall (i) request changes to Tenant's
Work, whether or not already installed, and/or (ii) request changes to Tenant's
Work which result in changes to Landlord's Work ("Tenant Changes"), Tenant
shall request such Tenant Changes by notifying Landlord in writing in
substantially the same form as the AIA standard change order form (a "Tenant
Change Request"), which Tenant Change Request shall detail the nature and
extent of any such Tenant Change, and, if the nature of such Tenant Change
requires revisions to the Tenant Work Plans, or to Landlord's Work, then Tenant
shall be solely responsible for the cost of such revisions. Landlord may
disapprove of any Tenant Change Request, in its sole and absolute discretion,
if such Tenant Change will result in a material change to Landlord's Work.
5.1.2 If the Tenant Change impacts on Landlord's Work, then if
Tenant approves in writing the cost or savings and the extension in the time
for Substantial Completion of Landlord's Work, if any, Landlord shall cause the
approved Tenant Change to be instituted. If Tenant does not approve in writing
the cost or savings and the extension in the time for Substantial Completion of
Landlord's Work, then the Tenant Change Request shall be deemed rejected and
Tenant shall not be permitted to construct Tenant's Work in accordance with the
Tenant Change Request. All additional costs and expenses payable by Landlord
to complete Landlord's Work due to the Tenant Change Request shall be payable
by Tenant pursuant to a corresponding reduction in the Base Improvement
Allowance.
5.1.3 If the Tenant Change impacts only on Tenant's Work, and
not on Landlord's Work, then Landlord shall approve or reject the Tenant Change
Request according to the guidelines established pursuant to Section 3 hereof.
If Landlord does not approve in writing the Tenant Change Request, the Tenant
Change Request shall be deemed rejected and Tenant shall not be permitted to
construct Tenant's Work in accordance with the Tenant Change Request. Tenant
shall be responsible for the payment of all reasonable costs and expenses
related to the Tenant Change Request.
6. Allowance.
6.1 Tenant Improvement Allowance. Landlord shall contribute the
Basic Allowance, and upon request by Tenant, the Additional Allowance, toward
the costs and expenses incurred in connection with the performance of the Phase
I Work; provided, however, that the Basic Allowance and the Additional
Allowance are not to be applied towards the costs and expenses associated with
designing or constructing any part of the Phase II Work.
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6.1 Fees for Landlord. Landlord shall be paid by Tenant the sum of
$18,000.00 for monitoring and inspecting the Phase I Work, which sum shall be
deducted from the Basic Allowance. No additional fee shall be charged by
Landlord for monitoring and inspecting the design and construction of the Phase
II Work, so long as the construction of the Phase II Work commences on or
before the date that is sixty (60) days from the date both the Block A Space
and the Block B Space are Substantially Complete ("Target Phase II Commencement
Date"); provided, however, that in the event Tenant commences construction of
the Phase II Work on or after the Target Phase II Commencement Date but before
the Phase II Outside Date, Tenant shall pay Landlord for monitoring and
inspecting the construction and design of the Phase II Work, a sum equal to one
percent (1.00%) of all amounts expended by Tenant to complete the Phase II
Work. All costs, expenses and fees incurred by or on behalf of Landlord
arising from, out of, or in connection with, the Phase I Work shall be first
deducted by Landlord from the Basic Allowance.
6.3 Costs Includable in Tenant Improvement Allowance. The Tenant
Improvement Allowance may be used by Tenant for the payment of construction and
other costs incurred in connection with the Phase I Work including, without
limitation, laboratory improvements, finishes, Building fixtures, building
permits and fees, architectural, engineering, design and consulting fees, and
the Additional Allowance Charge. All costs resulting from Tenant-Caused Delays
shall be deducted from the Tenant Improvement Allowance. Tenant shall have the
right to retain its own specialty contractors (subject to approval by Landlord,
such approval not to be unreasonably withheld, conditioned or delayed) to
perform any portion of Tenant's Work necessary to construct and outfit the
Demised Premises. Such specialty work may include, without limitation, unless
approved by Landlord in its sole discretion, data cabling, telephone and data
equipment, security, audio/visual equipment, white noise and furniture systems,
lab equipment and trade fixtures. The Tenant Improvement Allowance shall in no
event be used to purchase any furniture, personal property or other
non-building system equipment of Tenant.
