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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22686
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PALATIN TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Delaware 95-4078884
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
214 Carnegie Center - Suite 100
Princeton, New Jersey 08540
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (609) 520-1911
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or by any
amendment to this Form 10-KSB. |_|
The issuer's revenues for the period ended June 30, 1997 were $722,357.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of September
23, 1997, was $16,903,608.
As of September 23, 1997, 3,041,111 shares of the registrant's common stock, par
value $.01 per share, were outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format: Yes __ No X
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Table of Contents
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PART I Page
Item 1. Description of Business.......................................................................... 1
Item 2. Description of Property............................................................................ 25
Item 3. Legal Proceedings................................................................................. 25
Item 4. Submission of Matters to a Vote of Security Holders............................................... 26
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.......................................... 27
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations.................................................. 30
Item 7. Financial Statements............................................................................... 33
Item 8. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure............................................................. 34
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.................................................. 34
Item 10. Executive Compensation............................................................................. 37
Item 11. Security Ownership of Certain Beneficial Owners and Management..................................... 42
Item 12. Certain Relationships and Related Transactions..................................................... 48
Item 13. Exhibits and Reports on Form 8-K................................................................... 49
Signatures ................................................................................................... 54
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Unless the context otherwise requires,(i) all references to the
"Company" or "Palatin" include Palatin Technologies, Inc. and its wholly-owned
subsidiary, RhoMed Incorporated ("RhoMed"), (ii) all references to the Company's
activities, results of operations and financial condition prior to June 25, 1996
relate to RhoMed and (iii) all references to the Company's common stock, $.01
par value (the "Common Stock") are to the Company's Common Stock after giving
effect to the 1-for-10 reverse split of the Common Stock effected on July 19,
1996 and the 1-for-4 reverse split of the Common Stock effected on September 5,
1997. See Item 1 and Item 4 in this Annual Report on Form 10-KSB (this
"Report").
Certain statements in this Report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: delays in product development; problems or delays with clinical
trials; failure to receive or delays in receiving regulatory approval; lack of
enforceability of patents and proprietary rights; lack of reimbursement; general
economic and business conditions; industry capacity; industry trends;
competition; material costs and availability; changes in business strategy or
development plans; quality of management; availability, terms and deployment of
capital; business abilities and judgment of personnel; availability of qualified
personnel; changes in, or the failure to comply with, government regulations;
and other factors referenced in this Report. When used in this Report,
statements that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"anticipates," "plans," "intends," "expects" and similar expressions are
intended to identify such forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is a development-stage biopharmaceutical company dedicated
to developing and commercializing products and technologies for diagnostic
imaging, cancer therapy and ethical drug development utilizing peptide,
monoclonal antibody and radiopharmaceutical technologies. The Company
concentrates its activities in two technology areas, each of which the Company
believes may be used to develop products with potential diagnostic and
therapeutic applications. These technologies involve the Company's (i)
patent-pending Metal Ion-induced Distinctive Array of Structures ("MIDAS(TM)")
metallopeptide technology ("MIDAS technology") and (ii) patented and
patent-pending direct radiolabeling technology.
The Company believes that the MIDAS technology represents a platform
technology which may enable the design and synthesis of novel peptide analogs or
mimics. Further, the Company believes that its MIDAS technology may provide the
Company with the flexibility to generate its own pharmaceutical products, and
the ability to target and complement existing product portfolios and
technological bases of
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other companies. The Company intends to seek to enter into collaborative
arrangements to assist in development, manufacturing and marketing of certain
proposed products utilizing the MIDAS technology. The Company has entered into a
license option agreement as to certain proposed products based on MIDAS
technology. See "MIDAS Technology" in this Item 1.
The Company is developing two proposed products incorporating its
direct radiolabeling technology, (i) LeuTech(TM), an infection and inflammation
imaging product, and (ii) PT-5, a radiotherapeutic peptide somatostatin analog
for cancer therapy. The Company is devoting substantial efforts and resources to
the development of LeuTech, which the Company believes will be its first
proposed product to enter Company-sponsored clinical trials. The Company
anticipates seeking one or more marketing partners for LeuTech prior to product
approval. See "Direct Radiolabeling Technology" in this Item 1.
The Company is at an early stage of development and has not yet
completed the development of any products based on either its MIDAS technology
or its direct radiolabeling technology. Accordingly, the Company has not begun
to market or generate revenues from the commercialization of any such products.
It will be a number of years, if ever, before the Company will recognize
significant revenues from product sales or royalties. The Company's technologies
and products under development will require significant time-consuming and
costly research, development, pre-clinical studies, clinical testing, regulatory
approval and significant additional investment prior to their commercialization,
which may never occur. There can be no assurance that the Company's research and
development programs will be successful, that its products will exhibit the
expected biological results in humans, will prove to be safe and efficacious in
clinical trials or will obtain the required regulatory approvals or that the
Company or its collaborators will be successful in obtaining market acceptance
of any of the Company's products. There can be no assurance that the Company
will be successful in entering into strategic alliances or collaborative
arrangements on commercially reasonable terms, if at all, or that such
arrangements will be successful, or that the parties with which the Company will
establish arrangements will perform their obligations under such arrangements.
The Company or its collaborators may encounter problems and delays relating to
research and development, regulatory approval, manufacturing and marketing. The
failure by the Company to address successfully such problems and delays would
have a material adverse effect on the Company. In addition, no assurance can be
given that proprietary rights of third parties will not preclude the Company
from marketing its proposed products or that third parties will not market
superior or equivalent products.
MIDAS TECHNOLOGY
Role and Function of Peptides. Peptides, short chains of amino acids,
play important roles in regulating a variety of biological functions. Natural
peptides function by conforming or bending to fit specific molecules on cell
surfaces, called receptors, thereby signaling the cell to initiate a biological
activity. Some important biological functions that are affected in this manner
include overall growth and behavior, inflammatory responses, immune responses
and wound healing.
In order to effectively regulate cell signaling, a peptide must bind to
its target receptor with high affinity. The affinity of a peptide for its target
receptor is highly dependent on its three-dimensional shape or conformation.
Many naturally occurring peptides are flexible and can take on multiple
conformations, allowing them to interact with more than one type of cell
receptor, and to control multiple functions within the body. However, when such
peptides are used as drugs, this multiple reactivity is a disadvantage as it may
lead to side effects. The ability to construct high-affinity, receptor-specific
peptides offers a significant opportunity to develop potent receptor-specific
drugs.
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Introduction to MIDAS Technology. The Company believes that its
patent-pending MIDAS technology can be used to rationally design and produce
receptor-specific drugs. Using MIDAS, highly stable metallopeptide complexes are
formed, in which the metal ion locks or constrains the peptide into a specific
conformation. By designing MIDAS peptides to mimic the conformation required for
a specific receptor, a stable, receptor-specific drug, with high affinity and
enhanced biological activity, can be made. Radiopharmaceutical products, which
may be diagnostic or therapeutic, may be developed using radioactive metal ions
in MIDAS peptides. Non-radioactive metal ions may be used in the development of
biopharmaceutical MIDAS peptides.
The Company is engaged in research and development on a number of
product opportunities for its MIDAS technology, including use as a thrombosis
imaging agent, an infection imaging agent and an immunostimulatory agent. No
prediction can be made, however, as to when or whether the areas in which there
are ongoing MIDAS technology research projects will yield scientific
discoveries, or whether such research projects will lead to commercial products
Research Projects. Certain pre-clinical work on development of
MIDAS-based products has been supported, in part, by three Phase I grants for
$100,000, $93,948 and $94,970 under the Small Business Innovative Research
("SBIR") program awarded to the Company by the National Institutes of Health of
the Department of Health and Human Services ("NIH"). The Company intends to
apply for Phase II SBIR grants, each in an amount of up to $750,000, although
there can be no assurance that any Phase II grant will be awarded.
Other Potential Opportunities. The Company is evaluating a number of
product opportunities for its MIDAS technology, and believes that this
technology may have medical applications in a variety of areas, including immune
disorders, cancers and cardiology. The Company intends to expand research and
development of MIDAS technology applications primarily through strategic
alliances with other entities. No assurances can be made regarding the
establishment or the timing of such alliances, and the failure to establish such
alliances on a timely basis could limit the Company's ability to develop MIDAS
technology and could have a material adverse effect on the Company. The Company
expects to devote resources to expand research and development of MIDAS
technology to the extent funding is available.
Option Agreement with Nihon. The Company entered into a License Option
Agreement (the "Option Agreement") with Nihon Medi-Physics Ltd. ("Nihon"), a
Japanese developer and manufacturer of radiopharmaceutical drugs, pursuant to
which the Company received an initial payment of $1,000,000 before Japanese
withholding taxes of $100,000. Pursuant to the Option Agreement (i) Nihon has an
option to exclusively license certain jointly developed radiopharmaceutical
diagnostic products based on the Company's MIDAS technology and (ii) Nihon can
maintain its option by making certain milestone payments based on progress in
product development. Nihon may exercise its right to negotiate a license
agreement at any time upon notice and payment of additional monies to the
Company. There can be no assurance that future payments provided for in the
Option Agreement will be made, that the Company and Nihon will ever enter into a
definitive license agreement, or that a definitive strategic alliance between
the Company and Nihon will result in the development or commercialization of any
product. In the event that Nihon gives notice of its right to negotiate a
license agreement, and the parties cannot agree on terms of such license
agreement, the Company may be required to repay $550,000 to Nihon. Failure to
enter into a definitive license agreement, or being required to repay certain
monies to Nihon, may have a material adverse effect on the Company. See Item 6.
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DIRECT RADIOLABELING TECHNOLOGY
The Company has developed and patented radiolabeling technologies for
the direct radiolabeling of antibodies, peptides and other proteins with
diagnostic and therapeutic radioisotopes.
LeuTech Diagnostic Imaging Product. LeuTech, a proposed product under
development that utilizes direct radiolabeling technology, is a murine (or
mouse) monoclonal antibody-based product designed to be labeled with the
diagnostic radioisotope technetium-99m. When labeled with technetium-99m,
LeuTech is intended to be used for diagnosis of infections, occult abscesses,
sites of inflammatory disease and other conditions involving high concentrations
of white blood cells.
The Company believes that LeuTech can be used for the rapid diagnosis
of a variety of difficult to diagnose infections and occult abscesses. Occult
abscesses are hidden infections that are generally characterized as being highly
localized. Examples of typical occult abscesses include infections of the
intra-abdominal area, such as intestinal, spleen, liver or urinary tract
abscesses, as well as bone, prosthetic and other abscesses. In a typical
abscess, as in most infections, large numbers of white blood cells congre gate
at the site of the infection. Thus, if the location of concentrations of white
blood cells is known, the site of the infection is also known. It is crucial in
the diagnosis and treatment of occult abscesses that the location of the
infection be determined, as location will frequently determine the type of
therapy which is appropriate.
The most specific procedure currently available for nuclear medicine
imaging of sites of infection involves removal of blood from the patient,
isolating white blood cells from the patient's blood, radiolabeling the white
blood cells and injecting the radiolabeled white blood cells back into the
patient. The radiolabeled white blood cells then localize at the site of the
infection, and can be detected using nuclear medicine diagnostic equipment. This
procedure is expensive, involves risks to patients and technicians associated
with blood handling, is difficult to perform and generally takes at least twelve
hours.
LeuTech has been formulated as a lyophilized, or freeze-dried, kit
containing the modified antibody and reagents required for the radiolabeling
process. Prior to use, LeuTech will be labeled with technetium-99m by a
radiopharmacy or by a hospital's nuclear medicine department. LeuTech is
designed to bind, in the body, to white blood cells already present at the site
of the infection or circulating in the blood stream. Therefore, LeuTech does not
require handling or processing of patient blood.
Preliminary clinical trials have been conducted under an
Investigational New Drug Application ("IND") held in the name of an
investigator, using purified antibody or kits provided by the Company. Forty
patient studies have been completed at UCLA/Harbor Medical Center in Los
Angeles, with images obtained in a variety of diseases, including acute and
suspected appendicitis, pulmonary infections and other abdominal infections. In
seven cases satisfactory images were not obtained, due primarily to labeling or
product formulation failures with early kit formulations. In some cases,
diagnostic images have been obtained within five minutes of administration of
LeuTech, and in all cases in which a definitive diagnosis could be made,
diagnostic images have been obtained within 90 minutes. An additional seventeen
patient studies were completed in Germany at the University of Gottingen, using
kits manufactured by a third party to the Company's specifications, with images
obtained in osteomyelitis and soft tissue infections.
The Company has entered into an exclusive license agreement with The
Wistar Institute of Anatomy and Biology ("Wistar Institute") to use the antibody
and cell line used for LeuTech for a defined field of use. Failure to meet the
performance criteria for any reason or any other event of default under the
license agreement leading to termination of the license agreement with Wistar
Institute would have a material
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adverse effect on the Company. While the Company has negotiated a long-term
contractual arrangement for the manufacture of the purified antibody necessary
for LeuTech, there can be no assurance that such contractor will be able to
successfully manufacture purified antibody for LeuTech on a sustained basis,
that such contractor will remain in the contract manufacturing business for the
time required by the Company, or that the Company will be able to enter into
such contractual arrangements as to other steps and components required to
manufacture LeuTech. To date, the Company has only manufactured LeuTech in lots
preparatory to initiating clinical trial use, and has not determined whether
commercial quantities of LeuTech in conformity with these standards can be
manufactured on a sustained basis at an acceptable cost. Such manufacture must
be done under good manufacturing practices ("GMP") requirements prescribed by
the United States Food and Drug Administration ("FDA") and other agencies.
Certain steps in the manufacture of LeuTech, including contract manufacture of
purified antibody, vialing and lyophilization, have been done under GMP.
The Company intends to file an IND application on LeuTech to initiate
clinical trials on one or more selected indications in the second half of 1997,
and to complete Phase III clinical trials and file regulatory applications to
market with the FDA in the second half of 1998. There can be no assurance that
the Company's LeuTech development program will be successful, that the FDA will
permit the Company's planned clinical trials to proceed, that LeuTech will prove
to be safe and efficacious in clinical trials, that LeuTech can be manufactured
in commercially required quantities on a sustained basis at an acceptable price,
that LeuTech will obtain the required regulatory approvals or that the Company
or its collaborators will be successful in obtaining market acceptance of
LeuTech. The Company or its collaborators may encounter problems and delays
relating to research and development, regulatory approval, manufacturing and
marketing of LeuTech.
PT-5 Cancer Therapeutic Product. PT-5 is a rhenium-labeled somatostatin
peptide analog being developed by the Company which is intended to treat cancers
by regional delivery of tumor cell-targeted radiotherapy. PT-5 binds to
somatostatin receptors. Somatostatin is a natural peptide hormone involved in
the regulation of cell growth and differentiation, and somatostatin receptors
are over-expressed on a wide variety of cancers. PT-5 is intended to target such
cancers and deliver a therapeutic dose of rhenium-188, a radioisotope which
emits high energy beta radiation, to the cancer.
The Company has developed a reproducible, easy to use, and high
efficiency direct radiolabeling method for PT-5; developed a lyophilized final
product formulation; conducted biodistribution studies of PT-5 in normal animals
using several different routes of administration, including intravenous and
intra-cavity administration; conducted biodistribution studies of PT-5 in
tumor-bearing animals; and demonstrated that PT-5 has a specific therapeutic
effect in animal models of three different human tumors -- lung, prostate and
breast cancers.
The Company believes PT-5 may have applications for local or regional
administration to any compartmentalized cancer which is somatostatin-receptor
positive. The cancer must be compartmentalized in order for local or regional
administration to work and must express somatostatin receptors in reasonably
high levels in order to obtain the targeting benefits of PT-5. Expression of
somatostatin receptors varies by type of cancer. However, until clinical trials
are completed, specific clinical utility and applications, if any, cannot be
determined.
The Company is working with researchers at the University of Bonn in
Germany to initiate clinical trials of patients with bronchial cancer metastatic
to the pleural cavity. PT-5 will be administered by infusion directly into the
pleural cavity. This trial is primarily designed to obtain safety and dose
response
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data, and secondarily to obtain evidence of efficacy, including tumor stasis or
regression and improvement in cancer-associated biological markers.
PT-5 requires a source of radioactive rhenium, preferably rhenium-188.
This isotope can be produced by a variety of methods, including a generator
system; however, clinical grade radioactive rhenium is not currently available
in the United States. The Company is aware of an experimental generator system
developed in the United States by Oak Ridge National Laboratory, and an
additional experimental generator system available in Europe. The Company does
not intend to seek to commercialize any source of radioactive rhenium, but is
aware of other companies seeking to commercialize radioactive rhenium. There can
be no assurance that, regardless of the status of product development by the
Company, any acceptable form of radioactive rhenium will ever be commercially
available in the United States or other countries at acceptable prices, if at
all, in which event the Company may never be able to develop or commercialize
PT-5.
The Company is discussing entering into a collaborative arrangement
with a third party to use a specific somatostatin analog for PT-5, and both
parties are waiting to evaluate the results of preliminary clinical trials.
There can be no assurance that the Company will be able to conclude a
collaborative arrangement on acceptable terms, if at all. If the Company cannot
conclude such arrangement, the Company will either abandon PT-5 development or
seek to develop a substitute using MIDAS technology. There can be no assurance
that the Company will be able to enter into an arrangement with another party on
acceptable terms if at all, or will be able to develop a substitute using MIDAS
technology in a reasonable period of time, or at all. There can be no assurance
that the Company's PT-5 development program will be successful, that PT-5 will
exhibit the expected biological results in humans, that PT-5 will prove to be
safe and efficacious in clinical trials, that the Company will obtain the
required regulatory approvals for PT-5, or that the Company or its
collaborators will be successful in obtaining market acceptance of PT-5. The
Company or its collaborators may encounter problems and delays relating to
research and development, regulatory approval, manufacturing and marketing of
PT-5.
RHOCHEK PRODUCT
The Company had manufactured and marketed, under the trade name
RhoChek, a quality control test product for measuring the immunoreactive
fraction of radiolabeled antibodies specific to certain cancer antigens. Due to
insufficient sales, the Company discontinued product sales of RhoChek in the
fiscal year ended June 30, 1997. See Item 6.
MARKETS FOR PRODUCTS
The Company's proposed products and technologies are intended to be
utilized in two distinct pharmaceutical markets. One market, intended to be
addressed by LeuTech, PT-5 and certain proposed products resulting from the
Company's MIDAS technology, is the radiopharmaceutical market. The other market,
intended to be addressed by other proposed products resulting from MIDAS
technology, is the larger biopharmaceutical market.
The radiopharmaceutical market involves both diagnostic imaging and
therapeutic applications. For imaging, trace amounts of a radioisotope bound to
a radiopharmaceutical drug are injected into a patient and detected with nuclear
medicine diagnostic equipment, generally a gamma camera. For therapy,
radioisotopes which emit radiation lethal to cancer cells are employed.
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The Company believes that proposed products resulting from its MIDAS
technology can be used for a variety of biopharmaceutical applications where
non-radioactive but receptor-specific drugs are desired. The Company believes
the MIDAS technology may be applicable to a number of disease states, including
immune disorders, cancer, and cardiac therapy. There are a limited number of
receptor-specific, peptide-based drugs commercially available, but none which
employ a metallopeptide. There can be no assurance that MIDAS technology will
result in the development of any such drugs.
RESEARCH AND DEVELOPMENT EXPENDITURES
In the fiscal year ended June 30, 1997 and the ten months ended June
30, 1996 the Company spent $3,409,983 and $869,896, respectively, on research
and development activities.
GRANTS AND COLLABORATIVE RESEARCH
The Company applies for grants with the NIH and other federally-funded
agencies ("Research Grants") to develop its products and technologies. Since
inception, the Company has been awarded over $2.8 million in peer-reviewed
Research Grants. During the fiscal year ended June 30, 1997, the Company had
four active Phase I SBIR Research Grants. Generally, the maximum amount of a
Phase I SBIR Research Grant is $100,000, and the maximum amount of a Phase II
SBIR Research Grant is $750,000. There can be no assurance that any additional
Research Grants will be awarded.
The Company has, where scientifically or technologically merited,
actively solicited Cooperative Research and Development Agreements ("CRADA")
with agencies of the federal government, involving collaborative development
activities with the Company. The Company currently has no active CRADAs, but has
completed CRADAs with Los Alamos National Laboratory, Brookhaven National
Laboratory, Oak Ridge National Laboratory and Sandia National Laboratory,
relating primarily to radiopharmaceutical drug development, including PT-5, and
animal studies of proposed radiopharmaceutical products.
COMPETITION
The biopharmaceutical and radiopharmaceutical industries are highly
competitive. In the biopharmaceutical industry, there are a number of companies
developing peptide-based drugs, including companies exploring a number of
different approaches to making conformationally-constrained short peptides for
use as therapeutic drugs. In the radiopharmaceutical industry, there are several
companies devoted to development and commercialization of monoclonal
antibody-based products and peptide-based products. The Company is likely to
encounter significant competition with respect to its proposed products
currently under development. Many of the Company's competitors which are engaged
in the biopharmaceutical field, and in particular the development of
peptide-based products, have substantially greater financial and technological
resources and marketing capabilities than the Company, and have significantly
greater experience in research and development. Many of the Company's
competitors which are engaged in the radiopharmaceutical field, and in
particular the development of antibody- and peptide-based products, have greater
financial and technological resources and marketing capabilities than the
Company, and have significantly greater experience in research and development.
Accordingly, the Company's competitors may succeed in developing products and
underlying technologies more rapidly than the Company, and in developing
products that are more effective and useful and are less costly than any that
may be developed by the Company, and may also be more successful than the
Company in manufacturing and marketing such products. Academic institutions,
hospitals, governmental agencies and other public and private research
organizations are also conducting research and seeking patent protection and may
develop competing products or technologies on their own or through collaborative
arrangements.
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The Company believes that the technological attributes of LeuTech,
including the ease of preparation, rapidity of imaging, apparent targeting
specificity and use of technetium-99m (the most widely available radioisotope)
will enable the Company to compete effectively in this market. However, the
Company is aware of at least one company developing an antibody-based product
which may compete with LeuTech as to certain indications, which product is
marketed in certain European countries and for which regulatory approval is
pending in the United States. The Company is also aware of another company
developing a peptide-based product which may also compete with LeuTech as to
certain indications.
The Company is aware of a number of companies developing technologies
relating to the use of peptides as drugs, including a variety of different
approaches to making conformationally-constrained short peptides.
The Company is pursuing areas of product development in which there is
the potential for extensive technological innovation in relatively short periods
of time. The Company's competitors may succeed in developing products that are
safer or more effective than those of the Company's proposed products. Rapid
technological change or developments by others may result in the Company's
proposed products becoming obsolete or non-competitive.
PATENTS AND PROPRIETARY INFORMATION
The Company aggressively seeks patent protection for its technology in
the United States and, selectively, in those foreign countries where in the
Company's judgment such protection is important to the development of the
Company's business.
The Company's patents and pending applications are directed to
radiolabeling of antibodies, antibody fragments, and peptides; MIDAS peptides;
and to methods for making and using the foregoing in diagnostic and therapeutic
applications. The Company owns or has rights to 16 U.S. patents, eight pending
U.S. patent applications, four allowed U.S. patent applications and nine
counterpart patents and eight pending applications in selected foreign
countries.
Certain of the patents and pending applications owned by the Company
have been assigned to affiliates of Aberlyn Holding Co., Inc. (collectively
"Aberlyn") to secure long-term financing but the Company has retained the
exclusive right to practice these patents itself and to grant licenses under
these patents to third parties. The Company is obligated to make monthly
payments to Aberlyn in discharge of the Company's debt obligation of $91,695 per
month through May 1, 1999. On completion of scheduled payments, all rights to
the patents and pending applications will be assigned to the Company. In the
event of default by the Company, Aberlyn has the right to require the Company to
cease using the patents, and to sell or exclusively license the patents to other
parties. The patents and pending applications pertain to LeuTech and PT-5. In
addition, the Company has semi-exclusive rights in a basic United States patent
relating to direct radiolabeling of antibodies, and its Canadian counterpart.
Two of the Company's basic U.S. patents for direct radiolabeling of
antibodies and other proteins were involved in a priority-of-invention contest
(interference) in the U.S. Patent and Trademark Office with a patent application
owned by a third party. This proceeding has been settled, and the Company's
patents have emerged from reissue proceedings in which the scope of the
Company's claims has been somewhat limited. The Company believes that the
current claim scope will not materially adversely affect the Company's current
product development plans, and is sufficient to protect the Company's underlying
inventions.
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One of the Company's granted European patents (directed to selection of
patient-specific antibody cocktails) is involved in an opposition proceeding at
the European Patent Office. The Company has received a favorable first decision,
but the opposing party has filed an appeal. The Company believes that the final
outcome of this proceeding, even if adverse to the Company, will not have a
material adverse effect on the Company's current product development plans.
The Company's success will depend in substantial part on its ability to
obtain patents, defend and enforce its patents, maintain trade secrets and
operate without infringing upon the proprietary rights of others, both in the
United States and abroad.
In general, the patent positions of companies relying upon
biotechnology are highly uncertain in general and involve complex legal and
factual questions. To date there has emerged no consistent policy regarding the
breadth of claims that are properly accorded to biotechnology patents. There can
thus be no assurance that patents will issue from the patent applications filed
by the Company or its licensors or that the scope of any claims granted in any
patent will provide meaningful proprietary protection or a competitive advantage
to the Company. There can be no assurance that the validity or enforceability of
patents issued or licensed to the Company will not be challenged by others or,
if challenged, will be upheld by a court. In addition, there can be no assurance
that competitors will not be able to circumvent any patents issued or licensed
to the Company. In the United States, patent applications are maintained in
secrecy until they issue as patents, and thus publications in the scientific
literature lag behind actual discoveries. Scientific publications also generally
appear after a patent application, if any, is filed. As a result of delayed
publication, the Company cannot be certain that its scientists were the first to
make inventions covered by its patents and patent applications.
In the event a third party has also filed a patent application relating
to an invention claimed in a Company patent application, the Company may be
required to participate in an interference proceeding adjudicated by the United
States Patent and Trademark Office to determine priority of invention. The
possibility of an interference proceeding could result in substantial
uncertainties and cost for the Company, even if the eventual outcome is
favorable to the Company. An adverse outcome could result in the Company losing
patent protection for the subject of the interference, subject the Company to
significant liabilities to third parties and require the Company to obtain
licenses from third parties at undetermined cost or to cease using the
technology.