6.4 Disbursement of the Tenant Improvement Allowance. Upon
submission by Tenant to Landlord of a statement ("Advance Request") setting
forth the amount requested and a reasonably detailed summary of the work
performed (which shall be satisfied by a copy of an AIA standard form
Application for Payment (G 702) executed by Tenant's Contractor and by Tenant's
Architect and showing a breakdown based upon the percentage of such work
performed and associated costs applicable to each of the Phase I Work and the
Phase II Work) accompanied by lien releases from Tenant's Contractor and the
subcontractors in respect of the prior advance, Landlord, within ten (10)
business days following receipt by Landlord of the Advance Request and the
accompanying materials, shall advance to Tenant such amount as Landlord shall
reasonably determine to be due in accordance with the Advance Request and the
accompanying statements; provided, however, that with respect to the Block B
Lab (as defined herein), Landlord shall retain $40,000 of the Tenant
Improvement Allowance (the "Block B Lab Holdback") until Substantial Completion
of the Block B Lab in accordance with the Phase I Work Plans and, if Tenant
elects to proceed with the Phase II Work, the Phase II Work Plans. Once the
Block B Lab is Substantially Complete, Landlord
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shall advance the Block B Lab Holdback in accordance with an Advance Request
submitted by Tenant to Landlord for the Block B Holdback in accordance with
this section. Tenant may submit Advance Requests not more than two (2) times
per thirty (30) day period. The "Block B Lab" shall be that laboratory space
located in the Block B Space and designated on the Phase I Plans as either the
"Block B Lab" or the "B3 Lab" and consisting of approximately 2000 rentable
square feet of space.
6.5 Failure to Use Entire Tenant Improvement Allowance. If the
entire Basic Allowance or the entire Additional Allowance is not applied toward
or reserved for the costs of the Phase I Work, Tenant shall not receive a
credit of such unused portion of the Basic Allowance nor for the Additional
Allowance. Provided Tenant follows the procedures for the approval of Phase I
Work set forth in this Work Letter, Tenant may continue the Phase I Work and
receive reimbursement from the Tenant Improvement Allowance up to and including
twelve (12) months from the Block B Rent Commencement Date.
6.6 Prior Approval of Budget. Notwithstanding anything to the
contrary set forth elsewhere in this Work Letter, Landlord shall not have any
obligation to advance to Tenant any portion of the Tenant Improvement Allowance
until Landlord shall have approved the Phase I Allocation. Prior to approval
of the Phase I Allocation, Tenant shall pay all of the costs and expenses
incurred in connection with Tenant's Work. After the Phase I Allocation is
approved, Landlord shall reimburse Tenant for sums advanced by Tenant prior to
approval by Landlord of the Phase I Allocation in accordance with Section 6.4
hereof.
7. Completion of Tenant's Construction Obligations.
7.1 Definition of Completed. Tenant, at Tenant's sole cost and
expense and without cost to Landlord (except for the Tenant Improvement
Allowance), shall complete the Phase I Work described in this Work Letter in
all respects in accordance with the provisions of the Lease. The Phase I Work
or the Phase II Work, as the case may be, shall be "Complete(d)" at such time
as Tenant shall (1) furnish evidence satisfactory to Landlord that all of the
Phase I Work or the Phase II Work, as the case may be, has been completed and
paid for in full (which may be evidenced by Tenant's Architect's Certificate of
Substantial Completion and Tenant's Contractor's and subcontractor's final
waivers and releases of liens) and such work has been accepted by Landlord;
that any and all liens therefor that have been or might be filed have been
discharged of record (by payment, bond, order of a court of competent
jurisdiction or otherwise) or waived and that no security interests relating
thereto are outstanding; (2) furnish to Landlord all certifications and
approvals with respect to the Phase I Work or the Phase II Work, as the case
may be, that may be required from any governmental authority and any board of
fire underwriters or similar body for the use and occupancy of the Demised
Premises; (3) furnish to Landlord the insurance required by the Lease; (4)
furnish an affidavit from Tenant's Architect certifying that all work performed
in the Demised Premises is in substantial accordance with the applicable Work
Plans approved by Landlord as provided herein; and (5) furnish a Certificate of
Substantial Completion in the form of the American Institute of Architects
document G704 executed by Landlord's architect.
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The Block A Rent Commencement Date or the Block B Rent Commencement Date, as
the case may be, shall be extended one day for each day that the completion of
the Phase I Work is delayed due to a Landlord Caused Delay (as hereinafter
defined). As used herein the term "Landlord-Caused Delay(s)" shall mean any
delay caused by Landlord or any agent of Landlord, including without
limitation, any delay in the giving of any approvals or consents required of
Landlord.
7.2 Landlord's Inspection. Landlord shall have the opportunity to
inspect the Demised Premises upon notification that any portion of Tenant's
Work is Complete to, among other things, confirm that such Tenant's Work is in
conformance with the Tenant Work Plans. Tenant's taking possession of the
Demised Premises and Landlord's acknowledgment of Tenant having Completed
Tenant's Work shall not constitute a waiver of any warranty of any construction
defect in regard to workmanship (including installation of equipment) or
material (exclusive of equipment provided by manufacturers) of the Demised
Premises completed by or on behalf of Tenant. Landlord shall have one (1) year
after the Phase I Work or one (1) year after the Phase II Work is Completed, as
the case may be, within which to notify Tenant of any such construction defect
in the Demised Premises discovered by Landlord, and Tenant shall use reasonable
efforts to cause Tenant's Contractor to remedy any such construction defect
within ninety (90) days thereafter. Notwithstanding the foregoing, Tenant
shall not be in default under the Lease if, by the nature of such defect, more
than ninety (90) days are required to correct and remedy such construction
defect and Tenant commences its remedial action within such ninety (90) day
period and thereafter diligently and continuously prosecutes such curative and
remedial action to completion.