While no patent that would be infringed by manufacture, use or sale of
the Company's proposed products has come to the attention of the Company, the
Company's proposed products are still in the development stage, and neither
their formulations nor their method of manufacture is finalized. Moreover,
patents, the claims of which would be infringed by the Company's commercial
activities, might not have yet been issued. There can thus be no assurance that
the manufacture, use or sale of the Company's proposed products will not
infringe patent rights of others. The Company may be unable to avoid
infringement of any such patents and may have to seek a license, defend an
infringement action, or challenge the validity of such patents in court. There
can be no assurance that a license will be available to the Company, if at all,
upon terms and conditions acceptable to the Company or that the Company will
prevail in any patent litigation. Patent litigation is costly and time
consuming, and there can be no assurance that the Company will have sufficient
resources to pursue such litigation. If the Company does not obtain a license
under any such patents, is found liable for infringement, or is not able to have
them declared invalid, the Company may be liable for significant money damages,
may encounter significant delays in bringing products to market,
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or may be precluded from participating in the manufacture, use or sale of
products or methods of treatment covered by such patents.
The Company relies substantially in its product development activities
on certain technologies which are neither patentable nor proprietary and are
therefore potentially available to the Company's competitors. The Company also
relies on certain proprietary technologies (trade secrets and know-how) which
are not patentable. Although the Company has taken steps to protect its
unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors. If the Company's employees, scientific
consultants or collaborators develop inventions or processes independently that
may be applicable to the Company's product candidates, disputes may arise about
ownership of proprietary rights to those inventions and processes. Such
inventions and processes will not necessarily become the Company's property, but
may remain the property of those persons or their employers. Protracted and
costly litigation could be necessary to enforce and determine the scope of the
Company's proprietary rights. Failure to obtain or maintain patent and trade
secret protection, for any reason, could have a material adverse effect on the
Company.
Certain of the Company's patents are directed to inventions developed
within the Company or within academic institutions from which the Company
earlier acquired rights to such patents with funds from United States government
agencies. As a result of these arrangements, the United States government may
have rights in certain inventions developed during the course of the performance
of federally funded projects as required by law or agreements with the funding
agency.
Several bills affecting patent rights have been introduced in the
United States Congress. These bills address various aspects of patent law,
including publication of pending patent applications, modifications of the
patent term, re-examination, subject matter and enforceability. It is not
certain whether any of these bills will be enacted into law or what form new
laws may take. Accordingly, the effect of legislative change on the Company's
intellectual property estate is uncertain.
GOVERNMENTAL REGULATION
The manufacture and marketing of the Company's proposed products
requires approval of the FDA and comparable agencies in foreign countries and
state regulatory authorities. The FDA has established regulations and guidances
which apply, among other things, to the clinical testing, manufacturing, safety,
efficacy, labeling, storage, record keeping, approval, advertising, promotion
and marketing of the Company's proposed products. Noncompliance with applicable
requirements can result in fines, recalls or seizures of products, total or
partial suspension of production, refusal of the FDA to approve marketing
applications and criminal prosecution.
In most cases, there is a substantial period of time between conception
of a proposed product and its approval for commercial sale. Determining product
formulation and manufacturing can take a number of years to complete, as can
pre-clinical studies. Clinical trials and related studies can also take a number
of years to complete. The period between the date of submission of an
application for approval to market and the date of approval by the FDA has
averaged two to four years for diagnostic imaging products, although the
approval process may take longer. The length of time of the approval process is
a function of a number of variables, including the quality of the submission and
studies presented, the potential contribution that the proposed product will
make in improving the treatment of the disease in question and
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the workload at the FDA. There can be no assurance that any of the Company's
proposed products will successfully proceed through the approval process or that
any of the proposed products will be approved in any specific period of time.
Depending upon marketing and distribution plans and arrangements for a
particular product, the Company may require additional time before a proposed
product can be made available for commercial sale, if at all.
The steps required before pharmaceutical products can be produced and
marketed usually include pre-clinical non-human studies, the filing of an IND
application, clinical trials and the filing and approval of a Biologics License
Application ("BLA") for products classified as "biologics" or filing and
approval of a New Drug Application ("NDA") for drug products. LeuTech is subject
to the requirement of a BLA, while PT-5 and proposed products based on the
Company's MIDAS technology are subject to the requirement of a NDA.
Pre-clinical studies are conducted in the laboratory and in animal
model systems to gain preliminary information on the drug's effectiveness and to
identify major safety problems. The results of these studies are submitted to
the FDA as part of the IND application before approval can be obtained for the
commencement of testing in humans. The clinical testing program required for a
new biological or pharmaceutical product typically involves three sequential
phases, but the phases may overlap. In the initial clinical evaluation, Phase I,
the product is tested for safety, dosage tolerance, distribution, excretion and
pharmacodynamics. Phase II involves studies in a limited patient populations to
evaluate the effectiveness of the product for a particular indication, to refine
optimal dosage and schedules of administration, and to identify possible side
effects and risks. For diagnostic imaging agents, such as LeuTech, typically the
smallest quantity of product producing satisfactory images will be employed. For
therapeutic products the side effects and risks of increased doses must be
balanced against increased therapeutic benefits. For radiolabeled therapeutic
products, such as PT-5, the radiation dose to critical organs provides an upper
limit to the dosage. When a product appears to be effective in Phase II trials,
it is then evaluated in Phase III clinical trials. Phase III trials consist of
additional testing for effectiveness and safety with an expanded patient group,
usually at multiple test sites. Therapeutic products are often compared to
standard treatments, if such treatments exist, to determine relative
effectiveness in randomized trials.
When Phase III studies are complete, the results of the pre-clinical
and clinical studies, along with manufacturing information, are submitted to the
FDA in the form of either a BLA or a NDA. Both the BLA and NDA involve
considerable data collection, verification and analysis, the preparation of
summaries of the production and testing processes, pre-clinical studies and
clinical trials. The FDA must approve the BLA or NDA, as applicable, before the
product may be marketed. The FDA may deny a BLA or NDA if applicable regulatory
criteria are not satisfied, may require additional testing or information, or
may require post-marketing testing, including extensive Phase IV studies, and
surveillance to monitor the effects of the product in general use. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing. In addition, the
FDA may in some circumstances impose restrictions on the use of the drug that
may limit its market potential.
In addition to obtaining either BLA or NDA approval from the FDA for
any of the Company's proposed products, if the proposed product is manufactured
in the United States the drug manufacturing establishment must be registered
with, and inspected by, the FDA. Such drug manufacturing establishments are
subject to biennial inspections by the FDA, and must comply with GMP regulations
enforced by the FDA. To supply products for use in the United States, foreign
manufacturing establishments must comply with GMP and are subject to periodic
inspection by the FDA or by corresponding regulatory agencies in
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such other countries under reciprocal agreements with the FDA. In complying with
standards established by the FDA, manufacturing establishments must continue to
expend time, money and effort in the areas of production and quality control to
ensure full technical compliance. Components of LeuTech are manufactured by
contract manufacturing establishments both in the United States and in foreign
countries, and the Company anticipates that PT-5 will be manufactured by
contract manufacturing establishments. The Company is dependent on such contract
manufacturing establishments for, and will have only limited control over, the
commercial manufacturing of its proposed products in compliance with FDA and
other regulatory requirements.
The Company has very limited experience in conducting clinical trials.
Clinical trials are conducted in accordance with FDA regulations covering
protection of human subjects and clinical practice protocols detailing the
objectives of the study, parameters for monitoring safety and criteria for
determining effectiveness. The Company will either need to rely on third parties
to design and administer required clinical trials or expend resources to hire
additional personnel to administer such clinical trials. There can be no
assurance that the Company will be able to find appropriate third parties to
design and administer clinical trials or that the Company will have the
resources to hire personnel to administer clinical trials.
No proposed product being evaluated by the Company has been submitted
for approval or approved by the FDA or any other regulatory authority for
marketing, and there can be no assurance that any such product will ever be
approved for marketing or that the Company will be able to obtain the labeling
claims desired for its proposed products. The Company is and will continue to be
dependent upon laboratories and medical institutions conducting its pre-clinical
studies and clinical trials to maintain both good laboratory and good clinical
practices consistent with FDA regulations. Data obtained from pre-clinical
studies and clinical trials are subject to varying interpretations which could
delay, limit or prevent FDA regulatory approval. Delays or rejections may be
encountered based upon changes in FDA policy for drug approval during the period
of development and FDA regulatory review. Similar delays also may be encountered
in foreign countries.
There can be no assurance that FDA or other regulatory approval for any
proposed products developed by the Company will be granted on a timely basis, or
at all. Delay in obtaining or failure to obtain such regulatory approvals will
have a material adverse effect on the Company.
MANUFACTURING AND MARKETING
To be successful, the Company's products must be manufactured in
commercial quantities under GMP requirements prescribed by the FDA and at
acceptable costs. The Company has not yet manufactured any pharmaceutical
products in commercial quantities and currently does not have the facilities to
manufacture any products in commercial quantities under GMP. In the event the
Company determines to establish a manufacturing facility, it will require
substantial additional funds, the hiring and retention of significant additional
personnel and compliance with extensive regulations applicable to such a
facility. The Company has no experience in commercial pharmaceutical
manufacturing, and there can be no assurance that the Company will be able to
establish such a facility successfully and, if established, that it will be able
to manufacture products in commercial quantities for sale at competitive prices.
If the Company determines to rely on collaborators, licensees or contract
manufacturers for the commercial manufacture of its products, the Company will
be dependent on such corporate partners or other entities for, and will have
only limited control over, the commercial manufacturing of its products. While
the Company has entered into manufacturing arrangements as to certain portions
of the manufacture of LeuTech under GMP, there can be no assurance that the
contract manufacturer will perform as agreed or will remain in the contract
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manufacturing business for the time required by the Company, or that the Company
will be able to enter into such manufacturing arrangements as to remaining
portions of the manufacture of LeuTech. There can be no assurance that the
Company will be able to enter into any such manufacturing arrangements as to its
other proposed products on acceptable terms, if at all.
LeuTech requires purified monoclonal antibody, made from a specific
parent cell line. There are, on a global basis, a limited number of contract
manufacturers capable of producing purified monoclonal antibodies. The Company
has entered into manufacturing arrangements with third-party contract
manufacturers for GMP production and purification of the monoclonal antibody
required for LeuTech and for GMP vialing and lyophilization of LeuTech.
Proposed products resulting from MIDAS technology and PT-5 are
synthetic peptides. The peptides are synthesized from readily available amino
acids, and the production process involves well-established technology. The
Company currently contracts with third-party manufacturers for the production of
peptides and anticipates doing so in the future.
PT-5 requires a source of radioactive rhenium in order to be
commercialized. There can be no assurance that, regardless of the status of
product development by the Company, any acceptable form of radioactive rhenium
will ever be commercially available in the United States or other countries. See
"Direct Radiolabeling Technology -- PT-5 Cancer Therapeutic Product" in this
Item 1.
The Company intends to package and ship its radiopharmaceutical
products in the form of non-radioactive kits. Prior to patient administration,
the product would be radiolabeled with the specified radioisotope, generally by
a specialized radiopharmacy. The Company does not intend to sell or distribute
any radioactive substance.
The Company has limited experience in marketing, including distribution
and sales, of pharmaceutical products, and will have to develop a sales force
and/or rely on its collaborators, licensees or arrangements with others to
provide for the marketing, distribution and sales of its products. If the
Company determines to rely on collaborators, licensees or arrangements with
others for the marketing, distribution and sales of its proposed products, the
Company will be dependent on such collaborators and others for, and will have
only limited control over, marketing, distribution and sales of its proposed
products.
Successful sales of the Company's proposed products in the United
States and other countries will depend on the availability of adequate
reimbursement from third-party payors such as governmental entities, managed
care organizations and private insurance plans. Reimbursement by a third-party
payor may depend on a number of factors, including the payor's determination
that use of a product is safe and efficacious, neither experimental nor
investigational, medically necessary, appropriate for the specific patient and
cost effective. Since reimbursement approval is required from each payor
individually, seeking such approvals is a time-consuming and costly process.
Third-party payors routinely limit reimbursement coverage and in many instances
are exerting significant pressure on medical suppliers to lower their prices.
There is significant uncertainty concerning third-party reimbursement for the
use of any pharmaceutical product incorporating new technology, and there is no
assurance that third-party reimbursement will be available for the Company's
proposed products, or that such reimbursement, if obtained, will be adequate.
Less than full reimbursement by governmental and other third-party payors for
the Company's products would adversely affect the market acceptance of these
products and would also have a material adverse effect on the Company. Further,
health care reimbursement systems vary from country to country, and there can be
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no assurance that third-party reimbursement will be made available for the
Company's proposed products under any other reimbursement system.
PRODUCT LIABILITY AND INSURANCE
The Company's business may be affected by potential product liability
risks which are inherent in the testing, manufacturing and marketing of proposed
pharmaceutical products to be developed by the Company. There can be no
assurance that product liability claims will not be asserted against the
Company, its collaborators or licensees. The use of proposed products developed
by the Company in clinical trials and the subsequent sale of such proposed
products is likely to cause the Company to bear all or a portion of those risks.
Such litigation claims could have a material adverse effect on the Company. The
Company has liability insurance providing up to $1,000,000 coverage per
occurrence and in the aggregate as to certain clinical trial risks, and will
seek to obtain additional product liability insurance before the
commercialization of its products. There can be no assurance, however, that
insurance will be available to the Company on acceptable terms, if at all, or
that such coverage once obtained would be adequate to protect the Company
against future claims or that a medical malpractice or other claim would not
materially and adversely affect the Company. Furthermore, there can be no
assurance that any collaborators or licensees of the Company will agree to
indemnify the Company, be sufficiently insured or have a net worth sufficient to
satisfy any such product liability claims. In addition, products such as those
proposed to be sold by the Company may be subject to recall for unforeseen
reasons. Such a recall could have a material adverse effect on the Company.
EMPLOYEES
As of June 30, 1997, the Company employed 16 persons full time, of whom
11 were engaged in research and development activities and 5 were engaged in
administration and management. Of the Company's employees, 4 hold Ph.D. degrees.
The Company, from time to time, hires scientific consultants to work on certain
of its research and development programs. The Company believes that it has been
successful in attracting skilled and experienced scientific personnel; however,
competition for such personnel is intense.
None of the Company's employees is covered by a collective bargaining
agreement. The Company's employees have executed confidentiality agreements. The
Company considers relations with its employees to be good.
The Company relies, in substantial part, and for the foreseeable
future will rely, on certain independent organizations, advisors and consultants
to provide certain services, including substantially all aspects of
manufacturing, regulatory approval and clinical management. There can be no
assurance that the services of independent organizations, advisors and
consultants will continue to be available to the Company on a timely basis when
needed, or that the Company could find qualified replacements. The Company's
advisors and consultants generally sign agreements that provide for
confidentiality of the Company's proprietary information. However, there can be
no assurance that the Company will be able to maintain the confidentiality of
the Company's technology, the dissemination of which could have a material
adverse effect on the Company.
HISTORY AND MERGER
General. The Company was incorporated under the laws of the State of
Delaware on November 21, 1986. From November 4, 1993, when the Company, then
named Interfilm, acquired Interfilm
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Technologies, Inc., a New York corporation, through May 9, 1995, Interfilm was
primarily engaged in the business of exploiting the rights related to its
interactive motion picture process, including the production and distribution of
interactive motion pictures for initial exhibition in theaters and subsequently
in enhanced versions for distribution to the home market. Interfilm consummated
an initial public offering on October 28, 1993, and on May 10, 1995, the Board
of Directors of Interfilm decided to substantially curtail the operations of
Interfilm and its subsidiaries. Interfilm conducted no business activities from
May 10, 1995 until June 25, 1996.
Merger with RhoMed. On June 25, 1996, a newly formed, wholly-owned
subsidiary of Interfilm, Interfilm Acquisition Corporation, a New Mexico
corporation, merged with and into RhoMed, a New Mexico corporation, and all of
RhoMed's outstanding equity securities were ultimately exchanged for equity
securities of the Company (the "Merger"). As a result of the Merger, RhoMed
became a wholly-owned subsidiary of the Company, with the holders of RhoMed
preferred stock and RhoMed common stock (including the holders of "RhoMed
Securities" as hereafter defined) receiving an aggregate of an approximately 96%
interest in the equity securities of the Company on a fully-diluted basis.
Additionally, all warrants and options to purchase common stock of RhoMed
outstanding immediately prior to the Merger (the "RhoMed Securities"), including
without limitation, any rights underlying RhoMed's qualified and nonqualified
stock option plans, were automatically converted into rights to receive, upon
exercise, Common Stock, in the same manner in which shares of RhoMed common
stock were converted. Since the former stockholders of RhoMed acquired, by
reason of the Merger, more than a 50% controlling interest in the Company, the
Merger has been treated, for accounting purposes, as a reverse acquisition.
Consequently, the historical financial statements of the Company prior to June
25, 1996, are those of RhoMed.
In connection with the Merger, certain pre-Merger assets and
liabilities of the Company and one of its wholly-owned subsidiaries, consisting
principally of certain intellectual property and litigation claims, were
transferred to an unaffiliated limited liability partnership for the benefit of
the Company's pre-Merger stockholders as of a record date of June 21, 1996. See
Item 3.
On July 19, 1996, the Company filed an amendment to its Restated
Certificate of Incorporation, as amended ("Certificate of Incorporation"), which
(i) effected the change of name of the Company from Interfilm, Inc. to Palatin
Technologies, Inc., (ii) increased the total number of authorized shares of the
Company's Common Stock from 10,000,000 to 25,000,000 and (iii) effected a
1-for-10 reverse split of the Common Stock (the "Charter Amendment").
Reverse Stock Split and Increase in Authorized Capital. On September 5,
1997, the Company filed an amendment to its Certificate of Incorporation, which
(i) increased the total number of authorized shares of the Company's Common
Stock from 25,000,000 to 75,000,000 and the total number of authorized shares of
the Company's preferred stock from 2,000,000 to 10,000,000 and (ii) effected a
1-for-4 reverse split of the Common Stock (the "Second Charter Amendment").
As a result of the Merger, Charter Amendment and Second Charter
Amendment, each share of RhoMed preferred stock was converted into approximately
.1167 shares of Common Stock, and each share of RhoMed common stock was
converted into approximately .0461 shares of Common Stock.
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IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The following important factors, among others, could cause the
Company's actual results, performance or achievements, or industry results, to
differ materially from those expressed in the Company's forward-looking
statements in this Report and presented elsewhere by management from time to
time.
Early Stage of Development; Uncertainty of Product Development;
Technological Uncertainty. The Company is at an early stage of development and
has not yet completed the development of any products based on either its MIDAS
technology or its direct radiolabeling technology. Accordingly, the Company has
not begun to market or generate revenues from the commercialization of any such
products. It will be a number of years, if ever, before the Company will
recognize significant revenues from product sales or royalties. The Company's
technologies and products under development will require significant
time-consuming and costly research, development, preclinical studies, clinical
testing, regulatory approval and significant additional investment prior to
their commercialization, which may never occur. There can be no assurance that
the Company's research and development programs will be successful, that its
products will exhibit the expected biological results in humans, that its
products will prove to be safe and efficacious, that its products will obtain
the required regulatory approvals, demonstrate substantial therapeutic or
diagnostic benefit, be commercialized on a timely basis, experience no design or
manufacturing problems, be manufactured on a large scale, or be economical to
market, or that the Company or its collaborators will be successful in obtaining
market acceptance of any of the Company's products or generate sufficient
revenue to support research and development programs. There can be no assurance
that the Company will be successful in entering into strategic alliances or
collaborative arrangements on commercially reasonable terms, if at all, that
such arrangements will be successful, or that the parties with which the Company
will establish arrangements will perform their obligations under such
arrangements. The Company or its collaborators may encounter problems and delays
relating to research and development, regulatory approval, manufacturing and
marketing. The failure by the Company to successfully address such problems and
delays would have a material adverse effect on the Company. In addition, no
assurance can be given that proprietary rights of third parties will not
preclude the Company from marketing its proposed products or that third parties
will not market superior or equivalent products. See this Item 1 and Item 6.
History of Operating Losses and Accumulated Deficit. The Company has
incurred net operating losses since its inception (January 28, 1986) and, as of
June 30, 1997, had an accumulated deficit of approximately $13.4 million, which
has increased to date. The Company anticipates incurring additional losses over
at least the next several years and such losses are expected to increase as the
Company expands its research and development activities relating to its MIDAS
technology and its direct radiolabeling technology. To achieve profitability,
the Company, alone or with others, must successfully develop its technologies
and products, conduct preclinical studies and clinical trials, obtain required
regulatory approvals and successfully manufacture, introduce and market such
technologies and products. The time required to reach profitability is highly
uncertain, and there can be no assurance that the Company will be able to
achieve profitability on a sustained basis, if at all. See Item 6.
Need for Additional Financing and Access to Capital. The Company has
incurred negative cash flow from operations since its inception. The Company has
expended, and will continue to expend in the future, if available, substantial
funds to continue its research and development programs, including preclinical
studies and clinical trials, to seek regulatory approval of its products, to
develop manufacturing and marketing capabilities, and to fund the growth that is
expected to occur if any of its proposed products are approved for marketing.
Further, the Company has significant long-term debt that is due and payable
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during the fiscal years ending June 30, 1998 and 1999. The Company expects that
its existing capital resources will be adequate to make scheduled debt payments
and to fund its operations through June 1998. No assurance can be given that
there will be no events affecting the Company's operations that would deplete
available resources significantly before such time. The Company's future capital
requirements depend on many factors, including continued progress in its
research and development activities, progress with preclinical studies and
clinical trials, prosecuting and enforcing patent claims, technological and
market developments, the ability of the Company to establish product development
arrangements, the cost of manufacturing scale-up and effective marketing
activities and collaborative or other arrangements. The Company will seek to
obtain additional funds through public or private financings, including equity
or debt financings, collaborative or other arrangements with corporate partners
and others, and from other sources. No assurance can be given that additional
financing will be available when needed, if at all, or on terms acceptable to
the Company. If adequate additional funds are not available, the Company may be
required to delay, scale back or eliminate certain of its research or
development activities, its manufacturing and marketing efforts, or require the
Company to license to third parties certain products or technologies that the
Company would otherwise seek to commercialize itself. If adequate funds are not
available, there will be a material and adverse effect on the Company. See Item
6.
Patents and Proprietary Rights, No Assurance of Enforceability or
Significant Competitive Advantage. In general, the patent positions of companies
relying upon biotechnology are highly uncertain and involve complex legal and
factual questions. To date, there has emerged no consistent policy regarding the
breadth of claims that are properly accorded to biotechnology patents. There can
be no assurance that patents will issue from the patent applications filed by
the Company or its licensors or that the scope of any claims granted in any
patent will provide meaningful proprietary protection or a competitive advantage
to the Company. There can be no assurance that the validity or enforceability of
patents issued or licensed to the Company will not be challenged by others or,
if challenged, will be upheld by a court. In addition, there can be no assurance
that competitors will not be able to circumvent any patents issued or licensed
to the Company. In the United States, patent applications are maintained in
secrecy until they issue as patents, and thus publications in the patent
literature lag behind actual discoveries. Scientific publications also generally
appear after a patent application, if any, is filed. As a result of delayed
publication, the Company cannot be certain that its scientists were the first to
make inventions covered by its patents and patent applications.
In the event another party has also filed a patent application relating
to an invention claimed in a Company patent application, the Company may be
required to participate in an interference proceeding adjudicated by the United
States Patent and Trademark Office to determine priority of invention. The
possibility of an interference proceeding could result in substantial
uncertainties and cost for the Company, even if the eventual outcome is
favorable to the Company. An adverse outcome could result in the Company losing
patent protection for the subject of the interference, subject the Company to
significant liabilities to third parties and require the Company to obtain
license rights from third parties at undetermined cost or to cease using the
technology.
While no valid patent that would be infringed by manufacture, use or
sale of the Company's proposed products has come to the attention of the
Company, the Company's proposed products are still in the development stage, and
neither their formulations nor their method of manufacture is finalized.
Moreover, patents the claims of which would be infringed by the Company's
commercial activities may not have issued as yet. There can thus be no assurance
that the manufacture, use or sale of the Company's proposed products will not
infringe patent rights of others. The Company may be unable to avoid
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infringement of any such patents and may have to seek a license, defend an
infringement action, or challenge the validity of such patents in court. There
can be no assurance that a license will be available to the Company, if at all,
upon terms and conditions acceptable to the Company or that the Company will
prevail in any patent litigation. Patent litigation is costly and time
consuming, and there can be no assurance that the Company will have sufficient
resources to pursue such litigation. If the Company does not obtain a license
under any such patents, is found liable for infringement, or is not able to have
them declared invalid, the Company may be liable for significant money damages,
may encounter significant delays in bringing products to market, or may be
precluded from participating in the manufacture, use or sale of products or
methods of treatment covered by such patents.
The Company relies substantially in its product development activities
on certain technologies which are neither patentable nor proprietary and are
therefore potentially available to the Company's competitors. The Company also
relies on certain proprietary technologies (trade secrets and know-how) which
are not patentable. Although the Company has taken steps to protect its
unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors. If the Company's employees, scientific
consultants or collaborators develop inventions or processes independently that
may be applicable to the Company's product candidates, disputes may arise about
ownership of proprietary rights to those inventions and processes. Such
inventions and processes will not necessarily become the Company's property, but
may remain the property of those persons or their employers. Protracted and
costly litigation could be necessary to enforce and determine the scope of the
Company's proprietary rights. Failure to obtain or maintain patent and trade
secret protection, for any reason, could have a material adverse effect on the
Company.
Certain of the Company's patents are directed to inventions developed
with funds from United States government agencies or within academic
institutions from which the Company earlier acquired rights to such patents. As
a result of these arrangements, the United States government may have rights in
certain inventions developed during the course of the performance of federally
funded projects as required by law or agreements with the funding agency.
Several bills affecting patent rights have been introduced in the
United States Congress. These bills address various aspects of patent law,
including publication of pending patent applications, modification of the patent
term, re-examination, subject matter and enforceability. It is not certain
whether any of these bills will be enacted into law and whether, as enacted,
they would affect the scope, validity and enforceability of the Company's
patents. Accordingly, the effect of legislative change on the Company's
intellectual property estate is uncertain. See "Patents and Proprietary
Information" in this Item 1.
Uncertainty of Development of MIDAS Technology. The Company is engaged
in research and development on a number of product opportunities for its MIDAS
technology, including use as a thrombosis imaging agent, an infection imaging
agent and an immunostimulatory agent, and believes that MIDAS technology may
have medical applications in a variety of areas, including immune disorders,
cancers and cardiology. The Company intends to expand research and development
of MIDAS technology applications primarily through strategic alliances with
other entities. No assurances can be made regarding the establishment or the
timing of such alliances, and the failure to establish such alliances on a
timely basis could limit the Company's ability to develop MIDAS technology and
could have a material adverse effect on the Company. The Company expects to
devote resources to expand research and development of
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MIDAS technology to the extent funding is available. No prediction can be made,
however, as to when or whether the areas in which there are ongoing MIDAS
technology research projects will yield scientific discoveries, or whether such
research projects will lead to commercial products. See "MIDAS Technology" in
this Item 1.
While the Company has entered into the Option Agreement with Nihon,
pursuant to which Nihon has an option to exclusively license certain products
based on the Company's MIDAS technology, there can be no assurance that future
payments provided for in the Option Agreement will be made, that the Company and
Nihon will ever enter into a definitive license agreement, or that a definitive
strategic alliance between the Company and Nihon will result in the development
or commercialization of any product. In the event that Nihon gives notice of its
right to negotiate a license agreement, and the parties cannot agree on terms of
such license agreement, the Company will be required to repay certain monies to
Nihon. Failure to enter into a definitive license agreement, or being required
to repay certain monies to Nihon, may have a material adverse effect on the
Company. See Item 6.
Uncertainty of Development of LeuTech. The Company has entered into an
exclusive license agreement with the Wistar Institute for a defined field of use
for the antibody and cell line used for LeuTech, which license agreement
contains certain performance criteria. Failure to meet the performance criteria
for any reason or any other event of default under the license agreement leading
to termination of the exclusive license agreement with Wistar Institute would
have a material adverse effect on the Company. While the Company has negotiated
a long-term contractual arrangement for the manufacture of the purified antibody
necessary for LeuTech, there can be no assurance that such contractor will be
able to successfully manufacture purified antibody for LeuTech on a sustained
basis, that such contractor will remain in the contract manufacturing business
for the time required by the Company, or that the Company will be able to enter
into such contractual arrangements as to other steps and components required to
manufacture LeuTech. Such manufacture must be done under GMP requirements
prescribed by the FDA and other governmental agencies. To date, the Company has
only manufactured LeuTech in lots preparatory to initiating clinical trial use,
with certain manufacturing processes having been done under GMP, and has not
determined whether commercial quantities of LeuTech in conformity with these
standards can be manufactured on a sustained basis at an acceptable cost.
While the Company intends to file an IND on LeuTech with the FDA on one
or more selected indications in the second half of 1997, and to complete Phase
III clinical trials and file regulatory applications to market with the FDA in
the second half of 1998, there can be no assurance that the Company's LeuTech
development program will be successful, that the FDA will permit the Company's
planned clinical trials to proceed, that LeuTech will prove to be safe and
efficacious in clinical trials, that LeuTech can be manufactured in commercially
required quantities on a sustained basis at an acceptable price, that LeuTech
will obtain the required regulatory approvals or that the Company or its
collaborators will be successful in obtaining market acceptance of LeuTech. The
Company or its collaborators may encounter problems and delays relating to
research and development, regulatory approval, manufacturing and marketing of
LeuTech. Failure to develop, obtain regulatory approval for, manufacture and
market LeuTech on a timely basis would have a material adverse effect on the
Company. See "Direct Labeling Technology" in this Item 1.
Uncertainty of Development of PT-5. The Company is discussing entering
into a collaborative arrangement with a third party to use a specific
somatostatin analog for PT-5. There can be no assurance that the Company will be
able to enter into a collaborative arrangement on acceptable terms, if at all.
If the
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Company cannot conclude such arrangement, the Company will either abandon PT-5
development or seek to develop a substitute using MIDAS technology. There can be
no assurance that the Company will be able to enter into an arrangement with
another party on acceptable terms if at all, or will be able to develop a
substitute using MIDAS technology in a reasonable period of time, or at all.
There can be no assurance that the Company's PT-5 development program will be
successful, that PT-5 will exhibit the expected biological results in humans,
that PT-5 will prove to be safe and efficacious in clinical trials, that the
Company will obtain the required regulatory approvals for PT-5, or that the
Company or its collaborators will be successful in obtaining market acceptance
of PT-5. The Company or its collaborators may encounter problems and delays
relating to research and development, regulatory approval, manufacturing and
marketing of PT-5.
In addition, PT-5 requires a source of radioactive rhenium, preferably
rhenium-188. This isotope can be produced by a variety of methods, including a
generator system; however, clinical grade radioactive rhenium is not currently
available in the United States. The Company is aware of an experimental
generator system developed in the United States by Oak Ridge National
Laboratory, and an additional experimental generator system available in Europe.
The Company does not intend to seek to commercialize any source of radioactive
rhenium, but is aware of other companies seeking to commercialize radioactive
rhenium. There can be no assurance that, regardless of the status of product
development by the Company, any acceptable form of radioactive rhenium will ever
be commercially available in the United States or other countries at acceptable
prices, if at all, in which event the Company may never be able to develop or
commercialize PT-5. See "Direct Labeling Technology" in this Item 1.
Government Regulation; No Assurance of Product Approval. Research,
development, testing, clinical trials, manufacture, distribution, advertising
and marketing, including distribution and sale, of pharmaceutical products are
subject to extensive regulation by governmental authorities in the United States
and other countries. Prior to marketing, proposed products developed by the
Company must undergo an extensive regulatory approval process required by the
FDA and by comparable agencies in other countries. This process, which includes
preclinical studies and clinical trials of each proposed product to establish
safety and effectiveness and confirmation by the FDA that good laboratory,
clinical and manufacturing practices were maintained during testing and
manufacturing, can take many years, requires the expenditure of substantial
resources and gives larger companies with greater financial resources a
competitive advantage over the Company. To date, no proposed product being
evaluated by the Company has been submitted for approval or approved by the FDA
or any other regulatory authority for marketing, and there can be no assurance
that any such product will ever be submitted or approved for marketing or that
the Company will be able to obtain the labeling claims desired for its products.
The Company is and will continue to be dependent upon the laboratories and
medical institutions conducting its preclinical studies and clinical trials to
maintain both good laboratory and good clinical practices. Data obtained from
preclinical studies and clinical trials are subject to varying interpretations
which could delay, limit or prevent FDA regulatory approval. Delays or
rejections may be encountered based upon changes in FDA policy for drug approval
during the period of development and FDA regulatory review. Similar delays also
may be encountered in foreign countries.
There can be no assurance that FDA or other regulatory approval for any
products developed by the Company will be granted on a timely basis, if at all.
Delay in obtaining or failure to obtain such regulatory approvals will
materially adversely affect the introduction and marketing of any products which
may be developed by the Company as well as the Company's results of operations.
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When and if approvals are granted, the Company, the approved drug, the
manufacture of such drug and the facilities in which such drug is manufactured
are subject to ongoing regulatory review. Subsequent discovery of previously
unknown problems may result in restriction on a product's use or withdrawal of
the product from the market. Adverse government regulation that might arise from
future legislative or administrative action, particularly as it relates to
health care reform and product pricing, cannot be predicted. See "Government
Regulation" in this Item 1.
No Commercial Manufacturing Capability or Experience. To be successful,
the Company's products must be manufactured in commercial quantities under GMP
requirements prescribed by the FDA and at acceptable costs. The Company has not
yet manufactured any pharmaceutical products in commercial quantities and
currently does not have the facilities to manufacture any products in commercial
quantities under GMP. In the event the Company determines to establish a
manufacturing facility, it will require substantial additional funds, the hiring
and retention of significant additional personnel and compliance with extensive
regulations applicable to such a facility. The Company has no experience in
commercial pharmaceutical manufacturing, and there can be no assurance that the
Company will be able to establish such a facility successfully and, if
established, that it will be able to manufacture products in commercial
quantities for sale at competitive prices. If the Company determines to rely on
collaborators, licensees or contract manufacturers for the commercial
manufacture of its products, the Company will be dependent on such corporate
partners or other entities for, and will have only limited control over, the
commercial manufacturing of its products. While the Company has entered into
manufacturing arrangements as to certain portions of the manufacture of LeuTech
under GMP, there can be no assurance that the contract manufacturer will perform
as agreed or will remain in the contract manufacturing business for the time
required by the Company, or that the Company will be able to enter into such
manufacturing arrangements as to remaining portions of the manufacture of
LeuTech. There can be no assurance that the Company will be able to enter into
any such manufacturing arrangements as to its other proposed products on
acceptable terms, if at all. See "Manufacturing and Marketing" in this Item 1.
Limited Clinical Trial Experience. Before obtaining required regulatory
approvals for the commercial sale of its proposed products, the Company must
demonstrate through clinical trials that such products are safe and efficacious
for use. The Company is in various stages of testing, but has not yet filed any
IND applications. The initiation and completion of clinical trials is dependent
upon many factors, including FDA acquiescence, the availability of qualified
clinical investigators and access to suitable patient populations. Delays in
initiating and completing clinical trials may result in increased trial costs
and delays in FDA submissions, which could have a material adverse effect on the
Company. To date, the Company has very limited experience in conducting clinical
trials. The Company will either need to rely on third parties to design and
conduct any required clinical trials or expend resources to hire additional
personnel to administer such clinical trials. There can be no assurance that the
Company will be able to find appropriate third parties to design and conduct
clinical trials or that it will have the resources to hire personnel to
administer clinical trials in-house.
A number of companies in the biotechnology and pharmaceutical
industries have suffered significant setbacks in clinical trials, even after
showing promising results in earlier studies or trials. There can be no
assurance that the Company will not encounter problems in its clinical trials
that will cause the Company to delay or suspend its clinical trials, that the
clinical trials of its proposed products will be completed at all, that such
testing will ultimately demonstrate the safety or efficacy of such proposed
products or that any proposed products will receive regulatory approval on a
timely basis, if at all. If any such problems occur, there would be a material
adverse effect on the Company. See "Government Regulation" in this Item 1.
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Limited Marketing, Distribution or Sales Capability and Experience. The
Company has limited experience in marketing pharmaceutical products, including
distribution and selling of pharmaceutical products, and will have to develop a
sales force and/or rely on collaborators or licensees or on arrangements with
others to provide for the marketing, distribution, and sales of its proposed
products. There can be no assurance that the Company will be able to establish
marketing, distribution and sales capabilities or make arrangements with third
parties to perform such activities on acceptable terms, which may result in the
lack of control by the Company over the marketing, distribution and sales of its
proposed products. In addition, there can be no assurance that the Company or
any third party will be successful in marketing, distributing or selling any
products. Furthermore, the Company will compete with many other companies that
currently have extensive and well-funded marketing, distribution and sales
operations. See "Manufacturing and Marketing" in this Item 1.
Competition. The biopharmaceutical and radiopharmaceutical industries
are highly competitive. In the biopharmaceutical industry, there are a number of
companies developing peptide-based drugs, including companies exploring a number
of different approaches to making conformationally-constrained short peptides
for use as therapeutic drugs. In the radiopharmaceutical industry, there are
several companies devoted to development and commercialization of monoclonal
antibody-based products and peptide-based products. The Company is likely to
encounter significant competition with respect to its proposed products
currently under development. Many of the Company's competitors which are engaged
in the biopharmaceutical field, and in particular the development of
peptide-based products, have substantially greater financial and technological
resources and marketing capabilities than the Company, and have significantly
greater experience in research and development. Many of the Company's
competitors which are engaged in the radiopharmaceutical field, and in
particular the development of antibody- and peptide-based products, have greater
financial and technological resources and marketing capabilities than the
Company, and have significantly greater experience in research and development.
Accordingly, the Company's competitors may succeed in developing products and
underlying technologies more rapidly than the Company, and in developing
products that are more effective and useful and are less costly than any that
may be developed by the Company, and may also be more successful than the
Company in manufacturing and marketing such products. Academic institutions,
hospitals, governmental agencies and other public and private research
organizations are also conducting research and seeking patent protection and may
develop competing products or technologies on their own or through collaborative
arrangements.
The Company is aware of at least one company developing an
antibody-based product which may compete with LeuTech as to certain indications,
which product is marketed in certain European countries and for which regulatory
approval is pending in the United States. The Company is also aware of another
company developing a peptide-based product which may also compete with LeuTech
as to certain indications. The Company is aware of a number of companies
developing technologies relating to the use of peptides as drugs, including a
variety of different approaches to making conformationally-constrained short
peptides. See "Competition" in this Item 1.
The Company is pursuing areas of product development in which there is
the potential for extensive technological innovation in relatively short periods
of time. Rapid technological change or developments by others may result in the
Company's proposed products becoming obsolete or non-competitive.
Dependence on Third-Party Reimbursement. Successful sales of the
Company's proposed products in the United States and other countries will depend
on the availability of adequate reimbursement from third-party payors such as
governmental entities, managed care organizations and private insurance
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plans. Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that use of a product is safe and
efficacious, neither experimental nor investigational, medically necessary,
appropriate for the specific patient and cost effective. Since reimbursement
approval is required from each payor individually, seeking such approvals is a
time-consuming and costly process. Third-party payors routinely limit
reimbursement coverage and in many instances are exerting significant pressure
on medical suppliers to lower their prices. There is significant uncertainty
concerning third-party reimbursement for the use of any pharmaceutical product
incorporating new technology, and there is no assurance that third-party
reimbursement will be available for the Company's proposed products, or that
such reimbursement, if obtained, will be adequate. Less than full reimbursement
by governmental and other third-party payors for the Company's products would
adversely affect the market acceptance of these products and would also have a
material adverse effect on the Company. Further, health care reimbursement
systems vary from country to country, and there can be no assurance that
third-party reimbursement will be made available for the Company's proposed
products under any other reimbursement system. See "Manufacturing and Marketing"
in this Item 1.
Health Care Reform. The health care industry is undergoing fundamental
change in the United States as a result of economic, political and regulatory
influences. There exists a powerful trend toward managed care that is motivated
by a desire to reduce costs and prices of health care. The Company anticipates
that the health care industry, particularly insurance companies and other
third-party payors, will continue to promote cost containment measures and
alternative health care delivery systems, and political debate of these issues
will most likely continue. The Company cannot predict which specific reforms
will be proposed or adopted by industry or government or the precise effect that
such proposals or adoption may have on the Company. There can be no assurance
that health care reform initiatives will not have a material adverse effect on
the Company.
Conducting Business Abroad. To the extent the Company conducts business
outside the United States, it may do so through licenses, joint ventures or
other contractual arrangements for the development, manufacturing and marketing
of its proposed products. No assurance can be given that the Company will be
able to establish suitable arrangements, that the necessary foreign regulatory
approvals for its proposed product will be obtained, that foreign patent
coverage will be available or that the development and marketing of its proposed
products through such licenses, joint ventures or other contractual arrangements
will be successful. The Company might also have greater difficulty obtaining
proprietary protection for its proposed products and technologies outside the
United States and enforcing its rights in foreign courts. Furthermore,
international operations and sales may be limited or disrupted by the imposition
of governmental controls regulation of medical products, export license
requirements, political instability, trade restrictions, changes in tariffs,
exchange rate fluctuations and difficulties in managing international
operations.
Risk of Liability; Adequacy of Insurance Coverage; Risk of Product
Recall. The Company's business may be affected by potential product liability
risks which are inherent in the testing, manufacturing and marketing of proposed
pharmaceutical products to be developed by the Company. There can be no
assurance that product liability claims will not be asserted against the
Company, its collaborators or licensees. The use of proposed products developed
by the Company in clinical trials and the subsequent sale of such proposed
products is likely to cause the Company to bear all or a portion of those risks.
Such litigation claims could have a material adverse effect on the Company. The
Company has liability insurance providing up to $1,000,000 coverage per
occurrence and in the aggregate as to certain clinical trial risks, and will
seek to obtain additional product liability insurance before the
commercialization of its products.
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There can be no assurance, however, that insurance will be available to the
Company on acceptable terms, if at all, or that such coverage once obtained
would be adequate to protect the Company against future claims or that a medical
malpractice or other claim would not materially and adversely affect the
Company. Furthermore, there can be no assurance that any collaborators or
licensees of the Company will agree to indemnify the Company, be sufficiently
insured or have a net worth sufficient to satisfy any such product liability
claims. In addition, products such as those proposed to be sold by the Company
may be subject to recall for unforeseen reasons. Such a recall could have a
material adverse effect on the Company. See "Government Regulation" and "Product
Liability and Insurance" in this Item 1.
Dependence on Key Management and Qualified Personnel; Limited
Personnel; Dependence on Contractors. The Company is highly dependent upon the
efforts of its management. The loss of the services of one or more members of
management could impede the achievement of development objectives. Due to the
specialized scientific nature of the Company's business, the Company is also
highly dependent upon its ability to attract and retain qualified scientific and
technical personnel. There is intense competition for qualified personnel in the
areas of the Company's activities and there can be no assurance that the Company
can presently, or will be able to continue to, attract and retain the qualified
personnel necessary for the development of its existing business and its
expansion into areas and activities requiring additional expertise. In addition,
the Company's intended or possible growth and expansion into areas requiring
additional skill and expertise, such as marketing, including sales and
distribution, will require the addition of new management personnel and the
development of additional expertise by existing management personnel. The loss
of, or failure to recruit, scientific, technical and marketing and managerial
personnel could have a material adverse effect on the Company.
The Company relies, in substantial part, and for the foreseeable
future will rely, on certain independent organizations, advisors and consultants
to provide certain services, including substantially all aspects of
manufacturing, regulatory approval and clinical management. There can be no
assurance that the services of independent organizations, advisors and
consultants will continue to be available to the Company on a timely basis when
needed, or that the Company could find qualified replacements. The Company's
advisors and consultants generally sign agreements that provide for
confidentiality of the Company's proprietary information. However, there can be
no assurance that the Company will be able to maintain the confidentiality of
the Company's technology, the dissemination of which could have a material
adverse effect on the Company.
Hazardous Materials; Compliance with Environmental Regulations. The
Company's research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by federal, state and local regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result and any such liability could exceed the
resources of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity. In
addition, there can be no assurance that current or future environmental laws,
rules, regulations or policies will not have a material adverse effect on the
Company.
Certain Interlocking Relationships; Potential Conflicts of Interest.
Certain of the directors of the Company are officers or directors of Paramount
Capital, Inc. ("Paramount Capital") or of Paramount Capital Investments, LLC
("Paramount Capital Investments"). Paramount Capital Investments is a merchant
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bank and venture capital firm specializing in biotechnology and
biopharmaceutical companies. In the regular course of its business, Paramount
Capital Investments identifies, evaluates and pursues investment opportunities
in biomedical and pharmaceutical products, technologies and companies.
Generally, Delaware corporate law requires that any transactions between the
Company and any of its affiliates be on terms that, when taken as a whole, are
substantially as favorable to the Company as those then reasonably obtainable
from a person who is not an affiliate in an arms-length transaction.
Nevertheless, neither Paramount Capital Investments nor any other person is
obligated pursuant to any agreement or understanding with the Company to make
any additional products or technologies available to the Company, and there can
be no assurance, and purchasers of the Common Stock should not expect, that any
biomedical or pharmaceutical product or technology identified by Paramount
Capital Investments or any other person in the future will be made available to
the Company. In addition, certain of the officers, directors, consultants and
advisors to the Company may from time to time serve as officers, directors,
consultants or advisors to other biopharmaceutical or biotechnology companies.
There can be no assurance that such other companies will not in the future have
interests in conflict with those of the Company. See Item 11 and Item 12.
Risk of Loss in Lawsuit. The Company and one of its subsidiaries,
Interfilm Technologies, Inc. (collectively, "IT"), are the plaintiffs in a
lawsuit against Sony Corporation of America and certain of its affiliates and
subsidiaries (collectively, "Sony") for breach of contract and breach of duty of
good faith and fair dealing (the "IT Litigation"). In November 1996, Sony
asserted two counterclaims in the IT Litigation. The complaint and counterclaims
relate solely to the business activities of the Company prior to the Merger. The
IT Litigation is under the control of and at the expense of an unaffiliated
limited liability partnership (the "Partnership"), and is solely for the benefit
of the Company's pre-Merger stockholders as of June 21, 1996. Based upon the
opinion of the Company's counsel of record in the IT Litigation, the Company
believes that the counterclaims are without merit. However, the Company may be
liable in the event that a judgment is rendered against the Company on the
counterclaims, and the assets of the Partnership may not be sufficient to
provide full indemnification. See Item 3.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located at 214 Carnegie Center,
Suite 100, Princeton, New Jersey, where it leases approximately 4,000 square
feet under a lease which expires July 31, 2002. In March 1997, the Company
entered into a ten-year lease on approximately 10,500 square feet for use as a
research and development facility in Edison, New Jersey, with a lease term
commencing August 1, 1997. The Company had leased approximately 14,000 square
feet in Albuquerque, New Mexico, which served as the Company's research and
development facility; in August 1997 the Albuquerque facility was closed and
research and development activities were relocated to the Edison facility. The
properties the Company leases are in good condition.
ITEM 3. LEGAL PROCEEDINGS.
In April 1996, prior to the Merger, IT filed a complaint initiating the
IT Litigation in the Supreme Court of the State of New York, County of New York,
against Sony for breach of contract and breach of duty of good faith and fair
dealing, seeking contract damages of $18 million, punitive damages of $100
million and costs. The IT Litigation relates solely to the business activities
of the Company prior to the Merger and, pursuant to the Merger, was included in
certain assets and liabilities of the Company
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transferred to the Partnership solely for the benefit of the Company's
stockholders as of June 21, 1996. Accordingly, the litigation is under the
control of and at the expense of the Partnership, and the Company will receive
no financial benefit from the litigation, even if the litigation is successfully
concluded. The assets of the Partnership, including any proceeds from the IT
Litigation, whether by judgment, settlement or otherwise, are available to
indemnify the Company from certain liabilities arising out of the Merger.
The causes of action in the IT Litigation relate to the actions or
inactions of Sony under certain agreements entered into between IT and Sony in
April 1993, and as amended in November 1993 and October 1994 (collectively, the
"Sony-IT Agreement"). Pursuant to the original terms of the Sony-IT Agreement,
Sony was obligated, among other things, to develop, produce, market, distribute
and exhibit three Cinematic Games. Subsequently, at Sony's request, the Sony-IT
Agreement was amended so that Sony's commitment to produce Cinematic Games was
reduced to two Cinematic Games in exchange for, among other things, an increased
financial marketing commitment by Sony. The first Sony-financed Cinematic Game
was initially slated for release in the first half of 1994, which release was
delayed until February 1995. Among other things, IT alleges that the delay in
the opening of the first Cinematic Game, which delay IT alleges was primarily a
result of Sony's failure to abide by the terms of the Sony-IT Agreement,
seriously harmed IT. Under the terms of the amended Sony-IT Agreement, Sony was
obligated to begin principal photography of the next Sony-financed Cinematic
Game by May 15, 1995.
In November 1996, Sony asserted two counterclaims in the IT Litigation,
generally alleging that the Company's pre-Merger executives misrepresented their
qualifications and breached the Sony-IT Agreement by not recruiting sufficient
exhibitors. The counterclaims relate solely to the business activities of the
Company prior to the Merger. A denial of the material allegations in the
counterclaims has been filed on behalf of the Company in the IT Litigation. The
IT Litigation has been placed on a trial calendar, but no trial date has been
set. The Partnership is obligated to indemnify the Company from certain claims,
including all liabilities and reasonable expenses and costs that the Company may
incur as a result of the IT Litigation, and the Company is closely monitoring
the IT Litigation. The Company has incurred no out-of-pocket expenses in
connection with the IT Litigation. The Company believes that the Partnership's
assets consist primarily of the IT Litigation, certain intellectual property
assets and cash assets of approximately $75,000, with liabilities (primarily
contingent on a recovery in the IT Litigation) totaling approximately $731,500.
Based upon the opinion of the Company's counsel of record in the IT Litigation,
the Company believes that the counterclaims are without merit. However, the
Company may be liable in the event that a judgment is rendered against the
Company on the counterclaims, and the assets of the Partnership may not be
sufficient to provide full indemnification.
The Company is involved in various other claims and litigations arising
in the normal course of business, consisting of actions commenced against the
Company prior to the Merger. Management believes that the outcome of such claims
and litigation will not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1997. However, on August 21,
1997, and as adjourned to August 25, 1997, at a special meeting of stockholders,
the following matters were adopted by the stockholders: (i) the Company's 1996
Stock Option Plan, (ii) an amendment to the Company's Certificate of
Incorporation increasing the authorized shares of capital stock from 27,000,000
to 85,000,000 shares, of which 75,000,000 are Common
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Stock and 10,000,000 are preferred stock, and (iii) amendments to the
Certificate of Incorporation authorizing a reverse stock split, which reverse
split was subsequently set by the Board of Directors of the Company at 1-for-4
(the "Reverse Split"). With respect to approval of the 1996 Stock Option Plan,
there were 13,590,324 affirmative votes, 261,058 negative votes, 195,507
abstentions and 4,796,856 broker non-votes. The following table sets forth the
total votes cast with respect to matters (ii) and (iii) above, as to each of
which there was class voting, with two classes entitled to vote, Common Stock
and Series A Convertible Preferred Stock. The Series A Convertible Preferred
Stock vote is shown as if converted into Common Stock.
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE PREFERRED STOCK COMMON STOCK
------------------------------------------------ ---------------------------------------------------
Nega- Broker Nega- Broker
Affirmative tive Absten- Non- Affirmative tive Absten- Non-
Issue Votes Votes tions Votes Votes Votes tions Votes
- ----------------------- ----------- --------- --------- ------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(ii) Increase
authorized shares
of capital stock 7,300,365 120,967 120,966 0 6,150,679 122,648 26,125 5,001,995
(iii) Authorize
reverse stock split 7,421,332 20,161 100,805 0 10,950,353 114,965 30,990 205,139
</TABLE>
The Second Charter Amendment effecting the increase in authorized
shares and Reverse Split was filed on September 5, 1997. Unless the context
otherwise requires, all references to the Company's activities, results of
operations and financial condition have been adjusted to give retroactive effect
to the Second Charter Amendment.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock has been quoted on the OTC Bulletin Board(R) (the
"Bulletin Board") since October 1, 1995. Currently, the Common Stock trades
under the symbol "PLTND;" prior to the Reverse Split the Common Stock traded
under the symbol "PLTN." Before July 22, 1996, the Common Stock traded under the
symbol "IFLM." The Common Stock began trading publicly on the Nasdaq National
Market(R) ("NMS") on October 28, 1993 under the symbol "IFLM." Before October
28, 1993, there was no public market for the Common Stock. On September 30,
1995, the Common Stock was delisted from the NMS for failure to maintain certain
net tangible assets requirements. The Company has applied to have the Common
Stock quoted on the Nasdaq SmallCap Market(sm). There can be no assurance that
the Company will be able to meet the listing requirements of the Nasdaq SmallCap
Market, or if listed, maintain the criteria for continued listing on the Nasdaq
SmallCap Market.