7.3 Liability. Any approval or consent by Landlord of Tenant's Work
shall in no way obligate Landlord in any manner whatsoever in respect of the
finished product designed and/or constructed by Tenant. Any deficiency in
design or construction of Tenant's Work, although the same has prior approval
of Landlord, shall be solely the responsibility of Tenant. All materials and
equipment furnished by Tenant as Tenant's Work shall be new or "like-new" and
all work shall be performed in a first-class workmanlike manner.
8. Insurance. Tenant's contractors and subcontractors shall be required
to provide, in addition to the insurance required of Tenant pursuant to this
Lease, the following types of insurance:
8.1 Builders Risk Insurance. At all times during the period between
the commencement of construction of the Phase I Work and the date of the
opening for business in the Demised Premises and during the period between the
commencement of construction of the Phase II Work and the date the Phase II
Work is Substantially Complete, Tenant shall maintain, or cause to be
maintained, casualty insurance in Builder's Risk Form, covering Landlord,
Landlord's agents, Tenant and Tenant's contractors, as their interests may
appear, against loss or damage by fire, vandalism, and malicious mischief and
other such risks as are customarily covered by the so-called "broad form
extended coverage endorsement", upon all Tenant's Work and builder's machinery,
tools and equipment, all while forming a part of, or
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contained in, such improvements or temporary structures while on the Demised
Premises, or when adjacent thereto, all on a completed value basis for the full
insurable value at all times. Said Builder's Risk Insurance shall contain an
express waiver of any right of subrogation by the insurer against Landlord, its
agents and employees.
8.2 Workers' Compensation. At all times during the period of
construction of any portion of the Tenant's Work, Tenant will require
contractors and subcontractors to maintain statutory Workers' Compensation as
required by law.
9. Liability. It is agreed that Tenant assumes the responsibility and
liability for any and all injuries or death of any persons, including Tenant's
contractors and subcontractors, and their respective employees and for any and
all damages to property caused by, or resulting from or arising out of any act
or omission on the part of Tenant, Tenant's contractors or subcontractors or
their respective employees, in the prosecution of Tenant's Work and with
respect to such work agrees to indemnify and save free and harmless Landlord,
from and against all losses and/or expenses, including reasonable legal fees
and expenses, which Landlord may suffer or pay as the result of claims or
lawsuits due to, because of, or arising out of any and all such injuries or
death and/or damage, whether real or alleged and Tenant and Tenant's
contractors and/or subcontractors or their respective insurance companies shall
assume and defend at their own expense all such claims or lawsuits; provided,
however, that nothing contained in this Work Letter shall be deemed to
indemnify or otherwise hold Landlord harmless from or against the negligent or
wrongful acts or omissions of Landlord, its agents, employees and contractors
nor to affect or modify the terms of Article 20 of the Lease.
10. Miscellaneous.
10.1 Tenant Default. If an Event of Default as described in Article
24 of the Lease or pursuant to this Work Letter has occurred at any time on or
before the Demised Premises are Complete, then (i) in addition to all other
rights and remedies granted to Landlord pursuant to the Lease, Landlord may
cause Tenant's Contractor to cease the construction of Tenant's Work and (ii)
all other obligations of Landlord under the terms of this Work Letter
(including the obligations under Section 6.4 hereof) shall be forgiven until
such time as such default is cured pursuant to the terms of the Lease (in which
case, Tenant shall be responsible for any delay in the Substantial Completion
of the Demised Premises).
10.2 Consents. Whenever consent or approval of either party is
required under this Work Letter, that party shall not unreasonably withhold,
condition or delay such consent or approval, except as may be expressly set
forth herein to the contrary. Landlord shall respond to all requests for
consents, approvals, directions or the like made by Tenant pursuant to this
Work Letter within ten (10) business days following Landlord's receipt of such
request. Requests need be sent only to Vincent R. Ciruzzi at Landlord's San
Diego office. Landlord's failure to respond within such ten (10) business day
period shall be deemed approval by Landlord.
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10.3 Modification. No modification, waiver or amendment of this Work
Letter or of any of its conditions or provisions shall be binding upon Landlord
or Tenant unless in writing signed by Landlord and Tenant.
10.4 Counterparts. This Work Letter may be executed in any number of
counterparts but all counterparts taken together shall constitute a single
document.