The following table gives the range of high and low bid information on
the Bulletin Board for the Common Stock for each quarter since the Merger, as
obtained from The Nasdaq Stock Market, Inc. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.
Page 27
<PAGE>
PERIOD HIGH BID PRICE LOW BID PRICE
- ------------------------------------- -------------- -------------
June 26 - June 30, 1996 (1) $ 20 $ 16
July 1 - September 30, 1996 (1) 55 7
October 1 - December 31, 1996 (1) 11 1/4 5 3/8
January 1 - March 31, 1997 (1) 9 1/4 6 3/8
April 1 - June 30, 1997 (1) 7 5
July 1, 1997 - September 23, 1997 (1) 5 4/5 8
- ------------------------
(1) The prices in the table have been adjusted to give retroactive effect
to the 1-for-10 reverse split of the outstanding Common Stock which
became effective on July 19, 1996 and the Reverse Split of the
outstanding Common Stock which became effective on September 5, 1997.
While the Merger was effective June 26, 1996, no RhoMed equity
securities were exchanged for Common Stock until July 19, 1996, and
accordingly prices on and prior to July 19, 1996 may not accurately
reflect the effects of the Merger.
Holders. On September 23, 1997, the approximate number of holders of
record of Common Stock was 189.
Dividend Policy. The Company has never declared or paid any cash
dividends on the Common Stock. The Company currently intends to retain earnings,
if any, for use in its business and therefore does not anticipate paying cash
dividends in the foreseeable future. Payment of future dividends, if any, will
be at the discretion of the Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. The Company may not pay a
dividend or make any distribution to holders of any capital stock of the
Company, including Common Stock, unless and until the Company first pays a
special dividend or distribution of $100 per share to the holders of Series A
Convertible Preferred Stock, and unless holders of two-thirds of the Series A
Convertible Preferred Stock approve the dividend.
Recent Sales of Unregistered Securities. During the period covered by
this Report, except as previously included on a quarterly report on Form 10-QSB,
the Company sold the following securities without registering the securities
under the Securities Act of 1933, as amended (the "Securities Act"), all in
non-underwritten transactions:
(i) Series A Convertible Preferred Stock. The Company sold restricted
shares of Series A Convertible Preferred Stock to a total of 211 accredited
investors in a private placement for which Paramount Capital served as placement
agent (the "Series A Offering") and claimed exemption under Section 4(2) of the
Securities Act and Regulation D promulgated thereunder. The Company offered and
sold the securities solely to accredited investors (as defined in Regulation D)
and made no general solicitation. The certificates representing Series A
Convertible Preferred Stock bear a restrictive legend. Each purchaser
represented to the Company that the purchaser was purchasing the Series A
Convertible Preferred Stock for the purchaser's own account for investment and
not with a view toward resale or distribution to others.
Page 28
<PAGE>
<TABLE>
<CAPTION>
Number Offering Cash
Date of sale of shares price commissions(1)
- ----------------------------- ---------------- -------------------- ------------------------
<S> <C> <C> <C>
February 21, 1997 30,630 $3,063,000 $398,190
April 3, 1997 76,225 $7,622,500 $990,925
May 9, 1997 30,925 $3,092,500 $402,025
--------- ------------ -----------
TOTALS: 137,780 $13,778,000 $1,791,140
</TABLE>
-------------------------------------
(1) Includes commission of 9% and a non-accountable expense
allowance of 4%. Does not include the Preferred Stock
Placement Warrant, described below.
Each share of Series A Convertible Preferred Stock is convertible, at
the option of the holder thereof, into approximately 20.2 shares of Common
Stock, calculated by dividing the stated value of each share of Series A
Convertible Preferred Stock ($100.00) by the conversion price of $4.96. The
Series A Convertible Preferred Stock has a reset mechanism which provides that
the conversion price is subject to adjustment on May 9, 1998 (the "Reset Date"),
if the average closing bid price of the Common Stock for the thirty (30)
consecutive trading days immediately preceding the Reset Date (the "Reset
Trading Price") is less than 130% of the then applicable conversion price (a
"Reset Event"). Upon the occurrence of a Reset Event, the then applicable
conversion price will be reduced to the greater of (i) the Reset Trading Price
divided by 1.3 and (ii) 50% of the then applicable conversion price. The
conversion price is also subject to adjustment, under certain circumstances,
upon the sale or issuance of Common Stock for consideration per share less than
either (i) the conversion price in effect on the date of sale or issuance, or
(ii) the market price of the Common Stock as of the date of the sale or
issuance. Upon the occurrence of a merger, reorganization, consolidation,
reclassification, stock dividend or stock split which will result in an increase
or decrease in the number of shares of Common Stock outstanding the conversion
price is subject to adjustment. The Series A Preferred Stock may be mandatorily
converted by the Company if, commencing May 9, 1998, the closing bid price of
the Common Stock has exceeded 200% of the then applicable conversion price for
at least twenty (20) trading days in any thirty (30) consecutive trading day
period ending three (3) days prior to the date of conversion.
(ii) Preferred Stock Placement Warrant. The Company issued a Preferred
Stock Placement Warrant to purchase an aggregate of 13,778 shares of Series A
Convertible Preferred Stock to Paramount Capital and/or its designees, as part
of Paramount Capital's compensation in connection with the Series A Offering
described above, for a nominal cash price of $13.78. The Preferred Stock
Placement Warrant is exercisable for a period of five (5) years commencing in
November 1997, at a price of $110 per share of Series A Convertible Preferred
Stock (110% of the offering price of Series A Convertible Preferred Stock in the
Series A Offering), and includes a cashless exercise provision. The Company
claimed exemption under Section 4(2) of the Securities Act, issued the warrant
to Paramount Capital and/or its designees as compensation and made no general
solicitation. The Preferred Stock Placement Warrant bears a restrictive legend
generally restricting transfer.
(iii) Common Stock issued on exercise of employee stock options. On
April 11, 1997, the Company sold 17,969 restricted shares of Common Stock to
Edward J. Quilty (the Company's Chairman of the Board and Chief Executive
Officer) upon partial exercise of an option granted to Mr. Quilty pursuant to
his employment agreement. The Company claimed exemption under Section 4(2) of
the Securities Act, as a
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<PAGE>
transaction not involving any public offering. The stock subject to the option
is offered only to Mr. Quilty, at approximately $.217 per share. The option is
not transferable during Mr. Quilty's lifetime and the Common Stock issued on
exercise of the option is restricted. The certificates representing the Common
Stock issued on exercise of the option bear restrictive legends. The Company
sold the Common Stock directly to Mr. Quilty with no discount or commission.
(iv) Common Stock issued to pay interest obligation. On April 30, 1997,
the Company sold 63,910 restricted shares of Common Stock to Bioquest Venture
Leasing Partnership L.P., the designee of Aberlyn, a creditor of the Company, as
payment in full of $303,171 of accrued interest which the Company owed Aberlyn
under a financing arrangement. The Company claimed exemption under Section 4(2)
of the Securities Act, for a transaction not involving any public offering. This
was a one-time transaction negotiated at arm's length between the Company and
its largest creditor. The Common Stock issued as payment of interest is
restricted and the certificate representing the Common Stock bears a restrictive
legend. Aberlyn represented to the Company that Aberlyn and its designee were
accredited investors (as defined in Regulation D) and that Aberlyn or its
designee was acquiring the stock for its own account and not with a view to or
for sale in connection with any distribution of the Common Stock in violation of
the Securities Act. The Company sold the Common Stock directly to Aberlyn's
designee with no commission.
Registration Statement. Pursuant to the terms of the Series A Offering,
the Company filed a registration statement with the Securities and Exchange
Commission on Form SB-2 on August 13, 1997, relating to 2,777,822 shares of
Common Stock issuable on conversion of the Series A Convertible Preferred Stock
and 277,782 shares of Common Stock issuable on conversion of the Series A
Convertible Preferred Stock obtainable upon exercise of the Preferred Stock
Placement Warrant. This registration statement also includes 63,910 shares of
Common Stock issued to Bioquest Venture Leasing Partnership L.P. to pay an
interest obligation and approximately 447,026 shares of Common Stock issued or
issuable upon exercise of certain outstanding warrants. See Item 12 and Notes to
Consolidated Financial Statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto filed as part of
this Report.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1997 COMPARED TO THE YEAR ENDED JUNE 30, 1996
Grants and contracts - During the year ended June 30, 1997, the Company
had four active Phase I SBIR Research Grants, totaling $394,970, under the SBIR
program with the NIH. Grant and contract revenue from these grants was $350,173
during the year ended June 30, 1997, compared to no revenue from grants and
contracts during the year ended June 30, 1996.
License fees and royalties - In December 1996, the Company entered into
the Option Agreement with Nihon, pursuant to which the Company received, in
January 1997, an initial payment of $1,000,000 before Japanese withholding taxes
of $100,000 (the "Initial Payment"). The Company has accounted for the Initial
Payment by recognizing license fee revenue of $350,000 and deferred license fee
revenue of
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<PAGE>
$550,000. The deferred license fee revenue will be recognized as revenue when a
license agreement is consummated. In the event that the parties cannot agree on
terms of a license agreement, then the Company could be required to repay
$550,000 of the Initial Payment to Nihon. There were no revenues from license
fees or royalties during the year ended June 30, 1996.
Sales - During the year ended June 30, 1997, the Company discontinued
sales of its RhoChek product due to insufficient sales. Total revenues from
sales during the year ended June 30, 1997, were $22,184, compared to $27,517 for
the year ended June 30, 1996.
Research and development expenses - Research and development expenses
increased to $3,409,983 for the year ended June 30, 1997 from $953,730 for the
year ended June 30, 1996. The increase is attributable to expansion in the scale
of the Company's research and development operations, which expansion followed
completion of an equity offering immediately prior to the Merger. During the
year ended June 30, 1997, the Company increased the manufacturing development
scale-up expenses for LeuTech by approximately $779,000, incurred approximately
$200,000 in increased regulatory consulting related to LeuTech, incurred an
increase in license fees paid of $170,000, incurred laboratory relocation
expenses of $142,000, and had its first full year with two executive vice
presidents with responsibilities for research and development at a salary
expense of approximately $300,000. The Company expects research and development
expenses to continue to increase in future years as the Company expands
manufacturing development efforts and initiates clinical trials on LeuTech and
significantly expands its efforts to develop the MIDAS technology, including the
hiring of scientists and the acquisition of equipment and supplies.
General and administrative expenses - General and administrative
expenses increased to $2,533,883 for the year ended June 30, 1997 from
$1,633,598 for the year ended June 30, 1996. The increase is attributable to a
full year of expenses in the year ended June 30, 1997 related primarily to the
hiring of certain key executives, the leasing of executive offices in New Jersey
and increased travel, legal and consulting expenses. General and administrative
expenses were also affected by amortization, totaling approximately $395,000, of
the value of options and warrants issued to consultants and the value of options
granted at exercise prices below the then current market price of the Company's
Common Stock. In addition, the Company has been actively searching for certain
products and technologies to license or acquire, and incurred costs in
evaluating these products and technologies during the year ended June 30, 1997
amounting to approximately $187,000, which has been included in general and
administrative expenses. General and administrative expenses are expected to
remain consistent with the current levels for the 1998 fiscal year.
Interest income - Interest income increased to $296,009 for the year
ended June 30, 1997 from $10,515 for the year ended June 30, 1996. The interest
income is primarily the result of interest on the net proceeds from the Company
pre-Merger equity offering and the Series A Offering.
Interest expense - Interest expense decreased to $374,664 for the year
ended June 30, 1997 from $494,814 for the year ended June 30, 1996. The decrease
is mainly due to the repayment by the Company of certain pre-Merger notes, the
principal amount of which was $1,000,000, in August and September of 1996.
Interest expense is expected to remain at current levels for the 1998 fiscal
year.
Net loss - Net loss increased to $5,300,164 for the year ended June 30,
1997 from $4,247,664 for the year ended June 30, 1996.
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<PAGE>
TEN MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO TEN MONTH PERIOD ENDED JUNE 30,
1995.
License fees and royalties - License fees and royalties were zero for
the ten months ended June 30, 1996, compared to $64,296 for the prior ten month
period. During the ten months ended June 30, 1996, there were no royalties on
product sales or new license agreements.
Sales - Sales of RhoChek, the sole product sold by the Company,
decreased to $24,457 in the ten months ended June 30, 1996, from $30,546 in the
prior ten month period.
Research and development expenses - Research and development expenses
increased by $391,983 to $869,896 for the ten months ended June 30, 1996 from
$477,913 in the ten months ended June 30, 1995. The majority of the increase is
attributable to development of LeuTech, including increased consulting and
manufacturing scale-up expenses.
General and administrative expenses - General and administrative
expenses increased to $1,366,343 in the ten months ended June 30, 1996 from
$598,560 for the ten months ended June 30, 1995. The majority of the increase is
due to the hiring of a Chairman of the Board and Chief Executive Officer and of
a Chief Financial Officer, the leasing of general and administrative offices in
New Jersey, and increased travel and consulting expenses.
Other expenses - Other expenses increased to $1,142,963 for the ten
months ended June 30, 1996 from $305,615 for the ten months ended June 30, 1995.
The increase is attributable primarily to increased interest expense, commission
and fees paid in connection with the Company's pre-Merger debt offerings of
$168,970 and costs and fees associated with the Merger of $525,000.
Net loss - Net loss increased to $3,897,879 in the ten months ended
June 30, 1996, compared to $1,287,246 in the prior ten month period.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred net operating losses and,
as of June 30, 1997, had an accumulated deficit of $13,433,102. The Company has
financed its net operating losses through June 30, 1997 by a series of debt and
equity financings. At June 30, 1997, the Company had cash and cash equivalents
of $12,806,717.
For the year ended June 30, 1997, the net increase in cash amounted to
$6,015,417. Net cash used for operating activities was $4,126,684, net cash used
for investing activities was $279,705, and net cash provided by financing
activities was $10,421,806.
On December 2, 1996, the Company commenced the Series A Offering at a
price of $100,000 per unit, each unit consisting of 1,000 shares of Series A
Convertible Preferred Stock. The final closing on the Series A Offering was
effective as of May 9, 1997, with the Company having sold an aggregate total of
137.78 units, representing 137,780 shares of Series A Convertible Preferred
Stock, for net proceeds to the Company of approximately $11,637,000, after
deducting commission and other expenses of the Series A Offering.
Pursuant to the Option Agreement, Nihon can maintain its option to
license certain products based on the MIDAS technology provided Nihon makes
certain milestone payments based on progress in product development. Nihon may
exercise its right to negotiate a license agreement at any time upon notice and
payment of additional monies to the Company. In the event that the parties
cannot agree on terms of a license agreement, then the Company could be required
to repay $550,000 to Nihon. There can be no
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<PAGE>
assurance that the Company and Nihon will ever enter into a definitive license
agreement, that additional payments provided for in the Option Agreement will be
made, or that the strategic alliance between the Company and Nihon will result
in the development or commercialization of any product.
Pursuant to certain license agreements relating to LeuTech, the Company
is obligated to make minimum payments of $100,000 per year in the fiscal years
ending June 30, 1998 and 1999, and $125,000 in the fiscal year ending June 30,
2000.
Pursuant to the terms of certain notes payable to stockholders, the
principal of which aggregates $80,000, repayment of principal and interest is
required in the second quarter of the fiscal year ending June 30, 1998.
Commencing June 1997, the Company's monthly payments on long-term
financing provided by Aberlyn increased to $91,695, representing payment of
current interest and principal. The final monthly payment is scheduled to be
made in May 1999.
In March 1997, the Company entered into a ten-year lease on research
and development facilities in Edison, New Jersey, with the lease term commencing
August 1, 1997. Minimum future lease payments escalate from approximately
$116,000 per year to $200,000 per year after the fifth year of the lease term.
The lease will expire in fiscal year 2007. The Company anticipates that the cost
of tenant improvements, net of the landlord's contribution, and acquisition of
laboratory equipment will amount to approximately $1,600,000.
Effective August 1, 1997, the Company entered into a five-year lease on
administrative offices in Princeton, New Jersey. Minimum future lease payments
are approximately $97,000 per year.
The Company believes that it has sufficient cash and cash equivalents
to fund the Company's projected debt obligations and fund projected operations
for fiscal year 1998.
The Company expects to continue actively searching for certain products
and technologies to license or acquire in the future. If the Company is
successful in identifying a product or technology for acquisition, substantial
funds may be required for such acquisition and subsequent development or
commercialization. To date, the Company has not completed an acquisition and
there can be no assurance that any acquisition will be consummated in the
future.
The Company anticipates incurring additional losses over at least the
next several years, and such losses are expected to increase as the Company
expands its research and development activities relating to its MIDAS technology
and its direct radiolabeling technology. To achieve profitability, the Company,
alone or with others, must successfully develop its technologies and proposed
products, conduct pre-clinical studies and clinical trials, obtain required
regulatory approvals and successfully manufacture and market such technologies
and proposed products. The time required to reach profitability is highly
uncertain, and there can be no assurance that the Company will be able to
achieve profitability on a sustained basis, if at all.
ITEM 7. FINANCIAL STATEMENTS.
The Company's consolidated financial statements appear following Item
13 of this Report.
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<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
As of July 9, 1996, in connection with the Merger, Deloitte & Touche
LLP, the Company's independent accountant which was engaged as the principal
accountant to audit the Company's financial statements, was dismissed. The
Company, after consultation with Arthur Andersen LLP, engaged Arthur Andersen
LLP as of July 9, 1996 as the principal accountant to audit the Company's
financial statements. Arthur Andersen LLP served as RhoMed's independent
accountant prior to the Merger.
RhoMed, prior to the Merger, consulted Arthur Andersen LLP regarding
the application of accounting principles to the proposed Merger. The primary
issue that was the subject of such consultations was the characterization of the
proposed Merger for accounting purposes. RhoMed was orally advised by Arthur
Andersen LLP that the Merger would be treated as a recapitalization of RhoMed
with RhoMed as the acquirer (reverse acquisition), and that the proposed Merger
would not constitute a business combination. The Company's former accountant,
Deloitte & Touche LLP, was not consulted by the Company regarding such issue.
The Company's decision to change accountants was recommended and
approved by the Company's Board of Directors subsequent to the Merger based upon
the Company's need for one independent accountant to be responsible for the
financial statements of the Company following the Merger. During Interfilm's
fiscal years ended December 31, 1995 and 1994, there were no disagreements
between the Company and Deloitte & Touche LLP, the Company's former independent
accountant, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. Further, during
Interfilm's fiscal years ended December 31, 1995 and 1994, respectively,
Deloitte & Touche LLP's opinion with respect to the Company's financial
statements was qualified as to the Company's ability to continue as a going
concern.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name and positions of the executive officers
and directors of the Company:
Name Age Position with the Company
- ----------------------- ----- ----------------------------------------
Edward J. Quilty (1) 46 Chairman of the Board, President, Chief
Executive Officer and Director
Carl Spana, Ph.D. 35 Executive Vice President, Chief Technology
Officer and Director
Charles Putnam 45 Executive Vice President
John J. McDonough 33 Vice President and Chief Financial Officer
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<PAGE>
Name Age Position with the Company
- ----------------------- ----- ---------------------------------
Michael S. Weiss (2) 31 Director
James T. O'Brien (2) 58 Director
John K.A. Prendergast, Ph.D. (1) 43 Director
- ------------------------------------
(1) Member of the Compensation Committee. Mr. Quilty, as President of the
Company, is a member ex officio of the Compensation Committee.
(2) Member of the Audit Committee.
EDWARD J. QUILTY has been Chairman of the Board, President, Chief Executive
Officer and a director of the Company since June 25, 1996, the effective date of
the Merger, and has been Chief Executive Officer and a director of RhoMed since
November 1995. From July 1994 through November 1995, Mr. Quilty was President,
Chief Executive Officer and a director of MedChem Products, Inc. ("MedChem"), a
publicly traded medical device company, which in September 1995 was merged into
C.R. Bard, Inc. From March 1992 through July 1994, Mr. Quilty served as
President and Chief Executive Officer of Life Medical Sciences, Inc. ("Life
Medical"), a publicly traded biotechnology company. From January 1987 through
October 1991, Mr. Quilty served as Executive Vice President of McGaw Inc., a
publicly traded pharmaceutical company. Mr. Quilty is also Chairman of the Board
and a director of Derma Sciences, Inc., a publicly traded medical device
company. Mr. Quilty received his M.B.A. from Ohio University, and a B.S. from
Southwest Missouri State University.
CARL SPANA, Ph.D., has been a director of the Company since June 25, 1996,
the effective date of the Merger, and has been a director of RhoMed since July
1995. Since June 1996, Dr. Spana has served as Executive Vice President and
Chief Technology Officer of the Company and RhoMed. From June 1993 to June 1996,
Dr. Spana was Vice President of Paramount Capital Investments, a biotechnology
and biopharmaceutical merchant banking firm, and of The Castle Group Ltd.
("Castle Group"), a medical venture capital firm. At Paramount Capital
Investments and at Castle Group, Dr. Spana was responsible for discovering,
evaluating, and commercializing biotechnologies. Through his work at Paramount
Capital Investments and Castle Group, Dr. Spana co-founded and acquired several
private biotechnology firms. From July 1991 to June 1993, Dr. Spana was a
Research Associate at Bristol-Myers Squibb, a publicly traded pharmaceutical
company, where he was involved in scientific research in the field of
immunology. Dr. Spana is a director of and was Interim President of AVAX
Technologies, Inc. ("AVAX"), a publicly traded medical technology company. Dr.
Spana received his Ph.D. in Molecular Biology from The Johns Hopkins University
and a B.S. in Biochemistry from Rutgers University.
CHARLES PUTNAM has been Executive Vice President of the Company since June
25, 1996, the effective date of the Merger, and is responsible for operations,
product development and regulatory and clinical affairs. From July 1994 to May
1996, Mr. Putnam was Executive Vice President, Research and Development, of
MedChem. At MedChem, Mr. Putnam was responsible for product development,
regulatory affairs, clinical research and quality control. From March 1993 to
July 1994, Mr. Putnam was Vice President of Operations and Research and
Development of Life Medical, where he was responsible
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<PAGE>
for all aspects of manufacturing, product development and regulatory affairs for
the company's commercial product line. From March 1983 to March 1993, Mr. Putnam
was employed by American Cyanamid Corporation in a variety of positions,
including Director of Device Development.
JOHN J. McDONOUGH has been Vice President and Chief Financial Officer of
the Company since June 25, 1996, the effective date of the Merger, and has been
Vice President and Chief Financial Officer of RhoMed since December, 1995. From
January 1992 through December 1995, Mr. McDonough was employed by MedChem in
various positions, his final position being Vice President and Chief Financial
Officer. Previously, Mr. McDonough was a manager with KPMG Peat Marwick. Mr.
McDonough received his B.S. in Accountancy from Bentley College and is a
candidate for an M.B.A. from Harvard Business School due to graduate in June
1998.
MICHAEL S. WEISS has been a director of the Company since June 25, 1996,
the effective date of the Merger, and has been a director of RhoMed since July
1995. Since November 1993, Mr. Weiss has been Associate General Counsel and then
General Counsel of Paramount Capital Investments and Senior Managing Director of
Paramount Capital. Prior to that Mr. Weiss was an attorney with Cravath, Swaine
& Moore. Mr. Weiss also serves on the Board of Directors of Pacific
Pharmaceuticals, Inc., AVAX, as Secretary of Atlantic Pharmaceuticals, Inc.
("Atlantic Pharmaceuticals"), and as Vice Chairman of the Board and on the Board
of Directors of Genta Incorporated and as Chairman of the Board and on the Board
of Directors of Procept Inc., all publicly traded medical technology companies.
Additionally, Mr. Weiss is a member of the board of directors of several
privately held biopharmaceutical companies. Mr. Weiss received his J.D. from
Columbia University School of Law and a B.S. in Finance from The State
University of New York at Albany.
JAMES T. O'BRIEN has been a director of the Company since August 1, 1996.
Since November 1991, Mr. O'Brien has been Chairman of the Board of Access
Corporation, a provider of employment software and information. Since July 1996,
Mr. O'Brien has been President and Chief Executive Officer of O'Brien Marketing
and Communications, an advertising and communications company. From 1989 to 1991
Mr. O'Brien was President and Chief Operating Officer of Elan Corporation, PLC,
a publicly traded pharmaceutical company. From 1986 to 1989, Mr. O'Brien was
President and Chief Executive Officer of O'Brien Pharmaceuticals, Inc. Prior to
this, Mr. O'Brien held various management positions with Revlon Health Care
Group, including President of USV Laboratories and the Armour Pharmaceutical
Company; Lederle Laboratories; and Sandoz Pharmaceuticals, Inc. Mr. O'Brien is a
director of Carrington Laboratories, Inc., a publicly traded pharmaceutical and
medical devices company, and Theratech, Inc., a publicly traded pharmaceutical
and drug delivery company.
JOHN K.A. PRENDERGAST, Ph.D. has been a director of the Company since
August 28, 1996. Dr. Prendergast has served as a Managing Director of Paramount
Capital Investments and as a Managing Director of Castle Group since October
1991. Dr. Prendergast is a co-founder and director of Avigen, Inc. ("Avigen"), a
medical technology company, and, from December 1992 to March 1996, served as a
Vice President and the Treasurer of Avigen, Inc. Dr. Prendergast is a co-founder
and director of Xenometrix, Inc., AVAX, and Atlantic Pharmaceuticals, all
publicly traded medical technology companies. Dr. Prendergast received M.Sc. and
Ph.D. degrees from the University of New South Wales, Sydney, Australia and a
C.S.S. in Administration and Management from Harvard University.
There are no family relationships between directors or executive
officers.
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<PAGE>
All directors hold office until the next annual meeting of stockholders
of the Company and until their successors have been elected and qualified.
Officers serve at the discretion of the Board of Directors.
Certain of the officers and directors of the Company currently do, and
may from time to time in the future, serve as officers or directors of other
biopharmaceutical or biotechnical companies. There can be no assurance that such
other companies will not in the future have interests in conflict with those of
the Company. See "Important Factors Regarding Forward-Looking Statements --
Certain Interlocking Relationships; Potential Conflicts of Interest" in Item 1.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Edward J. Quilty failed to timely report a transaction on Form 4 for
the month of April 1997 and John K.A. Prendergast failed to timely report his
initial ownership on Form 3 for the month of August 1996. Mr. Quilty and Mr.
Prendergast each subsequently reported the required information on Forms 5 for
the fiscal year ended June 30, 1997. The Aries Trust failed to timely report its
initial ownership on Form 3 for the month of July 1996, but subsequently
reported the required information on a Form 5 for the fiscal year ended June 30,
1997. The Company knows of no other failure to file a required form.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth compensation paid to the Company's Chief
Executive Officer and the other named executive officers for the last three
fiscal years. See note (1) to the following table, concerning the change in
fiscal year end. With respect to the persons and periods covered in the
following table, the Company made no restricted stock awards and had no
long-term incentive plan payouts.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------------------------- ------------------------------------
Awards
Other -------------------
Annual Securities All other
Compen- Underlying Compen-
Name and Salary Bonus sation Options/ sation
Principal Position Year(1) ($) ($) ($) SARs (#)(2) ($)
- ------------------ ------- ------ ----- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Quilty, 1997 $301,064 -- -- 240,074(4) --
Chief Executive 1996 $184,794 -- -- 178,073 --
Officer(3) 1995 N/A N/A N/A N/A --
Carl Spana, Ph.D., 1997 $150,000 -- -- 41,766 --
Executive Vice 1996 $3,462 -- -- 74,196 $25,000(6)
President(5) 1995 N/A N/A N/A N/A N/A
Charles L. Putnam, 1997 $150,000 -- -- 41,766 --
Executive Vice 1996 $9,539 -- -- 74,196 --
President(7) 1995 N/A N/A N/A N/A N/A
</TABLE>
- --------------------------------
(1) The Company's fiscal year ends on June 30. Due to a change in the
Company's fiscal year end, unless otherwise specified herein fiscal
year 1996 covers the ten-month transition period from September 1, 1995
to June 30, 1996. Fiscal year 1995 ended August 31, 1995 (RhoMed's
former fiscal year end). All references to compensation before June 25,
1996 (the Merger date) relate to compensation paid or issued by RhoMed.
(2) The security underlying all options is Common Stock. All amounts of
Common Stock in the table have been adjusted to reflect the Reverse
Split.
(3) Mr. Quilty became an employee and Chief Executive Officer of RhoMed on
November 16, 1995 and became Chief Executive Officer of the Company on
June 25, 1996.
(4) Includes an anti-dilution option to purchase 70,257 shares of Common
Stock at $.20 per share granted on September 27, 1996, pursuant to the
terms of Mr. Quilty's employment agreement with the Company. See
"Employment Agreements" below. The September 27, 1996 option replaced a
canceled option to purchase the same number of shares at $5.42 per
share, originally granted by RhoMed on June 21, 1996 and included in
the 1996 total. The $5.42 per share price of the June
Page 38
<PAGE>
21, 1996 option was not in accordance with the terms of Mr. Quilty's
employment agreement, so the Board of Directors replaced the June 21,
1996 option with the correctly priced September 27, 1996 option.
Excluding that replacement option, the options granted during fiscal
1997 were to purchase a total of 169,817 shares.
(5) Dr. Spana became an employee of RhoMed on June 15, 1996 and an
Executive Vice President of the Company on June 25, 1996. Before
becoming an officer of the Company, he was a consultant to RhoMed.
(6) Consists of consulting fees paid by RhoMed.
(7) Mr. Putnam became an employee of RhoMed on June 3, 1996 and an
Executive Vice President of the Company on June 25, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted to the named
executive officers during the fiscal year ended June 30, 1997. The Company
granted no stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
Market Price
Number of % of Total as Reported
Securities Options/SARs Exercise on Bulletin
Underlying Granted to or Base Board on
Name Options/SARs Employees Price Date of Expiration
Granted (#) in Fiscal Year ($/Sh) Grant Date
------------ -------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Edward J. Quilty 70,257(1) 17.77% $0.20(1) $10.50 none
30,000(2) 7.59% $7.50 $7.50 12-12-06
82,542(3) 20.88% $0.20(3) $6.00 none
57,275(4) 14.49% $4.96(6) $6.00 6-2-07
Carl Spana, Ph.D. 15,000(2) 3.79% $8.00 $8.00 1-3-07
26,766(5) 6.77% $4.96(6) $6.00 6-2-07
Charles L. Putnam 15,000(2) 3.79% $8.00 $8.00 1-3-07
26,766(5) 6.77% $4.96(6) $6.00 6-2-07
</TABLE>
- --------------------------------
(1) Anti-dilution option granted pursuant to the Company's employment
agreement with Mr. Quilty. During the employment term, the option vests
in 29 equal monthly installments on the 16th of each month. See
"Employment Agreements" in this Item 10.
(2) Granted under the 1996 Stock Option Plan and immediately exercisable.
Page 39
<PAGE>
(3) Anti-dilution option granted pursuant to the Company's employment
agreement with Mr. Quilty. During the employment term, the option vests
in 18 equal monthly installments on the 16th of each month following
the date of grant. See "Employment Agreements" in this Item 10.
(4) Vests in 17 equal monthly installments on the 16th of each month after
July 1, 1997.
(5) Vests in three equal installments, on July 1, 1997; July 1, 1998; and
June 21, 1999.
(6) Non-plan option.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth each option exercise by a named
executive officer during the fiscal year ended June 30, 1997. Only Edward J.
Quilty exercised any options. The Company has no outstanding SARs. Fiscal
year-end values are based on a last reported sale price for the Common Stock, as
reported on the Bulletin Board on June 30, 1997, of $6.125 per share.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs at Options/SARs
Acquired Value FY-End (#) at FY-End ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) (1) Unexercisable Unexercisable
- ------------------- ----------- --------- -------------- -------------------
<S> <C> <C> <C> <C>
Edward J. Quilty 47,918 $310,065 72,642/227,331 $252,504/$1,073,451
Carl Spana, Ph.D. 0 -- 64,465/51,499 $33,884/$48,125
Charles L. Putnam 0 -- 39,732/76,231 $16,942/$65,066
</TABLE>
- --------------------------------
(1) Value realized is the closing market price of the stock on the date of
exercise less the option price, multiplied by the number of shares
acquired on exercise.
COMPENSATION OF DIRECTORS
Pursuant to the 1996 Stock Option Plan each director of the Company who
is not an employee of the Company or of a parent or subsidiary of the Company (a
"Non-Employee Director") will be granted, at the first meeting of the Board of
Directors following each annual meeting of the stockholders of the Company, an
option to purchase 2,500 shares of Common Stock at a per share exercise price
equal to the fair market value of a share of Common Stock on the date of grant,
which options are to vest as to 25% per of the option granted during each year,
starting one year after the date of grant (a "Non-Employee Director's Formula
Option"). Any Non-Employee Director who is elected to the Board of Directors
after August 28, 1996 and before the annual stockholders' meeting in any year
will also be granted a Non-Employee Director's Formula Option to purchase a
pro-rata portion of 2,500 shares equal to the portion of a year (measured in
full calendar months) remaining until the next scheduled annual stockholders'
meeting. All Non-Employee Directors serving on the date the Board of Directors
adopted the 1996 Stock
Page 40
<PAGE>
Option Plan (Richard J. Murphy, who resigned as a director effective August 26,
1997, James T. O'Brien, John K.A. Prendergast and Michael S. Weiss) were granted
initial Non-Employee Director's Formula Options to purchase 5,000 shares of
Common Stock at an exercise price of $5.44 per share with the same exercise
price and vesting conditions as regular Non-Employee Director's Formula Options.
Non-Employee Directors are paid $12,000 per year, plus expenses, for
services as a director. In lieu of the $12,000 per year, each Non-Employee
Director may, and Mr. O'Brien and Mr. Weiss have, elected to receive a
non-incentive stock option pursuant to the 1996 Stock Option Plan to purchase
that number of shares which would be purchasable, at the then fair market value,
by a sum equal to twice the then accrued compensation. Such options will be
granted at a per share exercise price equal to the fair market value of a share
of Common Stock on the date of grant, will be immediately exercisable and will
expire ten (10) years from the date of grant. The Board of Directors previously
agreed that in lieu of $4,000 which was due to each of the Non-Employee
Directors as of December 1996, such directors could elect to receive a
non-incentive stock option pursuant to the 1996 Stock Option Plan to purchase
1,066 shares of Common Stock at an exercise price of $7.50 per share, which was
the fair market value per share on the date of grant. Mr. Murphy, Mr. O'Brien
and Mr. Weiss were each granted such options, which are immediately exercisable
and expire ten (10) years from the date of grant. Employee directors are not
separately compensated for services as a director, but are reimbursed for
expenses incurred in performing their duties as directors, including attending
all meetings of the Board of Directors and any committees thereof. Service as a
director is a condition of Edward J. Quilty's employment agreement, but such
service is not separately compensated. See "Employment Agreements" in this Item
10.
In July 1996, the Company paid $36,000 to Buck A. Rhodes, Ph.D., a
former director of the Company and RhoMed, as severance compensation for
resigning from the board of RhoMed effective June 30, 1996. The resignation and
severance pay were pursuant to the terms of a consulting agreement dated as of
March 7, 1996, between RhoMed and Dr. Rhodes.
EMPLOYMENT AGREEMENTS
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board of Directors. Each officer shall hold
his position until his successor is appointed and qualified. Mr. Quilty, Dr.
Spana and Mr. Putnam each hold their offices pursuant to employment agreements.
Subsequent to the Merger, the Company adopted, with amendments as
required to reflect the Merger, an employment agreement entered into on November
16, 1995 between RhoMed and Edward J. Quilty. Pursuant to this agreement, Mr.
Quilty is serving as President and Chief Executive Officer of the Company and
RhoMed. The initial term of the employment agreement was one year and it is
automatically renewed for successive twelve-month periods unless either party
gives written notice to the contrary, or unless the agreement is otherwise
terminated. Mr. Quilty's minimum base salary is $300,000 per year; his current
salary is $321,000 per year. The Company has agreed to reimburse Mr. Quilty for
premiums and other payments to maintain a $1,000,000 term life insurance policy
issued in 1992 for the benefit of Mr. Quilty and his designees. Mr. Quilty may
also participate in any benefit plans available to other senior executives of
the Company, and in any directors' and officers' liability insurance which the
Company maintains. Pursuant to the employment agreement, RhoMed issued to Mr.
Quilty an option to purchase common stock equal to a 10% fully diluted equity
interest in RhoMed as of November 16, 1995, at a price of $0.01 per share, to
vest in 36 equal increments monthly during the term of the employment agreement.
By operation of the Merger, that option became an option for 107,816 shares of
Common Stock at an
Page 41
<PAGE>
exercise price of $0.22 per share (rounded to the nearest cent). To date, Mr.
Quilty has exercised that option as to 47,918 shares. The agreement also
provides for anti-dilution protections which, among other things, require the
Company to issue additional options with the same exercise price as the original
option, so that Mr. Quilty shall, at all times, have options in the aggregate to
purchase the number of shares of Common Stock (together with Common Stock
purchased on the exercise of such options) equal to not less than 3.75% of the
Company's outstanding Common Stock on a fully diluted basis. Pursuant to the
anti-dilution protections, the Company has issued to Mr. Quilty additional
anti-dilution options to purchase an aggregate of 152,799 shares of Common
Stock, which options vest in equal monthly increments so as to become fully
vested 36 months after the commencement of the employment agreement. For a
period of five (5) years after the first anniversary of the Company's initial
post-Merger public offering, Mr. Quilty has piggy-back registration rights as to
all Common Stock which he owns. If the Company terminates the employment
agreement for "cause," or if Mr. Quilty terminates the agreement without "good
reason," then the Company's payment obligation is limited to amounts earned
through the termination date, and the option will be exercisable only to the
extent vested. If Mr. Quilty elects to terminate the employment agreement
following a post-Merger change in control of the Company, then the Company's
payment obligation is limited to amounts earned through the termination date,
but the option will immediately become exercisable in full. If the Company
terminates the employment agreement without cause, or in the event of Mr.
Quilty's death or disability, or if Mr. Quilty terminates the employment
agreement with good reason, then in addition to amounts earned through the
termination date, the Company must pay Mr. Quilty one year of his then current
base salary. "Cause," as defined in the employment agreement, consists of fraud,
felony conviction, refusal to carry out instructions of the Board of Directors,
or governmental disqualification (all as defined in the employment agreement).
"Good reason," as defined in the employment agreement, consists of breach by the
Company of its obligations under the employment agreement. The employment
agreement also includes non-competition, confidentiality and indemnification
covenants.
Carl Spana, Ph.D., and Charles Putnam have each entered into employment
agreements with the Company dated September 27, 1996, pursuant to which each is
serving as an Executive Vice President of the Company for a three-year period
commencing June 21, 1996. Effective June 21, 1997, the base salary for each is
$160,500 per year. Each is entitled to participate in all bonus and benefit
programs that the Company establishes, to the extent his position, tenure,
salary, age, health and other qualifications make him eligible to participate.
Each agreement allows either the Company or the employee to terminate the
agreement on thirty (30) days' notice, and contains other provisions for
termination by the Company for "cause," or by the employee for "good reason"
after a "change in control" (all as these terms are defined in the respective
agreements). Early termination may, in some circumstances, result in accelerated
vesting of stock options and/or severance pay for a nine-month period at the
rate of base salary, cash bonus and benefits then in effect. Each agreement
contains non-competition and confidentiality covenants.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Set forth below is information, as of September 17, 1997, concerning
the stock ownership and voting power of all persons (or groups of persons) known
by the Company to be the beneficial owner of more than five percent (5%) of the
Common Stock or Series A Convertible Preferred Stock, each director of the
Company, each of the executive officers included in the Summary Compensation
Table and all directors and executive officers of the Company as a group.
Page 42
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature Percent of
Title of Name and Address of Beneficial Percent of Voting
Class of Beneficial Owner Ownership (1)(2) Class Power(2)
- -------- ------------------------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C>
Common Edward J. Quilty 187,421(3) 5.9% *
Stock c/o Palatin Technologies, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Common Carl Spana, Ph.D. 85,059(4) 2.7% *
Stock c/o Palatin Technologies, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Common Charles L. Putnam 48,654(5) 1.6% *
Stock c/o Palatin Technologies, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Common Michael S. Weiss 26,828(6) * *
Stock c/o Palatin Technologies, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Common James T. O'Brien 2,316(7) * *
Stock c/o Palatin Technologies, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Common John K.A. Prendergast, Ph.D. 12,923(8) * *
Stock c/o Palatin Technologies, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Common Lindsay A. Rosenwald, M.D. 1,283,056(9) 35.2% 15.2%
Stock 787 Seventh Avenue
New York, NY 10019
Common RAQ, LLC 358,245(10) 11.8% 6.2%
Stock 787 Seventh Avenue
New York, NY 10019
Common Paramount Capital, Inc. 277,782(11) 8.4% *
Stock 787 Seventh Avenue
New York, NY 10019
</TABLE>
Page 43
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature Percent of
Title of Name and Address of Beneficial Percent of Voting
Class of Beneficial Owner Ownership (1)(2) Class Power(2)
- -------- ------------------------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C>
Common Paramount Capital Asset Management, Inc. 580,535(12) 17.6% 9.1%
Stock 787 Seventh Avenue
New York, NY 10019
Common The Aries Trust 397,197(13) 12.4% 6.3%
Stock c/o MeesPierson (Cayman) Limited
P.O. Box 2003
British American Centre, Phase 3
Dr. Roy's Drive
George Town, Grand Cayman
Common Aries Domestic Fund, L.P. 183,338(14) 5.9% 2.8%
Stock 787 Seventh Avenue
New York, NY 10019
Common Essex Woodlands Health Ventures, L.P. 302,419(15) 9.0% 5.2%
Stock Fund III
2170 Buckthorne, Suite 170
The Woodlands, TX 77380
Series A Lindsay A. Rosenwald, M.D. 23,778(16) 15.7% 3.5%
Preferred 787 Seventh Avenue
Stock New York, NY 10019
Series A Paramount Capital, Inc. 13,778(17) 9.1% *
Preferred 787 Seventh Avenue
Stock New York, NY 10019
Series A Paramount Capital Asset Management, Inc. 10,000(18) 7.3% 3.5%
Preferred 787 Seventh Avenue
Stock New York, NY 10019
Series A Essex Woodlands Health Ventures, L.P. 15,000 10.9% 5.2%
Preferred Fund III
Stock 2170 Buckthorne, Suite 170
The Woodlands, TX 77380
All directors and executive officers as a 370,815(19) 11.1% 1.4%
group (seven (7) persons)
</TABLE>
- ------------------
*Less than one percent.
(1) With respect to Common Stock, this column includes shares of Common
Stock issuable upon exercise of options or warrants currently
exercisable or exercisable within 60 days following
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<PAGE>
September 17, 1997, and shares of Common Stock issuable upon conversion
of Series A Convertible Preferred Stock. No director or officer owns
any Series A Convertible Preferred Stock. Beneficial ownership includes
direct or indirect voting or investment power. All shares listed in the
table are beneficially owned and sole voting and investment power is
held by the persons named, except as otherwise noted.
(2) The Common Stock has one vote for each share and the Series A
Convertible Preferred Stock has approximately 80.6 votes for each
share, subject to adjustment upon the occurrence of certain events.
Voting power is calculated on the basis of the aggregate of Common
Stock and Series A Convertible Preferred Stock outstanding as of
September 17, 1997. On September 17, 1997, there were 3,041,111 shares
of Common Stock outstanding and 137,780 shares of Series A Convertible
Preferred Stock outstanding, entitled to a maximum of 2,777,739 votes
in the aggregate. In the case of Series A Convertible Preferred Stock
voting separately as a class, voting power is equal to the percent of
the class owned.
(3) Includes (i) 23,959 shares of Common Stock issuable upon exercise of
options granted pursuant to RhoMed's 1995 Employee Incentive Stock
Option Plan, of which options with respect to 17,969 shares of Common
Stock are currently exercisable and options with respect to 5,990
shares of Common Stock will become exercisable within 60 days following
September 17, 1997; (ii) 30,000 shares of Common Stock issuable upon
exercise of options granted pursuant to the 1996 Stock Option Plan;
(iii) 68,699 shares of Common Stock issuable upon exercise of
anti-dilution options granted by the Company, of which options with
respect to 54,681 shares of Common Stock are currently exercisable and
options with respect to 14,018 shares of Common Stock will become
exercisable within 60 days following September 17, 1997; and (iv)
16,845 shares of Common Stock issuable upon exercise of non-plan
options, of which options with respect to 10,107 shares of Common Stock
are currently exercisable and options with respect to 6,738 shares of
Common Stock will become exercisable within 60 days following September
17, 1997. Does not include 160,469 shares of Common Stock issuable upon
exercise of options not exercisable within 60 days following September
17, 1997.
(4) Includes (i) 49,464 shares of Common Stock issuable upon exercise of
currently exercisable options granted pursuant to RhoMed's 1995
Employee Incentive and Non-Qualified Stock Option Plans; (ii) 15,000
shares of Common Stock issuable upon exercise of options granted
pursuant to the 1996 Stock Option Plan; and (iii) 8,922 shares of
Common Stock issuable upon exercise of non-plan options. Does not
include 42,576 shares of Common Stock issuable upon exercise of options
not exercisable within 60 days following September 17, 1997.
(5) Includes (i) 24,732 shares of Common Stock issuable upon exercise of
currently exercisable options granted pursuant to RhoMed's 1995
Employee Incentive and Non-Qualified Stock Option Plans; (ii) 15,000
shares of Common Stock issuable upon exercise of options granted
pursuant to the 1996 Stock Option Plan; and (iii) 8,922 shares of
Common Stock issuable upon exercise of non-plan options. Does not
include 67,308 shares of Common Stock issuable upon exercise of options
not exercisable within 60 days following September 17, 1997.
(6) Includes (i) 11,587 shares of Common Stock issuable upon exercise of
currently exercisable warrants; and (ii) 2,316 shares of Common Stock
issuable upon exercise of currently exercisable options granted
pursuant to the 1996 Stock Option Plan. Does not include 3,750 shares
of
Page 45
<PAGE>
Common Stock issuable upon exercise of options granted pursuant to the
1996 Stock Option Plan not exercisable within 60 days following
September 17, 1997.
(7) Represents 2,316 shares of Common Stock issuable upon exercise of
currently exercisable options granted pursuant to the 1996 Stock Option
Plan. Does not include 3,750 shares of Common Stock issuable upon
exercise of options granted pursuant to the Option Plan not exercisable
within 60 days following September 17, 1997.
(8) Includes 1,250 shares of Common Stock issuable upon exercise of
currently exercisable options granted pursuant to the 1996 Stock Option
Plan. Does not include 3,750 shares of Common Stock issuable upon
exercise of options granted pursuant to the Option Plan not exercisable
within 60 days following September 17, 1997.
(9) Includes (i) 66,494 shares of Common Stock issuable upon exercise of
currently exercisable warrants held by Dr. Rosenwald; (ii) 358,245
shares of Common Stock owned by RAQ, LLC, of which Dr. Rosenwald is
President; (iii) 232,734 shares of Common Stock outstanding and
131,048 shares of Common Stock issuable upon conversion of 6,500
shares of Series A Convertible Preferred Stock, owned by The Aries
Trust, a Cayman Islands trust ("The Aries Trust"); (iv) 93,189 shares
of Common Stock outstanding and 70,564 shares of Common Stock issuable
upon conversion of 3,500 shares of Series A Convertible Preferred
Stock, owned by Aries Domestic Fund, L.P. ("Aries Domestic Fund") (v)
19,585 shares of Common Stock issuable upon exercise of currently
exercisable warrants held by Aries Domestic Fund; (vi) 33,415 shares
of Common Stock issuable upon exercise of currently exercisable
warrants held by The Aries Trust; and (vii) 277,782 shares of Common
Stock issuable upon conversion of 13,778 shares of Series A
Convertible Preferred Stock issuable upon exercise of warrants held by
Paramount Capital, exercisable within 60 days following September 17,
1997. Dr. Rosenwald shares voting and investment power as to the
foregoing shares. Dr. Rosenwald is the President of Paramount Capital
and is the President, Chairman of the Board and sole shareholder of
Paramount Capital Asset Management, Inc., which is the general partner
of Aries Domestic Fund and the investment manager of The Aries Trust.
Paramount Capital Asset Management, Inc. and Dr. Rosenwald disclaim
beneficial ownership of the securities held by Aries Domestic Fund and
The Aries Trust, except to the extent of their pecuniary interest
therein, if any. Does not include (i) any shares of Common Stock owned
by employees of Paramount Capital or Paramount Capital Investments of
which Dr. Rosenwald is the Chairman of the Board and President, or
(ii) warrants to purchase 6,250 shares of Common Stock which are
issuable to Paramount Capital or its designees pursuant to a financial
advisory services agreement.
(10) RAQ, LLC shares voting and investment power as to these shares. All of
the shares of Common Stock owned by RAQ, LLC are also included in the
beneficial ownership of Lindsay A. Rosenwald, M.D., as explained in
note (9) above.
(11) Represents 277,782 shares of Common Stock issuable upon conversion of
13,778 shares of Series A Convertible Preferred Stock issuable upon
exercise of placement agent warrants exercisable within 60 days
following September 17, 1997. All of the shares purchasable by
Paramount Capital are also included in the beneficial ownership of
Lindsay A. Rosenwald, M.D., as explained in note (9) above.
(12) Includes (i) 232,734 shares of Common Stock outstanding and 131,048
shares of Common Stock issuable upon conversion of 6,500 shares of
Series A Convertible Preferred Stock, owned by The
Page 46
<PAGE>
Aries Trust; (ii) 93,189 shares of Common Stock outstanding and 70,564
shares of Common Stock issuable upon conversion of 3,500 shares of
Series A Convertible Preferred Stock, owned by Aries Domestic Fund;
(iii) 19,585 shares of Common Stock issuable upon exercise of
currently exercisable warrants held by Aries Domestic Fund; and (iv)
33,415 shares of Common Stock issuable upon exercise of currently
exercisable warrants held by The Aries Trust. Dr. Rosenwald and
Paramount Capital Asset Management, Inc. share voting and investment
power as to the foregoing shares. Paramount Capital Asset Management,
Inc. and Dr. Rosenwald disclaim beneficial ownership of the securities
held by Aries Domestic Fund and The Aries Trust, except to the extent
of their pecuniary interest therein, if any. All of the shares owned
or purchasable by Paramount Capital Asset Management, Inc. are also
included in the beneficial ownership of Lindsay A. Rosenwald, M.D., as
explained in note (9) above.
(13) Includes (i) 131,048 shares of Common Stock issuable upon conversion of
6,500 shares of Series A Convertible Preferred Stock; and (ii) 33,415
shares of Common Stock issuable upon exercise of currently exercisable
warrants. The Aries Trust shares voting and investment power as to the
foregoing shares. All of the shares owned or purchasable by The Aries
Trust are also included in the beneficial ownership of Lindsay A.
Rosenwald, M.D. and of Paramount Capital Asset Management, Inc., as
explained in notes (9) and (12) above.
(14) Includes (i) 70,564 shares of Common Stock issuable upon conversion of
3,500 shares of Series A Convertible Preferred Stock; and (ii) 19,585
shares of Common Stock issuable upon exercise of currently exercisable
warrants. Aries Domestic Fund shares voting and investment power as to
the foregoing shares. All of the shares owned or purchasable by Aries
Domestic Fund are also included in the beneficial ownership of Lindsay
A. Rosenwald, M.D. and of Paramount Capital Asset Management, Inc., as
explained in notes (9) and (12) above.
(15) Represents shares of Common Stock issuable on conversion of 15,000
shares of Series A Convertible Preferred Stock.
(16) Includes (i) 6,500 shares of Series A Convertible Preferred Stock owned
by The Aries Trust; (ii) 3,500 shares of Series A Convertible Preferred
Stock owned by Aries Domestic Fund; and 13,778 shares of Series A
Convertible Preferred Stock issuable upon exercise of placement agent
warrants held by Paramount Capital, exercisable within 60 days
following September 17, 1997. Dr. Rosenwald shares voting and
investment power as to the foregoing shares. See note (9) above.
(17) Represents shares of Series A Convertible Preferred Stock issuable upon
exercise of placement agent warrants exercisable within 60 days
following September 17, 1997. All of the shares purchasable by
Paramount Capital are also included in the beneficial ownership of
Lindsay A. Rosenwald, M.D., as explained in note (9) above.
(18) Includes (i) 6,500 shares of Series A Convertible Preferred Stock owned
by The Aries Trust; and (ii) 3,500 shares of Series A Convertible
Preferred Stock owned by Aries Domestic Fund. Paramount Capital Asset
Management, Inc. shares voting and investment power as to the foregoing
shares. See note (12) above.