10.5 Governing Law. This Work Letter shall be governed by, construed
and enforced in accordance with the laws of the State of Maryland.
10.6 Time of the Essence. Time is of the essence of this Work Letter
and of each and all provisions thereof.
10.7 Severability. If any term or provision of this Work Letter is
declared invalid or unenforceable, the remainder of this Work Letter shall not
be affected by such determination and shall continue to be valid and
enforceable.
10.8 Merger. All understandings and agreements, oral or written,
heretofore made between the parties hereto and relating to Landlord's Work and
Tenant's Work are merged in this Work Letter, which alone (but inclusive of
provisions of the Lease incorporated herein and the final approved Tenant Work
Plans and specifications prepared pursuant hereto) fully and completely
expresses the agreement between Landlord and Tenant with regard to the matters
set forth in this Work Letter.
10.9 Restrictions. Notwithstanding anything to the contrary
contained herein, the parties hereby acknowledge and agree that Landlord's Work
and Tenant's Work (i) may be subject to approval by various governmental review
committees and (ii) must conform to any applicable governmental requirements.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter
to be effective on the date first above written.
Landlord:
ARE-QRS, CORP.,
a Maryland corporation
By: /s/Lynn Anne Shapiro
------- ---- -------
Name: Lynn Anne Shapiro
---- ---- -------
Its: General Counsel
------- -------
Tenant:
ANTEX BIOLOGICS INC.,
a Delaware corporation
By: /s/ Gregory C. Zakarian
----------- -- ---------
Name: Gregory C. Zakarian
------- -- --------
Its: Vice President & Chief Financial Officer
---- --------- -- ---- --------- -------
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SCHEDULE A
LANDLORD'S WORK
1. Landlord shall construct an entrance to the Building for ingress
and egress which entrance complies with the ADA.
2. Landlord shall remove any Hazardous Materials from the Expansion
Space in compliance with applicable law.
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SCHEDULE B
PHASE I WORK
The Phase I Work shall be that work of Tenant required to Substantially
Complete the Block A Space and the Block B Space in accordance with
the Phase I Plans delivered to and approved by Landlord. Provided that
the Tenant does not elect to proceed with the Phase II Work, the Phase
I Work shall include construction of the Block B Lab to generally
include the following:
1. All perimeter walls insulated, dry walled, taped,
spackled and ready for paint;
2. Functional mechanical, electrical and sprinkler system
engineered to provide sufficient heating, ventilating and
air conditioning to serve general office/laboratory
purposes;
3. Acoustical or dry wall ceiling with appropriate
fluorescent light fixtures sufficient for desktop, bench
or office work;
4. Finished floor covered with either epoxy, linoleum, tile
or carpeting; and
5. Electrical and telephone outlets sufficient for normal
and customary office/laboratory work.
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<PAGE> 75
SCHEDULE C
PHASE II WORK
The Phase II Work shall include the design and construction associated
with making the Block B Lab a laboratory generally equipped for and
having all applicable licenses and permits for use as a bio-hazard
level 3 facility.
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EXHIBIT "D-1"
ACKNOWLEDGMENT OF TERM COMMENCEMENT DATE
This acknowledgment is made pursuant to Section 4 of that certain Lease
dated December 1, 1998 by and between ARE-QRS, Corp., a Maryland
corporation, Landlord, and Antex Biologics Inc., a Delaware
corporation, Tenant, of Suite 100 at 300 Professional Drive,
Gaithersburg, Maryland 20879.
We hereby acknowledge that the Term Commencement Date of the Lease is
the date first above written; the Existing Space Rent Commencement Date
is the date first above written; the Block A Rent Commencement Date is
__________, 1999; and the Block B Rent Commencement Date is
_______________, 1999.
ACCEPTED:
("Landlord")
ARE-QRS, Corp.,
a Maryland corporation
By:
-------------------------------
Its:
--------------------------
Date:
------------------------------
ACCEPTED:
("Tenant")
Antex Biologics Inc.,
a Delaware corporation
By:
-------------------------------
Its:
--------------------------
Date:
-------------------------------
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<PAGE> 77
EXHIBIT "D-2"
ACKNOWLEDGMENT OF IMPROVEMENT RENT COMMENCEMENT DATE
This acknowledgment is made pursuant to Section 4 of that
certain Lease dated December 1, 1998 by and between ARE-QRS, Corp., a
Maryland corporation, Landlord, and Antex Biologics Inc., a Delaware
corporation, Tenant, of Suite 100 at 300 Professional Drive,
Gaithersburg, Maryland 20879.
We hereby acknowledge that the Improvement Rent
Commencement Date of the Lease is _____________ ___, 1998.
ACCEPTED:
("Landlord")
ARE-QRS, Corp.,
a Maryland corporation
By:
-------------------------------
Its:
--------------------------
Date:
------------------------------
ACCEPTED:
("Tenant")
Antex Biologics Inc.,
a Delaware corporation
By:
-------------------------------
Its:
--------------------------
Date:
-------------------------------
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<PAGE> 78
EXHIBIT "E"
RULES AND REGULATIONS
1. No sign, advertisement, name or notice shall be installed
or displayed on any part of the outside or inside of the building
without the prior written consent of Landlord. Suite entry door signs
or any directory board inserts will be supplied by Landlord at Tenant's
expense.
2. No awning shall be permitted on any part of the Premises.
Tenant shall not place anything (including but no limited to blinds,
shades, screens, or hanging plants) against or near glass partitions or
doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct or interfere with the rights of
others to use any Building sidewalks, halls, exits, entrances,
elevators, or stairways. The common areas of the Building are not for
the general public, and Landlord retains the right to control and
prevent access thereto by all persons whose presence in the judgment of
Landlord would be prejudicial to the safety, character, reputation and
interests of the Building and its Tenants including any person who
appears to Landlord to be intoxicated or under the influence of liquor
or drugs; provided that nothing herein contained shall be construed to
prevent such access to persons with whom any Tenant is dealing in the
ordinary course of its business, unless such persons are engaged in
illegal activities or unless such persons violate the terms of the
Lease or Landlord's rules and regulations. No Tenant and no employee or
invitee of any Tenant shall go upon the roof of the Building.
4. All cleaning and janitorial services for the common areas
of the Building shall be provided exclusively through Landlord.
5. Landlord will furnish Tenant, free of charge, with two
keys to each door lock in the Premises. Landlord may make a reasonable
charge for any additional keys. Tenant shall not alter any lock or
install a new additional lock or bolt on any door of its Premises.
Tenant, upon the termination of its tenancy, shall deliver to Landlord
all keys for all doors.
6. Any freight elevator shall be available for use by all
Tenants in the Building, subject to such reasonable scheduling as
Landlord in its discretion shall deem appropriate. Tenant agrees to
advise Landlord of and coordinate with Landlord any of Tenant's freight
activities. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or
carried in the elevators except between such hours and in such
elevators as may be designated from time to time by Landlord.
7. Tenant shall not place a load upon any floor of the
Premises which exceeds the load per square foot which such floor was
designed to carry. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy objects.
Business machines and mechanical equipment which cause noise or
vibration that may be transmitted to the structure of the Building or
to any space therein to such a degree as to be objectionable to
Landlord or to any Tenant in the Building, shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or
other devices sufficient to eliminate noise or vibration.
8. Tenant shall not use or keep in the Premises any
kerosene, gasoline or inflammable or combustible fluid or material
other than those limited quantities necessary for the use by Tenant of
the Premises in accordance with the Lease and in no event shall any
such combustible fluids be used for heating, warming, or lighting the
Premises. Tenant shall not use or permit to be used in the Premises
any foul or noxious gas or substance, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors
or vibrations, nor shall Tenant bring into or keep in or about the
Premises any birds, animals (except for seeing eye dogs and laboratory
animals), bicycles or other vehicles.
9. Tenant shall not use any method of heating or
air-conditioning other than that supplied by Landlord.
10. Tenant shall cooperate with Landlord to assure the
effective operation of the Building's heating and air-conditioning
systems and shall comply with any governmental energy-savings rules,
laws or regulations of which Tenant has notice. Tenant shall refrain
from adjusting controls other than room thermostats installed for
Tenant's use. Tenant shall keep corridor doors closed, and shall close
window coverings at the end of each business day.
11. Landlord reserves the right, exercisable on thirty (30)
days notice and without liability to Tenant, to change the name and
street address of the Building.
12. Tenant shall close and lock the doors of the Premises and
entirely shut off all water faucets or other water apparatus and
electricity, gas and air outlets before Tenant and its employees leave
the Premises. Tenant shall be responsible for any damage or injuries
sustained as a result of noncompliance with this rule.
13. Tenant shall not install, maintain or operate upon the
Premises any vending machine without written consent of Landlord.
14. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever
shall be thrown therein. The
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expense of any breakage, sloppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose
employees or invitees, shall have caused it.
15. Tenant shall not sell or permit the sale of retail of
newspapers, magazines, periodicals, theater tickets or any other goods
or merchandise to the general public in or on the Premises. Tenant
shall not make any room-to-room solicitation of business from other
tenants in the Building and Tenant acknowledges that canvassing and
peddling of any kind in the Building are prohibited.
16. Tenant shall not install any radio or television antenna
(except for satellite dish consented to by Landlord in writing),
loudspeaker or other device on the roof or exterior walls of the
Building. Tenant shall not interfere with radio or television
broadcasting or reception from or in the Building.