(19) Includes 286,626 shares of Common Stock issuable on exercise of options
and warrants, of which 259,880 are currently exercisable and 26,746
will become exercisable within 60 days following September 17, 1997.
Does not include 304,446 shares of Common Stock issuable upon exercise
of options not exercisable within 60 days following September 17, 1997.
Page 47
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In December 1996 the Company engaged Paramount Capital to act as
exclusive placement agent for the Series A Offering. Mr. Weiss and Dr.
Prendergast, directors of the Company, recused themselves from voting on the
matter, and the Series A Offering was approved by a vote of the disinterested
directors. Mr. Weiss is Senior Managing Director of Paramount Capital and
Paramount Capital Investments, an affiliate of Paramount Capital, and Dr.
Prendergast is Managing Director of Paramount Capital Investments. As placement
agent, Paramount Capital received a 9% commission, amounting to $1,240,020, and
a 4% non-accountable expense allowance, amounting to $551,120, on the gross
proceeds of the Series A Offering, for an aggregate total of $1,791,140, and
Preferred Stock Placement Warrants to purchase 13,778 shares of Series A
Convertible Preferred Stock, at an exercise price of $110 per share. The Company
also agreed to indemnify Paramount Capital against certain liabilities,
including liabilities arising under the Securities Act, in connection with the
Series A Offering.
Pursuant to the placement agency agreement for the Series A Offering,
the Company entered into an introduction agreement with Paramount Capital (the
"Introduction Agreement"), under which Paramount Capital acts as the Company's
non-exclusive financial advisor for a minimum period of eighteen (18) months
commencing January 1, 1997, and will receive (i) out-of-pocket expenses incurred
in connection with services performed under the Introduction Agreement, (ii) a
retainer of $72,000 and (iii) percentage or lump sum success fees in the event
that Paramount Capital assists the Company in connection with certain financing
and strategic transactions. The Introduction Agreement replaced a similar
agreement in effect from September 1, 1996 through December 31, 1996, pursuant
to which Paramount Capital received a retainer of $5,000 per month and a warrant
to purchase 6,250 shares of Common Stock at $9.00 per share.
Prior to the Merger, Paramount Capital served as placement agent for an
offering of shares of RhoMed common stock (the "RhoMed Common Stock Offering")
authorized by RhoMed's board of directors on March 4, 1996; the RhoMed Class B
Offering authorized by RhoMed's board of directors on November 27, 1995; and the
RhoMed Class A Offering authorized by RhoMed's board of directors on July 28,
1995. In the RhoMed Class A Offering, the RhoMed Class B Offering and the RhoMed
Common Stock Offering, RhoMed paid Paramount Capital commissions and fees of
$90,000, $110,500 and $1,254,000, respectively, and issued warrants to designees
of Paramount Capital to purchase RhoMed common stock, which as a result of the
Merger were converted into warrants to purchase 20,737 shares of Common Stock at
$0.22 per share; 1,958 shares of Common Stock at $6.51 per share; and 177,796
shares of Common Stock at $6.51 per share, respectively.
Effective April 1995, RhoMed entered into a letter of intent with
Castle Group under which (i) Castle Group agreed to arrange for a line of credit
of up to $300,000 to finance ongoing operations of RhoMed; (ii) Castle Group
agreed to arrange for future financings for RhoMed; and (iii) RhoMed agreed to
sell to Castle Group or its designees, for nominal consideration, 4,000,000
shares of RhoMed Series A Preferred Stock. This resulted, at the time of the
investment, in Castle Group and affiliates of Castle Group obtaining majority
ownership and control of RhoMed. Castle Group is owned by Lindsay A. Rosenwald,
M.D., and is under common control with Paramount Capital. Pursuant to the letter
of intent, RhoMed borrowed the maximum amount, and paid off the line of credit
in full in September 1995. The average interest rate for the line of credit was
10.90% and the total interest paid was $8,005.
On July 24, 1995, Michael S. Weiss and Carl Spana, Ph.D., were
appointed to the board of directors of RhoMed. Dr. Spana was an employee of
Castle Group at the time of his appointment to RhoMed's board
Page 48
<PAGE>
of directors. The RhoMed Class A Offering was ratified by disinterested
stockholders of RhoMed on August 15, 1995; the RhoMed Class B Offering was
approved by disinterested directors with Mr. Weiss and Dr. Spana abstaining; and
the placement agent for the RhoMed Common Stock Offering was selected by an
offering committee of RhoMed's board of directors, consisting of disinterested
directors.
As a result of the RhoMed offerings described above, Dr. Rosenwald, Mr.
Weiss, and Dr. Spana received equity securities of the Company in the following
amounts: Dr. Rosenwald received warrants to purchase 15,079 shares of Common
Stock at $0.22 per share and warrants to purchase 51,416 shares of Common Stock
at $6.51 per share; RAQ, LLC, a company controlled by Dr. Rosenwald, received
414,267 shares of Common Stock; Mr. Weiss received 12,925 shares of Common
Stock, warrants to purchase 1,464 shares of Common Stock at $0.22 per share and
warrants to purchase 10,123 shares of Common Stock at $6.51 per share; and Dr.
Spana received 11,673 shares of Common Stock.
Dr. Rosenwald is the President, Chairman of the Board and sole
stockholder of Paramount Capital Asset Management, Inc., the general partner of
Aries Domestic Fund and investment manager of The Aries Trust (together, the
"Aries Entities"). The Aries Entities taken together purchased the following
equity securities: 10,000 shares of Series A Convertible Preferred Stock,
convertible into 201,612 shares of Common Stock, 322,673 shares of Common Stock,
warrants to purchase 4,608 shares of Common Stock at $2.71 per share, and
warrants to purchase 13,824 shares of Common Stock at $.22 per share. Following
the RhoMed Class A, Class B and Common Stock Offerings, Paramount Capital
assigned to the Aries Entities those portions of Paramount Capital's placement
agent warrants attributable to the investments of the Aries Entities, consisting
of warrants to purchase 2,073 shares of Common Stock at $.22 per share and
32,497 shares of Common Stock at $6.51 per share.
Mr. Quilty, Dr. Spana, Mr. Putnam and Non-Employee Directors have been
granted options to purchase Common Stock. See Items 10 and 11.
Buck A. Rhodes, Ph.D. was a director of RhoMed from inception until
June 30, 1996, was President of RhoMed from inception until March 7, 1996, and
was a director of the Company from June 25, 1996 through June 30, 1996. Under a
consulting agreement dated March 7, 1996 between Dr. Rhodes and RhoMed, Dr.
Rhodes was paid $51,023 in accrued salary and $36,000 as severance compensation
for resigning from the board of RhoMed, and is being paid $6,833 per month from
April 1996 through March 1998 for consulting services.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
The following exhibits are filed with this Report, or incorporated by
reference as noted:
2.1 Agreement and Plan of Reorganization dated as of April 12, 1996 by
and between Interfilm, Inc., Interfilm Acquisition Corp. and RhoMed
Incorporated. (a)
2.2 Waiver and Consent dated as of June 24, 1996, between Interfilm,
Inc., Interfilm Acquisition Corp. and RhoMed Incorporated. (b)
3.1 Restated Certificate of Incorporation of the Company, as filed with
the Delaware Secretary of State on November 3, 1993. (c)
Page 49
<PAGE>
3.2 Amendment to the Restated Certificate of Incorporation of the
Company, as filed with the Delaware Secretary of State on July 19,
1996. (d)
3.3 Bylaws of the Company. (e)
3.4 Amended Certificate of Designation of Series A Convertible Preferred
Stock of the Company, filed on June 24, 1996. (f)
3.5 Amended Certificate of Designation of Series B Preferred Stock of the
Company, filed on June 24, 1996. (g)
3.6 Certificate of Designation of Series A Convertible Preferred Stock of
the Company, filed on February 21, 1997. (e)
3.7 Amendment to the Restated Certificate of Incorporation of the
Company, filed on September 5, 1997.**
4.1 Specimen Certificate for Common Stock. (h)
4.2 Patent Assignment and License Agreement dated as of July 15, 1993,
between RhoMed Incorporated and Aberlyn Capital Management Limited
Partnership. (b)
4.3 Master Lease Agreement dated November 16, 1994, between RhoMed
Incorporated and Aberlyn Capital Management Limited Partnership. (b)
4.4 Letter Agreement, dated as of April 28, 1995, between Aberlyn Capital
Management Limited Partnership and RhoMed Incorporated. (b)
4.5 Stock Purchase and Modification Agreement, dated as of June 24, 1996,
between Aberlyn Capital Management Limited Partnership, Aberlyn
Holding Company, Inc. and RhoMed Incorporated. (b)
4.6 Specimen Certificate for Series A Convertible Preferred Stock. (e)
10.01 Lease between Charles C. and Ellen C. France Revocable Trust and
RhoMed Incorporated dated December 18, 1992. (b)
10.02 Amendment, dated November 1, 1993, to Lease between Charles C. and
Ellen C. France Revocable Trust and RhoMed Incorporated. (b)
10.03 Second Amendment, dated July 5, 1996, to Lease between Charles C. and
Ellen C. France Revocable Trust and RhoMed Incorporated. (b)
10.04 RhoMed Incorporated 1995 Employee Incentive Stock Option Plan. (b)*
10.05 RhoMed Incorporated 1995 Nonqualified Stock Option Plan. (b)*
10.06 1996 Stock Option Plan of the Company. (e)*
10.07 Employment Agreement dated as of November 16, 1995, between RhoMed
Incorporated and Edward J. Quilty. (b)*
10.08 Employment Agreement dated as of September 27, 1996, between Palatin
Technologies, Inc. and Carl Spana. (b)*
Page 50
<PAGE>
10.09 Employment Agreement dated as of September 27, 1996, between Palatin
Technologies, Inc. and Charles Putnam. (b)*
10.10 Class C Warrant for the Purchase of shares of Common Stock issued to
William I. Franzblau June 24, 1996. (b)
10.11 License Agreement between Rougier Bio-Tech Limited and RhoMed
Incorporated dated May 1, 1992. (b)
10.12 License Agreement between Sterling Winthrop Inc. and RhoMed
Incorporated dated November 2, 1992. (b)
10.13 Assignment and Assumption dated January 21, 1994, between Sterling
Winthrop, Inc. and Burroughs Wellcome Co. (b)
10.14 Option Agreement between RhoMed Incorporated and The Wistar Institute
of Anatomy and Biology dated August 22, 1996. (b)
10.15 Consulting Agreement dated as of March 7, 1995, between RhoMed
Incorporated and Buck A. Rhodes. (b)
10.16 Form of Class A Warrant. (b)
10.17 Form of Placement Agent Warrant for the Class A Offering. (b)
10.18 Form of Unit Purchase Agreement for the Class A Offering, including
registration rights referred to in the Form of Class A Warrant and
Form of Placement Agent Warrant for the Class A Offering. (b)
10.19 Form of Class B Warrant. (b)
10.20 Form of Placement Agent Warrant for the Class B Offering. (b)
10.21 Form of Unit Purchase Agreement for the Class B Offering, including
registration rights referred to in the Form of Class B Warrant and
Form of Placement Agent Warrant for the Class B Offering. (b)
10.22 Form of Placement Agent Warrant for the RhoMed Common Stock Offering.
(b)
10.23 Form of Common Stock Purchase Agreement for the RhoMed Common Stock
Offering, including registration rights referred to in the Form of
Placement Agent Warrant for the RhoMed Common Stock Offering. (b)
10.24 Lease between Adelante Development Center, Inc. and Palatin
Technologies, Inc. dated October 10, 1996. (f)
10.25 License Option Agreement dated as of December 18, 1996, between
Palatin Technologies, Inc. and Nihon Medi-Physics Co. Ltd. (j)
10.26 Lease between Carnegie 214 Associates Limited Partnership and Palatin
Technologies, Inc. dated May 6, 1997.**
10.27 Lease between WHC-Six Real Estate, L.P. and Palatin Technologies,
Inc. dated March 13, 1997.**
Page 51
<PAGE>
10.28 Amendment to Employment Agreement dated as of November 16, 1995,
between RhoMed Incorporated and Edward J. Quilty.* **
16.1 Letter dated July 19, 1996 from Deloitte & Touche LLP. (k)
21.1 Current list of subsidiaries of the Company. (b)
27 Financial Data Schedule.**
99.1 Certificate of Limited Partnership of "The Interfilm Stockholders
Limited Partnership," as filed with the Delaware Secretary of State
on June 17, 1996. (b)
99.2 Agreement of Limited Partnership of The Interfilm Stockholders
Limited Partnership, dated June 11, 1996. (b)
99.3 The Interfilm Stockholders Trust, established by Interfilm, Inc. and
Interfilm Technologies, Inc. on June 11, 1996. (b)
99.4 General Bill of Sale, Assignment and Assumption Agreement among, on
the one hand, Interfilm, Inc. and Interfilm Technologies, Inc. and on
the other hand, The Interfilm Stockholders Limited Partnership, dated
June 25, 1996. (b)
NOTES TO EXHIBITS
* A management contract or compensatory plan or
arrangement.
** Filed as an exhibit to this Report.
(a) Incorporated by reference to Exhibit 2.1 of the Company's
Form 8-K dated June 25, 1996, filed with the Commission
on July 10, 1996.
(b) Incorporated by reference and previously filed as an
exhibit to the Company's Form 10-KSB Annual Report for
the period ended June 30, 1996, filed with the Commission
on September 27, 1996.
(c) Incorporated by reference to Exhibit 3.1 of the Company's
Form 8-K dated July 19, 1996, filed with the Commission
on August 9, 1996.
(d) Incorporated by reference to Exhibit 3.2 of the Company's
Form 8-K dated July 19, 1996, filed with the Commission
on August 9, 1996.
(e) Incorporated by reference and previously filed as an
exhibit to the Company's Form 10-QSB/A Amendment No. 2
for the quarter ended March 31, 1997, filed with the
Commission on July 17, 1997.
(f) Incorporated by reference to Exhibit 3.3 of the Company's
Form 8-K dated July 19, 1996, filed with the Commission
on August 9, 1996.
(g) Incorporated by reference to Exhibit 3.4 of the Company's
Form 8-K dated July 19, 1996, filed with the Commission
on August 9, 1996.
(h) Incorporated by Reference to Exhibit 4.1 of the Company's
Form 8-K dated July 19, 1996, filed with the Commission
on August 9, 1996.
Page 52
<PAGE>
(i) Incorporated by reference to Exhibit 10.24 of the
Company's Form 10-QSB for the quarter ended September 30,
1996, filed with the Commission on November 13, 1996.
(j) Incorporated by reference to Exhibit 10.25 of the
Company's Form 10-QSB/A Amendment No. 2 for the quarter
ended December 31, 1996, filed with the Commission on
September 12, 1997.
(k) Incorporated by reference to Exhibit 16.1 of the
Company's Form 8-K/A dated June 25, 1996, filed with the
Commission on July 23, 1996.
b) REPORTS ON FORM 8-K
One report on Form 8-K was filed by the Company during the three
months ended June 30, 1997. The report was filed on April 18, 1997, with a date
of April 8, 1997, and reported on Item 5, Other Events, relating to an
announcement of an interim closing on the Company's Series A Offering.
Page 53
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PALATIN TECHNOLOGIES, INC.
Date: September 26, 1997 By: /s/ Edward J. Quilty
--------------------------
Edward J. Quilty
Chairman of the Board, President and
Chief Executive 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.
Signature Titles Date
--------- ------ ----
/s/ Edward J. Quilty Chairman of the Board, September 26, 1997
- -------------------------- President and Chief
Executive Officer
(principal executive officer)
/s/ Carl Spana Executive Vice President September 26, 1997
- -------------------------- and Director
Carl Spana
/s/ John J. McDonough Vice President and Chief September 26, 1997
- ------------------------- Financial Officer
John J. McDonough (principal financial and
accounting officer)
/s/ Michael S. Weiss Director September 26, 1997
- -------------------------
Michael S. Weiss
/s/ James T. O'Brien Director September 26, 1997
- -------------------------
James T. O'Brien
/s/ John K.A. Prendergast Director September 26, 1997
- -------------------------
John K.A. Prendergast
Page 54
<PAGE>
TABLE OF CONTENTS
FINANCIAL STATEMENTS
The following financial statements of the Company are filed as part of this
Report:
Report of Independent Public Accountants, Arthur Andersen LLP................F-1
Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-3
Consolidated Statements of Stockholders' Equity (Deficit)....................F-4
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-8
Page 55
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Stockholders and Board of Directors of
Palatin Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Palatin
Technologies, Inc. (a Delaware corporation in the development stage) and
subsidiaries as of June 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year ended June 30, 1997, the ten months ended June 30, 1996, the year ended
August 31, 1995 and the period from inception (January 28, 1986) to June 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Palatin Technologies, Inc. and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the periods indicated above, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
August 20, 1997
F-1
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $201,211
at June 30, 1997 ............................................................................ $ 12,806,717 $ 6,791,300
Accounts receivable ............................................................................ 84,562 4,574
Prepaid expenses and other ..................................................................... 174,996 66,430
------------ -------------
Total current assets ....................................................................... 13,066,275 6,862,304
Property and equipment, net ...................................................................... 922,096 96,354
Intangibles, net of accumulated amortization of $103,743 and
$91,336, respectively .......................................................................... 74,494 82,547
------------ -------------
$ 14,062,865 $ 7,041,205
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................................... $ 316,273 $ 214,424
Accrued expenses ............................................................................... 1,472,905 769,260
Current portion of long-term financing ......................................................... 869,549 311,695
Notes payable .................................................................................. 80,000 -
Senior bridge notes, including note to related party of $110,000
as of June 30, 1996 .......................................................................... - 1,100,000
------------- -------------
Total current liabilities .................................................................. 2,738,727 2,395,379
Notes payable .................................................................................... - 80,000
Deferred license revenue ......................................................................... 550,000 -
Long-term financing .............................................................................. 939,590 1,727,619
------------- -------------
4,228,317 4,202,998
------------- -------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 and 2,000,000 shares
authorized and 137,780 and no shares issued as of
June 30, 1997 and 1996, respectively ......................................................... 1,378 -
Common stock, $.01 par value, 75,000,000 and 25,000,000 shares
authorized and 3,020,373 and 2,884,694 shares issued as of
June 30, 1997 and 1996, respectively ......................................................... 30,204 28,847
Additional paid-in capital ..................................................................... 23,740,864 10,890,935
Warrants ....................................................................................... 573,537 -
Common stock earned but not issued ............................................................. - 53,030
Treasury stock, no and 308 shares at cost, respectively ........................................ - (1,667)
Deferred compensation .......................................................................... (1,078,333) -
Deficit accumulated during development stage ................................................... (13,433,102) (8,132,938)
------------- -------------
9,834,548 2,838,207
------------- -------------
$ 14,062,865 $ 7,041,205
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-2
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Inception
(January 28, 1986) Year Ten Months Year
through Ended Ended Ended
June 30, 1997 June 30, 1997 June 30, 1996 August 31, 1995
----------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Grants and contracts ..................................... $ 3,210,685 $ 350,173 $ - $ -
License fees and royalties ............................... 684,296 350,000 - 64,296
Product .................................................. 318,917 22,184 24,457 33,606
------------- ------------ ------------- -------------
Total revenues ...................................... 4,213,898 722,357 24,457 97,902
------------- ------------ ------------- -------------
OPERATING EXPENSES:
Research and development ................................. 7,806,391 3,409,983 869,896 619,354
General and administrative ............................... 7,552,844 2,533,883 1,366,343 776,291
Restructuring charge ..................................... 284,000 - 284,000 -
Net intangibles write down ............................... 259,334 - 259,334 -
------------- ------------ ------------- -------------
Total operating expenses ............................ 15,902,569 5,943,866 2,779,573 1,395,645
------------- ------------ ------------- -------------
OTHER INCOME (EXPENSES):
Interest income .......................................... 367,389 296,009 10,515 2,744
Interest expense ......................................... (1,417,850) (374,664) (459,308) (343,865)
Placement agent commissions and
fees on debt offering ............................... (168,970) - (168,970) -
Merger costs ............................................. (525,000) - (525,000) -
------------- ------------ ------------- -------------
Total other (expenses) .............................. (1,744,431) (78,655) (1,142,763) (341,121)
------------- ------------ ------------- -------------
NET LOSS ...................................................... (13,433,102) (5,300,164) (3,897,879) (1,638,864)
PREFERRED STOCK DIVIDEND ...................................... (2,888,935) (2,888,935) - -
------------- ------------ ------------- -------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS ...................................... $(16,322,037) $(8,189,099) $ (3,897,879) $ (1,638,864)
============= ============ ============= =============
Weighted average number of common
shares outstanding ....................................... 559,609 2,924,073 585,356 309,548
============= ============= ============= =============
Net loss per common share ..................................... $ (29.17) $ (2.80) $ (6.66) $ (5.29)
============= ============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------------------------------
Shares Amount Subscriptions Receivable
----------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Balance at inception ........................................ - $ - $ - $ -
Preferred stock subscriptions ............................ 4,000 (4,000)
Issuance of shares from inception ........................ - - - -
Net loss from inception .................................. - - - -
----------- ------------ ---------------- ------------
Balance, August 31, 1995 .................................... - - 4,000 (4,000)
Preferred stock subscriptions ............................ - - (4,000) 4,000
Issuance of preferred shares ............................. 4,000,000 4,000 - -
Issuance of common shares on
$10,395,400 private placement ......................... - - - -
Shares earned but not issued ............................. - - - -
Issuance of common shares ................................ - - - -
Net loss ................................................. - - - -
----------- ------------ ---------------- -----------
Balance, June 25, 1996 ...................................... 4,000,000 4,000 - -
Conversion to Palatin Technologies, Inc. .................. (4,000,000) (4,000) - -
----------- ------------ ---------------- -----------
Adjusted balance, June 25, 1996 ............................. - - - -
Shares outstanding of Palatin
Technologies, Inc. ...................................... - - - -
Issuance of common shares ................................. - - - -
Purchase of treasury stock ................................ - - - -
----------- ------------ ---------------- -----------
Balance, June 30, 1996 ...................................... - - - -
Issuance of preferred shares, net of expenses ............ 137,780 1,378 - -
Shares earned but not issued ............................. - - - -
Issuance of common shares ................................ - - - -
Retirement of treasury stock ............................. - - - -
Issuance of stock options below fair
market value ........................................... - - - -
Amortization of deferred compensation .................... - - - -
Net loss ................................................. - - - -
---------- ------------ ---------------- -----------
Balance, June 30, 1997 ...................................... 137,780 $ 1,378 $ - $ -
=========== ============ ================ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
- Continued -
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------------------
Paid-in
Additional Earned but Capital from
Shares Amount Paid-in Capital not Issued Warrants
------------ ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at inception ..................... - $ - $ - $ - $ -
Preferred stock subscriptions ......... - - - - -
Issuance of shares from inception ..... 6,922,069 1,177,786 - 110,833 100,000
Net loss from inception ............... - - - - -
----------- ------------- ------------- ---------- ----------
Balance, August 31, 1995 ................. 6,922,069 1,177,786 - 110,833 100,000
Preferred stock subscriptions ......... - - - - -
Issuance of preferred shares .......... - - - - -
Issuance of common shares on
$10,395,400 private placement ...... 41,581,600 9,139,303 - - -
Shares earned but not issued .......... - - - 266,743 -
Issuance of common shares ............. 1,054,548 458,977 - (324,546) (100,000)
Net loss .............................. - - - - -
----------- ------------- ------------- ---------- ----------
Balance, June 25, 1996 ................... 49,558,217 10,776,066 - 53,030 -
Conversion to Palatin Technologies, Inc. (46,807,465) (10,748,558) 10,752,558 - -
----------- ------------- ------------- ---------- ----------
Adjusted balance, June 25, 1996 .......... 2,750,752 27,508 10,752,558 53,030 -
Shares outstanding of Palatin
Technologies, Inc. ................... 108,188 1,082 (1,082) - -
Issuance of common shares .............. 25,754 257 139,459 - -
Purchase of treasury stock ............. - - - - -
----------- ------------- ------------- ---------- ----------
Balance, June 30, 1996 ................... 2,884,694 28,847 10,890,935 53,030 -
Issuance of preferred shares, net
of expenses ......................... - - 11,062,116 - 573,537
Shares earned but not issued .......... - - - 250,141 -
Issuance of common shares ............. 135,987 1,360 316,761 (303,171) -
Retirement of treasury stock .......... (308) (3) (1,664) - -
Issuance of stock options below fair
market value ........................ - - 1,472,716 - -
Amortization of deferred compensation . - - - - -
Net loss .............................. - - - - -
----------- ------------- ------------- ---------- ----------
Balance, June 30, 1997 ................... 3,020,373 $ 30,204 $ 23,740,864 $ - $ 573,537
=========== ============= ============= ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
- Continued -
<TABLE>
<CAPTION>
Deficit
Accumulated
Unamortized During
Treasury Deferred Development
Stock Compensation Stage Total
----------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance at inception ..................... $ - $ - $ - $ -
Preferred stock subscriptions ......... - - - -
Issuance of shares from inception ..... - - - 1,388,619
Net loss from inception ............... - - (4,235,059) (4,235,059)
---------- ------------ ------------- -------------
Balance, August 31, 1995 ................. - - (4,235,059) (2,846,440)
Preferred stock subscriptions ......... - - - -
Issuance of preferred shares .......... - - - 4,000
Issuance of common shares on
$10,395,400 private placement ...... - - - 9,139,303
Shares earned but not issued .......... - - - 266,743
Issuance of common shares ............. - - - 34,431
Net loss .............................. - - (3,897,879) (3,897,879)
---------- ------------ ------------- -------------
Balance, June 25, 1996 ................... - - (8,132,938) 2,700,158
Conversion to Palatin Technologies, Inc. - - - -
---------- ------------ ------------- -------------
Adjusted balance, June 25, 1996 .......... - - (8,132,938) 2,700,158
Shares outstanding of Palatin
Technologies, Inc. ................... - - - -
Issuance of common shares .............. - - - 139,716
Purchase of treasury stock ............. (1,667) - - (1,667)
---------- ------------ ------------- -------------
Balance, June 30, 1996 ................... (1,667) - (8,132,938) 2,838,207
Issuance of preferred shares, net
of expenses ......................... - - - 11,637,031
Shares earned but not issued .......... - - - 250,141
Issuance of common shares ............. - - - 14,950
Retirement of treasury stock .......... 1,667 - - -
Issuance of stock options below fair
market value ........................ - (1,472,716) - -
Amortization of deferred compensation . - 394,383 - 394,383
Net loss .............................. - - (5,300,164) (5,300,164)
---------- ------------ ------------- -------------
Balance, June 30, 1997 ................... $ - $(1,078,333) $(13,433,102) $ 9,834,548
========== ============ ============== =============
</TABLE>
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Inception
(January 28, 1986) Year Ten Months Year
through Ended Ended Ended
June 30, 1997 June 30, 1997 June 30, 1996 August 31, 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................... $(13,433,102) $ (5,300,164) $ (3,897,879) $ (1,638,864)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization ...................... 374,494 65,920 68,005 85,947
Interest expense on note payable ................... 72,691 19,304 6,667 8,000
Accrued interest on long-term financing ............ 796,038 - 293,380 320,709
Accrued interest on short-term financing ........... 7,936 (100,000) 100,000 7,936
Intangibles and equipment write down ............... 278,318 - 278,318 -
Equity and notes payable issued for expenses ....... 546,188 250,141 174,147 10,350
Settlement with consultant ......................... (28,731) - - -
Deferred revenue ................................... 550,000 550,000 - -
Amortization of deferred compensation .............. 394,383 394,383 - -
Changes in certain operating assets and liabilities:
Accounts receivable .............................. (84,562) (79,988) 1,052 2,557
Prepaid expenses and other ....................... (174,996) (108,566) (46,678) (5,206)
Intangibles ...................................... (431,690) (4,353) (44,314) (66,152)
Accounts payable ................................. 315,373 101,849 (91,433) 164,744
Accrued expenses ................................. 863,350 84,790 449,244 50,512
------------- ------------- ------------- -------------
Net cash used for operating activities ....... (9,954,310) (4,126,684) (2,709,491) (1,059,467)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................... (614,934) (279,705) (26,577) (4,294)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party ............. 302,000 - - 302,000
Payments on notes payable, related party ............... (309,936) - (23,286) (286,650)
Proceeds from senior bridge notes payable .............. 1,850,000 - 850,000 1,000,000
Payments on senior bridge notes ........................ (1,850,000) (1,000,000) (850,000) -
Proceeds from notes payable and
long-term financing .................................. 1,951,327 - - 292,063
Payments on notes payable and
long-term financing .................................. (420,236) (230,175) (65,000) (92,384)
Proceeds from paid-in capital from common
stock warrants ....................................... 100,000 - - 100,000
Proceeds from common stock, stock option
issuances, net ....................................... 10,117,442 14,950 9,143,303 345
Proceeds from preferred stock, net ..................... 11,637,031 11,637,031
Purchase of treasury stock ............................. (1,667) - (1,667) -
------------- ------------- ------------- -------------
Net cash provided by financing activities .... 23,375,961 10,421,806 9,053,350 1,315,374
------------- ------------- ------------- -------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS .................................... 12,806,717 6,015,417 6,317,282 251,613
CASH AND CASH EQUIVALENTS, beginning
of period ........................................... - 6,791,300 474,018 222,405
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period ................. $ 12,806,717 $ 12,806,717 $ 6,791,300 $ 474,018
============= ============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Inception
(January 28, 1986) Year Ten Months Year
through Ended Ended Ended
June 30, 1997 June 30, 1997 June 30, 1996 August 31, 1995
----------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ................................. $ 229,522 $ 151,999 $ 49,494 $ 28,029
============== ============= ============= ==============
NON-CASH TRANSACTION:
Settlement of accounts payable with
equipment ........................................... $ 900 $ - $ - $ -
============== ============= ============= ==============
NON-CASH STOCK ACTIVITY:
Conversion of loans from employees to
common stock ........................................ $ 74,187 $ - $ - $ -
============== ============= ============= ==============
Conversion of note payable to common stock.............. $ 16,000 $ - $ $ -
============== ============= ============= ==============
Common stock issued for equipment ...................... $ 2,327 $ - $ - $ -
============== ============= ============= ==============
Common stock issued for expenses
(included above) .................................... $ 679,715 $ 394,383 $ 174,147 $ 10,350
============== ============= ============== ==============
Common stock issued for accrued salaries
and bonuses ......................................... $ 16,548 $ $ - $ 9,858
============== ============= ============== ==============
Interest paid in common stock .......................... $ 679,097 $ 303,171 $ 266,743 $ 109,183
============== ============= ============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(1) ORGANIZATION ACTIVITIES:
Nature of Business -- Palatin Technologies, Inc. ("Palatin" or the
"Company") and its wholly-owned subsidiary, RhoMed Incorporated ("RhoMed"), is a
development stage enterprise dedicated to developing and commercializing
products and technologies for diagnostic imaging, cancer therapy and ethical
drug development utilizing peptide, monoclonal antibody and radiopharmaceutical
technologies. On June 25, 1996, RhoMed merged into Palatin in a transaction
accounted for as a reverse merger, with RhoMed deemed as the acquiror for
account purposes (see Corporate History). As a result, the historical financial
statements presented are those of RhoMed.