17. Tenant shall not mark, drive nails, screw or drill into
the partitions, woodwork, or plaster or in any way deface the Premises
or any part thereof. Landlord reserves the right to direct
electricians as to where and how telephone and telegraph wires are to
be introduced to the Premises. Tenant shall not cut or bore holes for
wires. Tenant shall not affix any floor covering to the floor of the
Premises in any manner except as approved by Landlord. Tenant shall
repair any damage resulting from noncompliance with this rule.
18. Tenant shall store all its trash and garbage within the
Premises. Tenant shall not place in any trash box or receptacle any
material which cannot be disposed of in the ordinary and customary
manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with directions issued from time to time by
Landlord.
19. [intentionally omitted]
20. Tenant shall not use in any space or in the public halls
of the Building any hand trucks except those equipped with rubber tires
and side guards or such other material-handling equipment as Landlord
may approve. Tenant shall not bring any other vehicles of any kind
into the Building.
21. Without the prior written consent of Landlord, Tenant
shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant except as Tenant's
address.
22. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency having jurisdiction.
23. Tenant assumes any and all responsibility for protecting
its Premises from theft, robbery and pilferage, which includes keeping
doors locked and other means of entry to the Premises closed.
24. The requirements of Tenant will be attended to only upon
appropriate application to the Office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do
anything outside their regular duties unless under special instructions
from Landlord, and no employee of Landlord will admit any person
(Tenant or otherwise) to any office without specific instructions from
Landlord.
25. Tenant shall not park its vehicles in any parking areas
designated by Landlord as areas for parking by visitors to the
Building. Tenant shall not leave vehicles in the Building parking
areas overnight nor park any vehicles in the Building parking areas
other than automobiles, motorcycles, motor-driven or non-motor-driven
bicycles or four-wheeled trucks.
26. Security cards will be required by Tenants to enter the
Building during non-business hours. An appropriate charge will be made
for each security card requested. These cards remain the property of
and must be returned to the Landlord upon expiration of the Lease or
upon Landlord's request. If any card is not returned, or is lost or
damaged by Tenant, then there will be an additional charge of $50.00
per card at landlord's discretion. Landlord shall not be liable for
damages for any error with regard to the admission to or exclusion from
the Building of any person. Landlord reserves the right to prevent
access to the Building in case of invasion, mob, riot, public
excitement or other commotion by closing the doors or by other
appropriate action.
27. Tenant shall be responsible for the observance of all the
foregoing rules by Tenant's employees, agents, clients, customers,
invitees and guests.
Initials of:
------------------------- -------------------------
Landlord: Tenant:
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EXHIBIT "F"
EXISTING TENANT FIXTURES
DESCRIPTION VALUE
----------- -----
Built-In Lab Casework $ 18,200
Built-in Lab Cabinets $ 18,200
Fume Hoods (which penetrate roof) $ 6,100
Walk-in cold rooms $ 14,500
Walk-in warm rooms $ 7,300
Deionized water system $ 9,000
Glass washing equipment $ 3,000
Autoclaves $ 6,100
Chillers $ 18,200
Built-in plumbing $ 38,900
Electrical wiring, breakers, transformers and outlets $ 18,200
Mechanical equipment which supplies,
conditions, distributes or exhaust air or water $ 6,100
Energy Generator and Transfer Switch $ 6,250
TOTAL $170,050
========
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EXHIBIT "G"
ESTOPPEL CERTIFICATE
THIS TENANT ESTOPPEL CERTIFICATE ("Certificate"), dated as of
________, 19__, is executed by, Antex Biologics Inc. ("Tenant") in
favor of ______________________________________________, together with
its nominees, designees and assigns (collectively, "Purchaser"), and in
favor of any lender of Purchaser, together with its nominees, designees
and assigns (collectively, "Lender").
RECITALS
A. Purchaser and ARE-QRS CORP., a Maryland corporation
("Landlord"), have entered into that certain Purchase and Sale
Agreement and Joint Escrow Instructions, dated as of _____________ (the
"Purchase Agreement"), whereby Purchaser has agreed to purchase, among
other things, the improved real property located in the City of
Gaithersburg, Maryland, more particularly described on Exhibit "A"
attached to the Purchase Agreement (the "Property").
B. Tenant and Landlord have entered into that certain Lease
Agreement, dated as of ___________ (together with all amendments,
modifications, supplements, guarantees and restatements thereof, the
"Lease"), for a portion of the Property.
C. Pursuant to the Lease, Tenant has agreed that upon the
request of Landlord, Tenant would execute and deliver an estoppel
certificate certifying the status of the Lease.
D. In connection with the Purchase Agreement, Landlord has
requested that Tenant execute this Certificate with an understanding
that Purchaser will rely on the representations and agreements below in
purchasing the Property and Lender will rely on the representations and
agreements below in granting to Purchaser a loan.
NOW, THEREFORE, Tenant certifies, warrants, and represents to
Purchaser and Lender as follows:
Section 1. Lease.
Attached hereto as Exhibit "1" is a true, correct and complete
copy of the Lease, including the following amendments, modifications,
supplements, guarantees and restatements thereof, which together
represent all of the amendments, modifications, supplements, guarantees
and restatements thereof:
___________________________________________________________________
___________________________________________________________________.
(If none, please state "None.")
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Section 2. Leased Premises.
Pursuant to the Lease, Tenant leases those certain premises (the
"Leased Premises") consisting of approximately _______________
(________) rentable square feet within the Property, as more
particularly described in the Lease. In addition, pursuant to the
terms of the Lease, Tenant has the [non-exclusive] right to use [_____
parking spaces/the parking area] located on the Property during the
term of the Lease. [Cross-out the preceding sentence or portions
thereof if inapplicable.]
Section 3. Full Force of Lease.
The Lease has been duly authorized, executed and delivered by
Tenant, is in full force and effect has not been terminated and
constitutes a legally valid instrument, binding and enforceable against
Tenant in accordance with its terms, subject only to applicable
limitations imposed by laws relating to bankruptcy and creditor's
rights.
Section 4. Complete Agreement.
The Lease constitutes the complete agreement between Landlord
and Tenant for the Leased Premises and the Property, except as modified
by the Lease amendments noted above (if any), has not been modified,
altered or amended.
Section 5. Acceptance of Leased Premises.
Tenant has accepted possession and is currently occupying the
Leased Premises.
Section 6. Lease Term.
The term of the Lease commenced on ______________ and ends on
_______________, subject to the following options to extend:
.
(If none, please state "None.")
Section 7. Purchase Rights.
Tenant has no option, right of first refusal, right of first
offer, or other right to acquire or purchase all or any portion of the
Leased Premises or all or any portion of, or interest in, the
Property, except as follows:
.
(If none, please state "None.")
Section 8. Rent.
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(a) The obligation to pay rent under the Lease commenced on
___________. The rent under the Lease is current, and Tenant is not in
default in the performance of any of its obligations under the Lease.
(b) Tenant is currently paying base rent under the Lease in the
amount of ___________________ Dollars ($__________) per month. Tenant
has not received and is not, presently, entitled to any abatement,
refunds, rebates, concessions or forgiveness of rent or other charges,
free rent, partial rent, or credits, offsets or reductions in rent,
except as follows:
.
(If none, please state "None.")
(c) Tenant's estimated share of operating expenses, common area
charges, insurance, real estate taxes and administrative and overhead
expenses is __________ percent ( %) and is currently being paid at
the rate of _____________________ Dollars ($__________) per month,
payable to:
.
(d) There are no existing defenses or offsets against rent due
or to become due under the terms of the Lease, and there presently is
no default or other wrongful act or omission by Landlord under the
Lease or otherwise in connection with Tenant's occupancy of the Leased
Premises, nor is there a state of facts which with the passage of time
or the giving of notice or both could ripen into a default on the part
of Tenant, or to the best knowledge of Tenant, could ripen into a
default on the part of Landlord under the Lease, except as follows:
.
(If none, please state "None.")
Section 9. Security Deposit.
The amount of Tenant's security deposit held by Landlord under
the Lease is _________________ Dollars ($ __________).
Section 10. Prepaid Rent.
Tenant has not paid any installment of Basic Annual Rent more
than one(1) month in advance.
Section 11. Insurance.
All insurance, if any, required to be maintained by Tenant under
the Lease is presently in effect.
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Section 12. Pending Actions.
There is not pending or, to the knowledge of Tenant, threatened
against or contemplated by the Tenant, any petition in bankruptcy,
whether voluntary or otherwise, any assignment for the benefit of
creditors, or any petition seeking reorganization or arrangement under
the federal bankruptcy laws or those of any state.
Section 13. Tenant's Work.
As of the date of this Certificate, to the best of Tenant's
knowledge, Landlord has performed all obligations required of Landlord
pursuant to the Lease; no offsets, counterclaims, or defenses of Tenant
under the Lease exist against Landlord; and no events have occurred
that, with the passage of time or the giving of notice, would
constitute a basis for offsets, counterclaims, or defenses against
Landlord, except as follows: .
(If none, please state "None.")
Section 14. Assignments by Landlord.