Business Risk -- Since its inception, the Company has devoted
substantially all of its efforts and resources to the research and development
of its technologies. The Company has experienced operating losses in each year
since its inception and, as of June 30, 1997, the Company had a deficit
accumulated during the development stage of $13,433,102. The Company expects to
incur additional operating losses over the next several years and expects
cumulative losses to increase as research and development and clinical testing
efforts continue and expand. The ultimate completion of the Company's
development projects is contingent upon a number of factors, including the
successful completion of technology and product development, obtaining required
regulatory approvals and additional financing and, ultimately, achieving
profitable operations.
Corporate History -- Palatin, formerly Interfilm, Inc., was incorporated
under the laws of the State of Delaware on November 21, 1986. From November 4,
1993 until May 10, 1995, the date on which the Board of Directors substantially
curtailed the operations of the Company, the Company had been primarily engaged
in the business of exploiting rights related to its interactive motion picture
process, including the production and distribution of interactive motion
pictures for initial exhibition in theaters and subsequently in enhanced
versions for distribution to the home market. On June 25, 1996, a newly formed,
wholly-owned subsidiary of the Company, Interfilm Acquisition Corporation
("InSub"), a New Mexico corporation, merged with and into RhoMed, a New Mexico
corporation, with all outstanding shares of RhoMed equity securities ultimately
being exchanged for the Company's common stock (the "Merger"). As a result of
the Merger, RhoMed became a wholly-owned subsidiary of the Company, with the
holders of RhoMed preferred stock and RhoMed common stock (including the holders
of "RhoMed Securities" as hereafter defined) receiving an aggregate of
approximately 96% interest in the equity securities of the Company on a
fully-diluted basis. Additionally, all warrants and options to purchase common
stock of RhoMed outstanding immediately prior to the Merger (the "RhoMed
Securities"), including without limitation, any rights underlying RhoMed's
qualified or non-qualified stock option plans, were automatically converted into
rights upon exercise to receive the Company's common stock in the same manner in
which the shares of RhoMed common stock were converted. Since the former
stockholders of RhoMed retained more than a 50% controlling interest in the
surviving company (Palatin), the Merger was accounted for as a reverse merger.
The business of RhoMed, conducted by Palatin since June 25, 1996, represents the
on-going business of Palatin. Certain assets and liabilities of the Company and
a subsidiary existing prior to the Merger, consisting principally of certain
intellectual property and litigation claims against Sony Corporation of America
and related entities, were transferred to an unaffiliated limited liability
partnership for the benefit of the Company's stockholders of record as of June
21, 1996 (pre-Merger stockholders). The historical
F-8
<PAGE>
financial statements prior to June 25, 1996, are those of RhoMed, except that
the stock transactions have been presented in the notes on an as if converted
basis. References to the Company's activities, results of operations and
financial condition prior to June 25, 1996 are to RhoMed unless otherwise
specified. The merger costs of $525,000 have been charged to operations for the
ten months ended June 30, 1996, and accrued expenses include $32,000 of this
amount as of June 30, 1997.
Charter Amendment -- On September 5, 1997, an amendment to the Restated
Certificate of Incorporation of the Company (the "Amendment") was filed, which
(i) increased the total number of authorized shares of common stock (the "Common
Stock") from 25,000,000 to 75,000,000, (ii) increased the total number of
authorized shares of preferred stock from 2,000,000 to 10,000,000 and (iii)
effected a 1-for-4 reverse split of Common Stock. The consolidated financial
statements have been retroactively restated to reflect the Amendment.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -- The consolidated financial statements
include the accounts of Palatin and its wholly owned subsidiary, RhoMed. The
remaining subsidiaries of Palatin - Interfilm Technologies, Inc., Ediflex
Digital Systems, Inc. and Production Equipment Leasing Corp. LP - are inactive.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates -- The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Fiscal Year -- Effective June 30, 1996, Palatin and RhoMed each changed
its fiscal year end to June 30. The fiscal year ends of Palatin and RhoMed prior
to the Merger were December 31 and August 31, respectively.
Cash and Cash Equivalents -- For purposes of presenting cash flows, the
Company considers cash and cash equivalents as amounts on hand, on deposit in
financial institutions and highly liquid investments purchased with an original
maturity of three months or less.
Fixed Assets -- Fixed assets consist of equipment, office furniture and
leasehold improvements. Fixed assets are stated at cost. Depreciation is
recognized using the straight-line method over the estimated useful lives of 5
years for equipment, 7 years for office furniture and over the term of the lease
for leasehold improvements. Maintenance and repairs are expensed as incurred
while expenditures that extend the useful life of an asset are capitalized.
Intangible Assets -- Intangible assets consist of patents and deferred
financing costs. Patents represent the costs capitalized to successfully obtain
a patent registration. Internal costs to obtain and develop the patents have
been expensed. Patents are included as intangible assets in the accompanying
consolidated financial statements and are stated at cost, net of accumulated
amortization. Amortization is recognized using the straight-line method over the
estimated patent lives ranging up to 17 years. Unsuccessful patent costs and
patents with no demonstrated future value are expensed when so determined by
management.
Impairment of Long-Lived Assets -- The Company complies with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine
F-9
<PAGE>
recoverability of its long-lived assets, the Company evaluates the probability
that future undiscounted net cash flows, without interest charges, will be less
than the carrying amount of the assets. Impairment is measured at fair value.
Revenue Recognition -- The Company recognizes revenue on grants and
contracts at the time such related expenses are incurred in compliance with
contractual terms, license fees and royalties ratably over the term of the
license or royalty agreement, and sales upon shipment.
Research and Development Costs -- The costs of research and development
activities are expensed as incurred.
Stock Options and Warrants -- Warrants and the majority of common stock
options have been issued at exercise prices greater than, or equal to, their
fair market value at the date granted. Accordingly, no value has been assigned
to these instruments. However, certain stock options were issued under non-plan
option agreements and a non-qualified stock option plan at an exercise price
below market value. The difference between the exercise price and the market
value of these securities has been recorded as deferred compensation and is
being expensed over the vesting period of the option.
Income Taxes -- The Company and its subsidiaries intend to file
consolidated federal and combined state income tax returns. The Company accounts
for income taxes in accordance with Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires, among
other things, the use of the liability method in computing deferred income
taxes.
The Company provides for deferred income taxes relating to timing
differences in the recognition of income and expense items (primarily relating
to depreciation, amortization and certain leases) for financial and tax
reporting purposes. Such amounts are measured using current tax laws and
regulations in accordance with the provisions of SFAS 109.
In accordance with SFAS 109, the Company has recorded valuation
allowances against the realization of its deferred tax assets. The valuation
allowance is based on management's estimates and analysis, which includes tax
laws which may limit the Company's ability to utilize its tax loss
carryforwards.
Net Loss per Common Share -- Net loss per common share is calculated
based upon the weighted average number of shares of Common Stock, on an as if
converted basis, outstanding during each period. All options and warrants were
excluded in the calculation of weighted average shares outstanding since their
inclusion would have had an anti-dilutive effect.
Reclassifications -- Certain reclassifications have been made to the
prior year financial statements to conform to the current year presentation.
Fair Value of Financial Instruments -- Statement of Financial Accounting
Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial
Instruments," requires disclosures of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate the value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. These techniques are significantly affected by the
assumptions used, including discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
F-10
<PAGE>
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments: the carrying
amount reported on the balance sheet approximates the fair value for cash,
short-term borrowings and current maturities of long-term debt; and the fair
value for the Company's fixed rate long-term debt is estimated based on the
current rates offered to the Company for debt of the same remaining maturities.
Based on the above, the amount reported on the balance sheet approximates the
fair value.
(3) RELATED PARTY TRANSACTIONS:
During the fiscal year ended August 31, 1995, the Company encountered
serious liquidity and working capital deficiencies. As a result, effective April
1995, the Company entered into a letter of intent with The Castle Group Ltd.
("Castle"), a company controlled by Lindsay A. Rosenwald, M.D. ("Dr.
Rosenwald"), under which Castle agreed to arrange for a line of credit of up to
$300,000 to finance ongoing operations; agreed to arrange for future financings;
and the Company agreed to sell to Castle or its designees, for $4,000
consideration paid, 4,000,000 shares of preferred stock which converted into
466,952 shares of Common Stock. At the time the letter of intent was entered
into with Castle, the Company was insolvent and its equity had nominal value;
accordingly, the sale of preferred stock to Castle or its designees was recorded
at the nominal $4,000 consideration paid. The issuance of the preferred stock to
designees of Castle was consummated on October 25, 1995 and resulted in Dr.
Rosenwald and his designees obtaining majority ownership and control of the
Company on that date.
On July 28, 1995, the Board of Directors approved an offering of senior
bridge notes and warrants (the "Class A Offering"), for which Paramount Capital,
Inc. ("Paramount"), of which Dr. Rosenwald is the Chairman, served as placement
agent. Two of the then three members of the Board of Directors of RhoMed were
employees of entities controlled by Dr. Rosenwald. The transaction and selection
of the placement agent was ratified by disinterested stockholders on August 15,
1995. Paramount received (i) a cash commission equal to 6% of the gross proceeds
from the sale of the units or $60,000, (ii) a non-accountable expense allowance
equal to 3% of gross proceeds or $30,000 and (iii) placement agent's warrants,
on the same terms as the warrants, equal to 15% of the Common Stock underlying
the warrants issued in the Class A Offering. Additionally, investment funds
managed by a company of which Dr. Rosenwald is president purchased senior bridge
notes with a face value of $100,000 and warrants to purchase 13,824 shares of
Common Stock at $.22 per share.
On November 27, 1995, the Company's Board of Directors approved an
offering of senior bridge notes and warrants (the "Class B Offering"), for which
Paramount served as placement agent, which was approved by the two disinterested
directors. Paramount received (i) a cash commission equal to 9% of the gross
proceeds from the sale of the units or $76,500, (ii) a non-accountable expense
allowance equal to 4% of gross proceeds or $34,000 and (iii) placement agent's
warrants at an exercise price of $6.52 per share but otherwise on the same terms
as the warrants, equal to 5% of the Common Stock underlying the warrants issued
in the Class B Offering. Additionally, investment funds managed by a company of
which Dr. Rosenwald is president purchased senior bridge notes with a face value
of $100,000 and warrants to purchase 4,608 shares of Common Stock at $2.72 per
share.
On March 4, 1996, the Board of Directors approved an offering of common
stock (the "Common Stock Offering") and authorized an offering committee of the
Board of Directors, consisting of the two disinterested directors, to determine
the placement agent for the Common Stock Offering. The selection of Paramount as
placement agent was approved by the disinterested directors, who concluded that
alternative means of financings were not available to the Company on terms more
favorable than the Common Stock Offering. The price per share of common stock in
the Common Stock Offering of $5.44
F-11
<PAGE>
was determined through negotiations between the Company and Paramount. On May
14, 1996, the disinterested directors approved an increase in the Common Stock
Offering. Paramount received (i) a cash commission equal to 9% of the gross
proceeds from the sale of the units or $868,000, (ii) a non-accountable expense
allowance equal to 4% of gross proceeds or $386,000 and (iii) placement agent's
warrants, equal to 10% of the common stock issued in the Common Stock Offering,
at an exercise price of $6.52 per common stock share, which are freely
exercisable, terminate ten years from the date of issuance and have certain
registration rights. Additionally investment funds managed by a company of which
Dr. Rosenwald is president purchased 322,674 shares of Common Stock at $5.44 per
share.
On December 2, 1996, the Board of Directors approved an offering
of Series A Preferred Convertible Stock (the "Series A Preferred Offering"),
which was approved by the four disinterested directors. The selection of
Paramount as placement agent was approved by the disinterested directors, who
concluded that alternative means of financings were not available to the Company
on terms more favorable than the Series A Preferred Offering. The Series A
Preferred Convertible Stock is currently convertible into Common Stock at a
price per share of Common Stock of $4.96, which represented a 15% discount to
the average closing bid price of the Company's Common Stock for the twenty (20)
consecutive trading days immediately preceding the final closing. The 15%
discount on conversion of the Series A Preferred Convertible Stock to Common
Stock was determined through negotiations between the Company and the placement
agent. The 15% discount has been reflected in the Company's consolidated
statement of operations as a dividend to the Series A Preferred Convertible
Stock of $2,888,935. Paramount received (i) a cash commission equal to 9% of the
gross proceeds from the sale of the units or $1,240,020, (ii) a non-accountable
expense allowance equal to 4% of gross proceeds or $551,120 and (iii) placement
agent's warrants, equal to 10% of the Series A Preferred Convertible Stock
issued in the Series A Preferred Offering at an exercise price of $110.00 per
share of Series A Preferred Convertible Stock, which are freely exercisable
commencing in November, 1997, terminate ten years from the date of issuance and
have certain registration rights. The Company has valued those warrants at
$573,537. In the Series A Preferred Offering, investment funds managed by a
company of which Dr. Rosenwald is president purchased 10,000 shares of Series A
Preferred Convertible Stock at $100 per share.
Management of the Company believes that the terms of the transactions
and the agreements described above are on terms at least as favorable as those
which it could otherwise have obtained from unrelated parties.
(4) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
June 30, June 30,
1997 1996
------------ ------------
Office equipment $ 263,827 $ 202,960
Laboratory equipment 145,310 76,929
Leasehold improvements 750,008 -
------------ ------------
1,159,145 279,889
Less: Accumulated depreciation 237,049 183,535
------------ ------------
$ 922,096 $ 96,354
============ ============
F-12
<PAGE>
(5) INTANGIBLES:
The Company owns or has rights to sixteen U.S. patents, eight pending
U.S. patent applications, four allowed U.S. patent applications and nine
counterpart patents and eight pending applications in selected foreign
countries.
For the ten month period ended June 30, 1996, $259,334 of previously
capitalized patent costs relating to patents that were not being utilized for
products in active development were written- off to expense. The write-off was
based upon an evaluation by the new President and Chief Executive Officer and
the management team of products in development and determination of the
likelihood of product development and commercialization. Historical costs in
each patent were used to determine the total write-off to expense.
The Company has assigned its interest in several patents to secure
long-term financing.
(6) LONG-TERM FINANCING:
The Company has a long-term financing agreement with Aberlyn Holding
Co., Inc., and its affiliates (collectively "Aberlyn"). Aberlyn has, in a series
of transactions, loaned to the Company approximately $1,800,000, secured by
certain of the Company's patents, intellectual property and equipment. Certain
fees and costs related to the borrowings have been deferred as intangible assets
and are being amortized over the remaining terms of the arrangement using the
effective interest method.
The Company is obligated to make monthly principal and interest payments
of $91,695 from June 1, 1997 through May 1, 1999. Payments of $20,000 per month
through May 1, 1997 were applied to principal only; with interest accruing
during this period at an annual effective rate of 15% and payable in the
Company's Common Stock. On June 24, 1996, the Company issued an equivalent of
42,858 shares of Common Stock in payment of accrued interest of $324,546 through
April 30, 1996. In addition, certain warrants held by Aberlyn were terminated.
On May 15, 1997 the Company issued 63,910 shares of Common Stock in payment of
accrued interest of $303,171 through April 30, 1997 at an immaterial discount of
approximately $1.00 per share under the then fair market value of the Common
Stock.
Scheduled principal payments on the long-term financing at June 30,
1997, are as follows:
Fiscal Year
-----------
1998 $869,549
1999 939,590
-----------
$ 1,809,139
(7) SENIOR BRIDGE NOTES:
Class A Offering -- On July 28, 1995, the Company initiated the Class A
Offering of 40 units, with each unit consisting of a $25,000 face amount senior
bridge note and a warrant to purchase 3,456 shares of Common Stock at an
exercise price of $.22 per share. All units were purchased, with net proceeds to
the Company of approximately $907,000 after payment of the placement agent's
commissions and expenses ($90,000) and offering expenses (approximately $3,000).
The nominal exercise price for the warrants reflected the seriously troubled
financial condition of the Company on the date of the transaction, and
accordingly, no value was assigned to the warrants upon issuance. The senior
bridge notes sold in the Class A Offering accrued interest at 1% per month, and
were payable, with interest, one year from the date of issuance. In August and
September of 1996, the Class A Offering notes with accrued interest were repaid
F-13
<PAGE>
in full. The warrants are exercisable at any time, terminate ten years from the
date of issuance, and have certain registration rights.
Class B Offering -- On November 27, 1995, the Company initiated the
Class B Offering of up to 7.5 units at $100,000 per unit, subsequently increased
to 8.5 units, with each unit consisting of a $100,000 face amount senior bridge
note and a warrant to purchase an equivalent of 4,608 shares of common stock at
an exercise price of $2.72. Net proceeds to the Company were $739,500 after
payment of the placement agent's commissions and expenses ($110,500). Due to the
seriously troubled financial condition of the Company on the date of the
transaction, no value was assigned to the warrants upon issuance. The senior
bridge notes sold in the Class B Offering accrued interest at 1% per month, and
were payable, with interest 12 months from the date of issuance, unless
accelerated under certain circumstances. On June 28, 1996, the Class B Offering
notes with accrued interest were paid in full. The warrants are exercisable at
any time, terminate five years from the date of issuance, have certain
registration rights, and contain a call provision.
(8) NOTES PAYABLE
Notes payable consist of four ten year notes totaling $80,000. These
notes were issued as part of a combined stock and debt offering during the
fiscal year ended August 31, 1992. Each note is a promissory note in the face
amount of $20,000, bearing interest at 10% per year, accruing annually.
Principal and interest on the notes is due and payable by December 31, 1997.
(9) COMMITMENTS AND CONTINGENCIES:
Leases -- The Company leases two facilities in New Jersey under
noncancellable operating leases. Future minimum lease payments under those two
leases are as follows:
Fiscal Year
-----------
1998 $ 212,000
1999 216,000
2000 223,000
2001 253,000
2002 255,330
2003 and therafter 1,022,388
Restructuring Charge -- In conjunction with the Company's decision to
consolidate and relocate its research and development facilities and executive
offices from New Mexico to New Jersey, the Company established a restructuring
charge of $284,000. The restructuring charge represents severance costs of
$115,000 and facility closing expenses of $169,000. Five research and
development and three administrative employees were severed as part of the
relocation. Facility closing expenses consist primarily of costs related to
lease termination and fixed asset disposals. Included in accrued expenses at
June 30, 1997, is $144,316 of remaining restructuring charges.
Employment Agreements -- On November 27, 1996, the Board of Directors of
the Company ratified an employment agreement (the "Employment Agreement") with
Edward J. Quilty ("Mr. Quilty") to serve as President and Chief Executive
Officer, originally entered into with RhoMed prior to the Merger. Pursuant to
the Employment Agreement, RhoMed agreed to grant Mr. Quilty an option to acquire
such number of shares of common stock as equal a 10% fully diluted equity
interest in the Company at an exercise price of $.22 per share, which option
vests in 36 equal increments on each of the first 36 monthly
F-14
<PAGE>
anniversaries of the commencement of Mr. Quilty's employment with the Company,
and may be accelerated or terminated in part on the happening of certain events
(the "Initial Option"). The Employment Agreement further provides for
anti-dilution options, pursuant to which Mr. Quilty will be issued options to
acquire the number of shares that, when aggregated with the shares issuable
pursuant to the Initial Option, equal not less than 3.75% of the shares of
common stock of the Company. The Employment Agreement is for an initial period
of one year, with automatic one year extensions, and provides that, on certain
termination events, the portion of the options that would otherwise have
terminated without vesting, vest and are exercisable upon termination, and also
provides for specified termination pay.
On September 27, 1996, the Board of Directors ratified two employment
agreements with two of the officers of the Company. The agreements expire in
June 1999 and provide for current annual salaries of $160,500. The agreements
include specified termination pay and accelerated vesting of stock options under
certain termination events.
Consulting Agreements -- The Company is obligated under two consulting
agreements to make payments totaling $76,500 in fiscal 1998.
License Agreements -- The Company has two license agreements which
require minium yearly payments. Future minium payments under the license
agreements are as follows: 1998 - $100,000, 1999 - $100,000, 2000- $125,000,
2001 - $50,000 and 2002 - $50,000.
Construction -- The Company is currently constructing a research and
development facility in Edison, New Jersey. The Company is committed to a
construction contract for approximately $666,000 as of June 30, 1997. The
remaining services under such contract are expected to be completed in fiscal
1998.
Legal Proceedings -- The Company is subject to various claims and
litigation in the ordinary course of its business. Management believes that the
outcome of such legal proceedings will not have a material adverse effect on the
Company's financial position or future results of operation.
(10) STOCKHOLDERS' EQUITY (DEFICIT):
The Company's Authorized Shares -- The Amendment, effective September 5,
1997, increased the number of shares of authorized Common Stock to 75,000,000,
increased the number of shares of authorized preferred stock to 10,000,000, and
effected a 1-for-4 reverse split of the Common Stock. The consolidated financial
statements have been retroactively restated to reflect the Amendment.
Preferred Stock Transactions -- On December 2, 1996, the Company
commenced the Series A Preferred Offering of units at a price of $100,000 per
unit, each unit consisting of 1,000 shares of Series A Convertible Preferred
Stock. The final closing on the Series A Preferred Offering was effective as of
May 9, 1997, with the Company having sold an aggregate total of 137.78 units,
representing 137,780 shares of Series A Convertible Preferred Stock, for net
proceeds to the Company of approximately $11,637,000, after deducting commission
and other expenses of the Series A Preferred Offering.
Optional Conversion. Each share of Series A Convertible Preferred Stock
is convertible at any time, at the option of the holder, into the number of
shares of Common Stock equal to $100 divided by the "Conversion Price". The
current Conversion Price is $4.96, so each share of Series A Convertible
Preferred Stock is currently convertible into approximately 20.2 shares of
Common Stock. The Conversion Price is subject to adjustment.
Mandatory Conversion. Commencing May 9, 1998, the Company may, at its
option, cause the conversion of the Series A Convertible Preferred Stock, in
whole or in part, on a pro rata basis, into
F-15
<PAGE>
Common Stock at the conversion rate in effect at that time, if the closing bid
price of the Common Stock has exceeded 200% of the then applicable Conversion
Price for at least twenty (20) trading days in any thirty (30) consecutive
trading day period ending three (3) days prior to the date of conversion.