Tenant has received no notice of any assignment, hypothecation
or pledge of the Lease or rentals under the Lease by Landlord. Tenant
hereby consents to an assignment of the lease and rents to be executed
by Landlord to Purchaser or Lender in connection with the Loan and
acknowledges that said assignment does not violate the provisions of
the Lease. Tenant acknowledges that the interest of the Landlord under
the Lease is to be assigned to Purchaser or Lender solely is security
for the purposes specified in said assignment and Purchaser or Lender
shall have no duty, liability or obligation whatsoever under the Lease
or any extension or renewal thereof, either by virtue of said
assignment or by any subsequent receipt or collection of rents
thereunder, unless Purchaser or Lender shall specifically undertake
such liability in writing. Tenant agrees that upon receipt of a
written notice from Purchaser or Lender of a default by Landlord under
the Loan, Tenant will thereafter pay rent to Purchaser or Lender in
accordance with the terms of the Lease.
Section 15. Assignments by Tenant.
Except as listed below, Tenant has not sublet or assigned the
Leased Premises or the Lease or any portion thereof to any sublessee or
assignee. No one except Tenant and its employees will occupy the
Leased Premises. The address for notices to be sent to Tenant is as
set forth in the Lease.
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Section 16. Environmental Matters.
The operation and use of the Leased Premises does not involve
the generation, treatment, storage, disposal or release into the
environment of any hazardous materials, regulated materials and/or
solid waste, except those used in the ordinary course of operating a
medical laboratory or otherwise used in accordance with all applicable
laws.
Section 17. Succession of Interest.
Tenant agrees that, in the event Purchaser or Lender succeeds to
interest of Landlord under the Lease:
(a) Purchaser or Lender shall not be liable for any act or
omission of any prior landlord (including Landlord);
(b) Purchaser or Lender shall not be liable for the return of
any security deposit except to the extent that such deposit is
transferred, assigned or credited to Lender or Purchaser;
(c) Purchaser or Lender shall not be bound by any rent or
additional rent which Tenant might have prepaid under the Lease for
more than the current month;
(d) Purchaser or Lender shall not be bound by any amendments
or modifications of the Lease entered into after the date hereof made
without prior consent of Purchaser or Lender;
(e) Purchaser or Lender shall not be subject to any offsets
or defenses which Tenant might have against any prior landlord
(including Landlord); or
(f) Purchaser or Lender shall not be liable under the Lease
to Tenant for the performance of Landlord's obligations under the Lease
beyond Purchaser or Lender's interest in the Property.
Section 18. Notice of Default.
Tenant agrees to give Purchaser and Lender a copy of any notice
of default under the Lease served upon Landlord at the same time as
such notice is given to the Landlord. Tenant further agrees that if
Landlord shall fail to cure such default within the applicable grace
period, if any, provided in the Lease, then Purchaser or Lender shall
have an additional sixty (60) days within which to cure such default,
or if such default cannot be cured within such sixty (60) day period,
such sixty (60) day period shall be extended so long as Purchaser or
Lender has commenced and is diligently pursuing the remedies necessary
to cure such default (including, but not limited to, commencement of
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<PAGE> 86
foreclosure proceedings, if necessary to effect (such cure), in which
event the Lease shall not be terminated while such remedies are being
pursued.
Section 19. Notification by Tenant.
From the date of this Certificate and continuing until
____________, Tenant agrees to immediately notify Purchaser and Lender,
in writing by registered or certified mail, return receipt requested,
at the following addresses, on the occurrence of any event or the
discovery of any fact that would make any representation contained in
this Certificate inaccurate:
If To Purchaser: ____________________________
____________________________
____________________________
____________________________
With A Copy To: ______________________________
______________________________
______________________________
______________________________
Tenant makes this Certificate with the knowledge that it will be
relied upon by Purchaser and Lender in agreeing to purchase the
Property.
Tenant has executed this Certificate as of the date first
written above by the person named below, who is duly authorized to do
so.
TENANT
ANTEX BIOLOGICS INC.,
a Delaware corporation
By:
-----------------------------
Name:
---------------------------
Its:
ATTEST: --------------------------
By:
Name:
Its: Secretary (SEAL)
G-6
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
1) MicroCarb Human Vaccines Inc. - incorporated in the State of Delaware;
73.75% owned by Antex Biologics Inc.
2) Antex Pharma Inc. - incorporated in the State of Delaware; wholly-owned by
Antex Biologics Inc.
1
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Antex Biologics Inc. on Form S-8 (Registration No. 333-32377) of our report
dated February 26, 1999 on our audits of the consolidated financial statements
of Antex Biologics Inc. as of December 31, 1997 and 1998, and for the years
then ended and for the period January 1, 1993 to December 31, 1998, which
report is included in this Annual Report on Form 10-KSB.
PricewaterhouseCoopers LLP
McLean, Virginia
March 24, 1999
1
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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0
0
<COMMON> 292,874
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<TOTAL-LIABILITY-AND-EQUITY> 6,184,325
<SALES> 0
<TOTAL-REVENUES> 4,507,029
<CGS> 0
<TOTAL-COSTS> 5,882,965
<OTHER-EXPENSES> 1,457,751
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<INCOME-PRETAX> (2,833,687)
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