Adjustments to the Conversion Price. The Conversion Price is subject to
adjustment, under certain circumstances, upon the sale or issuance of Common
Stock for consideration per share less than either (i) the Conversion Price in
effect on the date of such sale or issuance, or (ii) the market price of the
Common Stock as of the date of such sale or issuance. The Conversion Price is
also subject to adjustment upon the occurrence of a merger, reorganization,
consolidation, reclassification, stock dividend or stock split which will result
in an increase or decrease in the number of shares of Common Stock outstanding.
Conversion Price Reset Event. The Conversion Price is subject to
adjustment on May 9, 1998 (the "Reset Date") if the average closing bid price of
the Common Stock for the thirty (30) consecutive trading days immediately
preceding the Reset Date (the "Reset Trading Price") is less than 130% of the
then applicable Conversion Price (a "Reset Event"). Upon a Reset Event, the
Conversion Price will be reduced to greater of (i) the Reset Trading Price
divided by 1.3 or (ii) 50% of the Conversion Price in effect before the Reset
Event.
Common Stock Transactions -- On March 4, 1996, the Company initiated the
Common Stock Offering of units at $100,000 per unit, with each unit consisting
of 18,433 shares of Common Stock at a purchase price of $5.44 per share. The
Common Stock Offering was terminated on June 24, 1996, with 96.454 units having
been sold, realizing net proceeds of approximately $8,391,000, and resulting in
the issuance of 1,777,961 shares of Common Stock.
On June 24, 1996, and pursuant to the Merger, certain stockholders of
Interfilm prior to the Merger and third parties purchased 138,249 shares of
Common Stock at a purchase price of $5.44 per share, with net proceeds of
approximately $748,000. In addition, and pursuant to the Merger, warrants to
purchase 69,124 shares of Common Stock at an exercise price of $8.68 were issued
to certain stockholders of Interfilm prior to the Merger and third parties.
These warrants are exercisable at any time, terminate four years from the date
of issuance, have certain registration rights, contain a call provision and are
subject to adjustment in certain circumstances.
In the ten months ended June 30, 1996, the Company issued 31,492 shares
of Common Stock in exchange for services and recorded compensation expense for
the fair market value of the shares.
The Company commenced a private offering of preferred stock in fiscal
1994, and a private offering of units consisting of common stock and common
stock warrants in fiscal 1995, both of which were terminated without having
raised the minimum required for closing. Stock issuance costs incurred in
connection with both offerings were expensed to operations in the fiscal year in
which such costs were incurred.
In February 1993, the Company sold 26,912 shares of Common Stock for net
proceeds of approximately $577,000.
In September 1992, the Company sold 12,288 shares of Common Stock for
net proceeds of approximately $191,000.
In December 1991, the Company issued a private offering memorandum for
the sale of units consisting of 1,211 shares of Common Stock and a $20,000 note
(see Note 8). Four units were sold for $25,000 per unit.
F-16
<PAGE>
All pre-Merger common stock issuances were for RhoMed common stock,
subsequently converted into the Company's Common Stock as a result of the
Merger, and were at issuance prices representing market value of the RhoMed
common stock on the date of issuance.
Outstanding Stock Purchase Warrants -- At June 30, 1997, the Company had
the following warrants outstanding, all of which are currently exercisable
except 2,777 warrants included in "Other Warrants."
<TABLE>
<CAPTION>
Common Exercise Price Latest
Warrant Stock Shares per Share Termination Date
- -------------------------- -------------- --------------- ----------------
<S> <C> <C> <C>
Class A Offering 114,055 $ .22 9/13/05
Class A Placement Agent 20,737 .22 9/13/05
Class B Offering 39,170 2.72 2/15/01
Class B Placement Agent 1,958 6.52 2/15/06
Common Stock Offering PlacementAgent 177,796 6.52 6/25/06
Merger Warrants 69,124 8.68 6/24/00
Series A Preferred Offering
Placement Agent 277,782 5.46 11/9/02
Other Warrants 13,965 $9.00 - $282.00 12/12/06
----------- --------------- --------
Total 714,587 $ .22 - $282.00 6/25/06
=========== =============== ========
</TABLE>
The Class B Offering and Merger Warrants contain provisions providing for
termination of the warrant if not exercised following notice of specified per
share trading prices.
Stock Option Plans -- The Company has one stock option plan currently in
effect under which future grants may be issued, the 1996 Stock Option Plan,
approved by the Company's stockholders on August 25, 1997, for which 625,000
shares of Common Stock are reserved.
Prior to the Merger, the Company had adopted a 1993 Equity Incentive
Plan, pursuant to which options for 6,687 Common Stock shares, giving effect to
the Merger and Amendment, were granted and outstanding at June 30, 1997. No new
shares can be issued under this Plan.
Pursuant to the Merger, options which had been granted under RhoMed's
four stock option plans constituted RhoMed Securities which were automatically
converted into rights upon exercise to receive Common Stock in the same manner
in which the shares of RhoMed common stock were converted.
In October 1995, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation." Effective July 1, 1996, the Company has elected
to adopt the disclosures of this pronouncement. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under SFAS 123, the Company's net loss and net loss
attributable to common stockholders per share for the ten months ended June 30,
1996 would have been $4,060,901 and $7.58, respectively, while net loss and net
loss attributable to common stockholders per share for the year ended June 30,
1997 was $5,695,856 and $2.94, respectively. Because the SFAS 123 method of
accounting has not been applied to options granted prior to September 1, 1995,
the resulting pro forma compensation cost, and thus pro forma net loss, may not
be representative of that to be expected in future years. The weighted average
fair market value at the date of grant for options granted during 1996 and 1997
is estimated as $3.44 and $2.98 per
F-17
<PAGE>
share, respectively, using the Black-Scholes option-pricing model. The
assumptions used in the Black-Scholes model are as follows: dividend yield of
0%, expected volatility of 60%, weighted average risk-free interest rate of
6.37% in 1996 and 6.60% in 1997, and an expected option life of 7 years.
The status of the plans, including predecessor and replacement plans
under which options remain outstanding, giving effect to the Merger, the
Amendment and stockholder approval of the Company's 1996 Stock Option Plan,
during the three years ended June 30, 1997, was as follows:
<TABLE>
<CAPTION>
Incentive Stock Options Nonqualified Stock Options
------------------------------------------ ---------------------------------------
Weighted Weighted
Number average Number average
of Price price per of Price price per
shares per share share shares per share share
---------- ----------------- ---------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception - $ - $ - - $ - $ -
Granted 33,536 7.59 - 21.70 57,583 6.51 - 21.70
Terminated (3,248) 21.70 (115) 21.70
---------- ----------------- ---------- --------------
Outstanding, August 31, 1995 30,288 7.59 - 21.70 16.72 57,468 6.51 - 21.70 11.69
Granted 350,287 .22 - 5.42 79,176 .22 - 5.42
Interfilm, Inc. pre-Merger options 6,687 306.00 - 360.00 - -
Terminated (8,928) 5.42 - 21.70 (2,626) 21.70
---------- ----------------- --------- --------------
Outstanding, June 30, 1996 378,334 .22 - 360.00 10.76 134,018 .22 - 21.70 8.21
Granted 84,044 7.50 - 8.00 100,905 5.44 - 8.00
Terminated (54,958) 5.42 (19,907) 5.42
Exercised (47,918) .22 - -
---------- ------------------ ---------- --------------
Outstanding, June 30, 1997 359,502 .22 - 360.00 12.26 215,016 .22 - 21.70 8.07
Exercisable, June 30, 1997 148,392 $ .22 - $360.00 $23.14 146,028 $.22 - $21.70 $9.12
========== =============== ====== ======== ============= =====
</TABLE>
In addition, during the year ended June 30, 1997, the Company granted
anti-dilution options to Mr. Quilty pursuant to his Employment Agreement to
purchase 152,799 shares of Common Stock at $.20 per share, which were
exercisable as to 33,656 shares as of June 30, 1997, and granted non-plan
options to three executive officers to purchase an aggregate of 110,807 shares
of Common Stock at $4.96 per share, none of which were exercisable as of June
30, 1997. There were no other outstanding non-plan options.
(11) GRANTS AND CONTRACTS:
The Company applies for and has received grants and contracts under the
Small Business Innovative Research ("SBIR") program and other federally funded
grant and contract programs. Since inception, approximately $2,876,173 of the
Company's revenues have been derived from federally or state funded grants and
contracts. Under federal grants and contracts, there are no royalties or other
forms of repayment; however, in certain limited circumstances the government can
acquire rights to technology which is not being commercially exploited. Most
contract costs, including indirect costs, are subject to audit and adjustment by
negotiation with government representatives.
(12) LICENSING FEES AND ROYALTIES:
In December 1996, the Company entered into an Option Agreement with
Nihon Medi-Physics ("Nihon"), pursuant to which the Company received, in January
1997, an initial payment of $1,000,000 before Japanese withholding taxes of
$100,000 (the "Initial Payment"). The Company has accounted for the Initial
Payment by recognizing license fee revenue of $350,000 and deferred license fee
revenue of
F-18
<PAGE>
$550,000. The deferred license fee revenue will be recognized as revenue when a
license agreement is consummated. In the event that the parties can not agree on
terms of a license agreement, the Company could be required to repay $550,000 of
the initial payment back to Nihon. The agreement includes additional payments to
the Company upon the attainment of certain milestones.
(13) INCOME TAXES:
The Company has had no income tax expense or benefit since inception
because of operating losses. Deferred tax assets and liabilities are determined
based on the estimated future tax effect of differences between the financial
statements and tax reporting basis of assets and liabilities, given the
provisions of the tax laws. A valuation allowance for the net deferred tax
assets has been recorded at June 30, 1997, based on the weight of evidence that
the deferred tax assets exceed the likely reversal of deferred tax liabilities
and likely taxable income.
The Tax Reform Act of 1986 imposes limitations on the use of net
operating loss carryforwards if certain stock ownership changes occur. As a
result of the change in majority ownership relating to the Castle preferred
stock transaction, the Common Stock Offering, the Merger, and the Series A
Preferred Stock Offering, the Company most likely will not be able to fully
realize the benefit of its net operating loss carryforwards.
(14) COMPARISON WITH THE YEAR ENDED JUNE 30, 1996:
As noted above, the Company changed its fiscal year end to June 30.
Therefore, the following June 30, 1997 and 1996, selected financial information
is presented for comparative purposes only (unaudited):
Year Ended
June 30,
-------------------------------------
1997 1996
------------- -------------
Revenues $ 722,357 $ 27,517
Research and development expenses 3,409,983 953,730
General and administrative expenses 2,533,883 1,633,598
Other income (expenses) (78,655) (1,687,853)
------------- -------------
Net loss $ (5,300,164) $ (4,247,664)
============= =============
Weighted average number of
common shares outstanding 2,924,073 540,216
============= =============
Net loss per common share $ (1.81) $ (7.86)
============= =============
F-19
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
PALATIN TECHNOLOGIES, INC.
-----------------------------------------------------
Under Section 242 of the
General Corporation Law
of the State of Delaware
-----------------------------------------------------
The undersigned officer of Palatin Technologies, Inc., a Delaware
corporation (the "Corporation"), in order to amend the Restated Certificate of
Incorporation of the Corporation, pursuant to the provisions of Section 242 of
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
1. The Restated Certificate of Incorporation of the Corporation is hereby
amended by striking out Section 1 of Article IV thereof in its entirety and by
substituting in lieu of said Section 1 the following new Section 1:
Section 1. AUTHORIZED CAPITAL STOCK. The Corporation shall be
authorized to issue two classes of shares of capital stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The total
number of shares of capital stock which the Corporation shall have the
authority to issue is 85,000,000, comprised of 75,000,000 shares of Common
Stock, par value $.01 per share, and 10,000,000 shares of Preferred Stock,
par value $.01 per share.
2. The Restated Certificate of Incorporation of the Corporation is hereby
amended by including a new Section 4 of Article IV thereof as follows:
SECTION 4. Upon the date the Certificate of Amendment, including this
Section 4, is filed with the Secretary of State of the State of Delaware
(the "Effective Date"), each four shares of issued and outstanding shares
of Common Stock of this Corporation shall be automatically combined into
one share of Common Stock of this Corporation (the "Reverse Stock Split").
In lieu of the issuance of any
Page 1
<PAGE>
fractional shares that would otherwise result from the Reverse Stock Split,
the Corporation shall pay the cash value of fractions of a share determined
by the average closing price of the Common Stock for the five (5) trading
days immediately preceding the Effective Date multiplied by the fractional
interest. Following the Effective Date, certificates representing the
shares of Common Stock to be outstanding thereafter shall be exchanged for
certificates now outstanding pursuant to procedures adopted by the
Corporation's Board of Directors and communicated to those who are to
receive new certificates.
3. The foregoing amendments to the Corporation's Restated Certificate of
Incorporation were duly authorized and adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
4. This Certificate of Amendment shall become effective at 11:59 p.m., EDT,
on September 5, 1997.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment and does hereby affirm, under penalty of perjury, that the statements
contained herein are true and correct, this 5th day of September, 1997.
Palatin Technologies, Inc.
/s/ John J. McDonough
-----------------------------
Name: John J. McDonough
Title: Vice President
Page 2
LEASE AND LEASE AGREEMENT
Between
CARNEGIE 214 ASSOCIATES LIMITED PARTNERSHIP
The Landlord
And
PALATIN TECHNOLOGIES, INC.
The Tenant
For Leased Premises In
214 Carnegie Center
Princeton, New Jersey
MAY 6, 1997
Prepared by:
Gary O. Turndorf
101 Carnegie Center
Suite 101
Princeton, NJ 08540
(609) 452-1444
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
------- ----
<S> <C> <C>
1. Definitions 1
2. Lease of the Leased Premises 1
3. Rent 1
4. Term 2
5. Preparation of the Leased Premises 3
6. Options 3
7. Use and Occupancy 4
8. Utilities, Services, Maintenance and Repairs 6
9. Allocation of the Expense of Utilities, Services, Maintenance, Repairs and Taxes 7
10. Computation and Payment of Allocated Expenses of Utilities, Services, Maintenance, 8
Repairs, Taxes and Capital Expenditures
11. Leasehold Improvements, Fixtures and Trade Fixtures 13
12. Alterations, Improvements and Other Modifications by the Tenant 14
13. Landlord's Rights of Entry and Access 15
14. Liabilities and Insurance Obligations 16
15. Casualty Damage to Building or Leased Premises 18
16. Condemnation 19
17. Assignment or Subletting by Tenant 20
18. Signs, Displays and Advertising 22
19. Quiet Enjoyment 23
20. Relocation 23
21. Surrender 23
22. Events of Default 24
23. Rights and Remedies 25
24. Termination of the Term 28
25. Mortgage and Underlying Lease Priority 29
26. Transfer by Landlord 29
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
27. Indemnification 30
28. Parties' Liability 31
29. Security Deposit 33
30. Representations 33
31. Reservation in Favor of Tenant 34
32. Tenant's Certificates and Mortgagee Notice Requirements 34
33. Waiver of Jury Trial and Arbitration 36
34. Severability 36
35. Notices 36
36. Captions 36
37. Counterparts 36
38. Applicable Law 37
39. Exclusive Benefit 37
40. Successors 37
41. Amendments 37
42. Waiver 37
43. Course of Performance 37
</TABLE>
TABLE OF EXHIBITS
Exhibit
Leased Premises Floor Space Diagram A
Property Description B
Work Letter C
Building Rules and Regulations D
Definitions and Index of Definitions E
Form of Estoppel Certificate F
-iii-
<PAGE>
LEASE AND LEASE AGREEMENT, dated May 6, 1997, between CARNEGIE 214 ASSOCIATES
LIMITED PARTNERSHIP, a New Jersey limited partnership, with offices at Suite
101, 101 Carnegie Center, Princeton, New Jersey 08540 (the "Landlord"), and
PALATIN TECHNOLOGIES, INC., a Delaware corporation, with an office at 214
Carnegie Center, Princeton, NJ 08540 (the "Tenant").
Subject to all the terms and conditions set forth below, the Landlord and the
Tenant hereby agree as follows:
1. Definitions.
Certain terms and phrases used in this Agreement (generally those whose first
letters are capitalized) are defined in Exhibit E attached hereto and, as used
in this Agreement, they shall have the respective meanings assigned or referred
to in that exhibit.
2. Lease of the Leased Premises.
2.1. The Landlord shall, and hereby does, lease to the Tenant, and the
Tenant shall, and hereby does, accept and lease from the Landlord, the
Leased Premises during the Term. The Leased Premises consist of 3,970
square feet of gross rentable floor space on the first floor of 214
Carnegie Center, as more fully described in the definition of Leased
Premises set forth in Exhibit E attached hereto.
2.2. The Landlord shall, and hereby does, grant to the Tenant, and the
Tenant shall, and hereby does, accept from the Landlord, the
non-exclusive right to use the Common Facilities during the Term for
itself, its employees, other agents and Guests in common with the
Landlord, any tenants of Other Leased Premises, any of their respective
employees, other agents and guests and such other persons as the
Landlord may, in the Landlord's sole discretion, determine from time to
time.
3. Rent.
3.1. The Tenant shall punctually pay the Rent for the Leased Premises for
the Term to the Landlord in the amounts and at the times set forth
below, without bill or other demand and without any offset, deduction
or, except as may be otherwise specifically set forth in this
Agreement, abatement whatsoever.
3.2. The Basic Rent for the Leased Premises during the Initial Term shall be
at the rate per year set forth below:
Years Annual Rate Monthly Rate
----- ------ ---- ------- ----
1 through 5 $97,265.04 $8,105.42
The annual rate of Basic Rent for the Leased Premises during any Renewal Term
shall be calculated as set forth in subsection 6.3 of this Agreement for the
respective Renewal Term.
3.3. The Tenant shall punctually pay the applicable Basic Rent in equal
monthly installments in advance on the first day of each month during
the Term, with the exception of Basic Rent for the first full calendar
month of the Initial Term and for any period of less than a full
calendar
-1-
<PAGE>
month at the beginning of the Term. The Tenant shall pay the Basic Rent
for the first full calendar month of the Initial Term upon execution
and delivery of this Agreement. The Tenant shall punctually pay the
Basic Rent for a period of less than a full calendar month at the
beginning of the Term on the Commencement Date.
3.4. The Basic Rent and the Additional Rent for any period of less than a
full calendar month shall be prorated. In the event that any
installment of Basic Rent cannot be calculated by the time payment is
due, such portion as is then known or calculable shall be then due and
payable; and the balance shall be due upon the Landlord's giving notice
to the Tenant of the amount of the balance due.
3.5. The Additional Rent for the Leased Premises during the Term shall be
promptly paid by the Tenant in the respective amounts and at the
respective times set forth in this Agreement.
3.6. That portion of any amount of Rent or other amount due under this
Agreement which is not paid on the day it is first due shall incur a
late charge equal to the sum of: (i) five percent of that portion of any
amount of Rent or other amount due under this Agreement which is not
paid on the day it is first due and (ii) interest on that portion of any
amount of Rent or other amount due under this Agreement which is not
paid on the day it is first due at the Base Rate(s) in effect from time
to time plus two additional percentage points from the day such portion
is first due through the day of receipt thereof by the Landlord. Any
such late charge due from the Tenant shall be due immediately.
4. Term.
4.1. The Initial Term shall commence on the Commencement Date and shall
continue for five years from the beginning of the Initial Year, unless
sooner terminated in accordance with section 24 of this Agreement. The
Term shall commence on the Commencement Date and shall continue until
the later of the conclusion of the Initial Term or the conclusion of
any Renewal Term, unless sooner terminated in accordance with section
24 of this Agreement.
4.2. Unless one or more of the conditions contemplated by subsection 4.3 of
this Agreement occurs, the Commencement Date shall be the later of:
4.2.1. the Target Date; or
4.2.2. the date the Landlord can deliver actual and exclusive
possession of the Leased Premises to the Tenant in accordance
with the provisions of Article 5 of this Agreement.
4.3. In the event one or more of the conditions contemplated by this
subsection 4.3 of the Agreement occurs, notwithstanding anything to the
contrary set forth in subsection 4.2 of this Agreement, the
Commencement Date shall be the earliest date the Tenant takes
possession of, occupies or moves any furniture, furnishings, equipment
(with the exception of equipment required for telecommunications
hook-ups), supplies or other possessions into, the Leased Premises or
any portion thereof earlier than the date otherwise determined in
accordance with subsection 4.2 of this Agreement.
-2-
<PAGE>
4.4. Once it is ascertained in accordance with subsections 4.2 and 4.3 of
this Agreement, the Landlord shall give prompt notice of the
Commencement Date to the Tenant; and if the Tenant does not object
thereto by notice given to the Landlord within 10 days of the
Landlord's notice, the date set forth in the Landlord's notice shall
thereafter be conclusively presumed to be the Commencement Date.
5. Preparation of the Leased Premises.
The Landlord shall deliver actual and exclusive possession of the Leased
Premises to the Tenant in an "AS-IS" condition, free of rubbish and debris.
6. Options.
6.1. If, prior to the respective date of exercise thereof, (a)(i) no Event
of Default shall have occurred or (ii) if an Event of Default shall have
occurred, the Tenant shall have previously cured it in full and the
Landlord shall have waived it and (b) there shall not have been a
History of Recurring Events of Default, the Tenant shall have one
option, exercisable exclusively at the time and in the manner set forth
below in subsection 6.2 of this Agreement, to extend the Term for one
additional period of five years' duration. If the option is properly
exercised, the period to which it relates shall commence upon the end of
the Expiring Term. The option is an "Option to Renew."
6.2. In the event the Tenant is interested in exercising the Option to
Renew, the Tenant shall give timely notice of the Tenant's interest to
the Landlord no earlier than nine, and no later than eight, months prior
to the end of the Expiring Term. Within four weeks of the giving of such
notice, the Landlord shall give notice to the Tenant of the Market
Rental Rate in effect eight months prior to end of the Expiring Term. In
the event the Tenant desires to exercise the Option to Renew, the Tenant
shall do so exclusively by giving timely notice thereof to the Landlord
no earlier than seven, and no later than six, months prior to the end of
the Expiring Term, and indicating in that notice whether or not the
Market Rental Rate in effect eight months prior to the end of the
Expiring Term is acceptable. In the event the Tenant fails timely to
notify the Landlord of its interest in exercising the Option to Renew or
timely to exercise the Option to Renew, that Option to Renew shall
thereupon expire.
6.3. The Basic Rent for the Leased Premises during the Renewal Term shall be
the Market Rental Rate, as set forth in the Landlord's notice to the
Tenant of the Market Rental Rate, unless the Tenant, in the Tenant's
notice contemplated by the third sentence of subsection 6.2 of this
Agreement affirmatively indicates that the Market Rental Rate for the
Renewal Term is not acceptable, in which case the Basic Rent for the
Leased Premises during the Renewal Term shall be the greater of:
6.3.1. that amount which is the product of the annual rate of Basic
Rent in effect during the last 12 months of the Expiring Term
multiplied by the sum of the following two amounts: (a) one
and (b) the amount obtained by multiplying five-hundredths
(.05) by the number of full calendar months in the Expiring
Term and dividing the result by 12; or
-3-
<PAGE>
6.3.2. that amount which bears the same ratio to the annual rate of
Basic Rent in effect during the Expiring Term as the Index for
the ninth month before the end of the Expiring Term bears to
the Index for the ninth month before the first full calendar
month at the beginning of the Expiring Term.
6.4. In the event the Tenant assigns this Agreement or sublets, or licenses
the use or occupancy of, the Leased Premises or any portions thereof in
accordance with section 17 of this Agreement or otherwise, or attempts
to do so:
6.4.1. any Option to Renew which the Tenant has theretofore properly
exercised with respect to a Renewal Term that has not yet
actually commenced shall be rescinded, if the Landlord so
elects by notice to the Tenant, to the same extent as if it
had not been exercised at all; and
6.4.2. any Option to Renew or any other type of option or optional
right exercisable by the Tenant not theretofore timely and
otherwise properly exercised by the Tenant shall thereupon
expire.
7. Use and Occupancy.
7.1. The Tenant shall continuously occupy and use the Leased Premises during
the Term exclusively as an office for its business of administering the
off-site manufacture and sale of its medical supplies.
7.2. In connection with the Tenant's use and occupancy of the Leased
Premises and use of the Common Facilities, the Tenant shall observe,
and the Tenant shall cause the Tenant's employees, other agents and
Guests to observe, each of the following:
7.2.1. the Tenant shall not do, or permit or suffer the doing of,
anything which might have the effect of creating not
insignificantly increased risk of, or damage from, fire,
explosion or other casualty;
7.2.2. the Tenant shall not do, or permit or suffer the doing of,
anything which would have the effect of (a) increasing any
premium for any liability, property, casualty or excess
coverage insurance policy otherwise payable by the Landlord or
any tenant of Other Leased Premises or (b) making any such
types or amounts of insurance coverage unavailable or less
available to the Landlord or any tenant of Other Leased
Premises;
7.2.3. to the extent they are not inconsistent with this Agreement,
the Tenant and the Tenant's employees, other agents and Guests
shall comply with the Building Rules and Regulations attached
hereto as Exhibit D, and with any changes made therein by the
Landlord if, with respect to any such changes, the Landlord
shall have given notice of the particular changes to the
Tenant and such changes shall not materially adversely affect
the conduct of the Tenant's business in the Leased Premises;
7.2.4. the Tenant and the Tenant's employees, other agents and Guests
shall not create, permit or continue any Nuisance in or around
the Carnegie Center Complex, the Leased Premises, the Other
Leased Premises, the Building, the Common Facilities and the
Property;
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7.2.5. The Tenant and the Tenant's employees, other agents and Guests
shall not permit the Leased Premises to be regularly occupied
by more than one individual per 200 square feet of usable
floor space of the Leased Premises;
7.2.6. the Tenant and the Tenant's employees, other agents and Guests
shall comply with all Federal, state and local statutes,
ordinances, rules, regulations and orders as they pertain to
the Tenant's use and occupancy of the Leased Premises, to the
conduct of the Tenant's business and to the use of the Common
Facilities, except that this subsection shall not require the
Tenant to make any structural changes that may be required
thereby that are generally applicable to the Building as a
whole;
7.2.7. the Tenant and the Tenant's employees, other agents and Guests
shall comply with the requirements of the Board of Fire
Underwriters (or successor organization) and of any insurance
carriers providing liability, property, casualty or excess
insurance coverage regarding the Property, the Building, the
Common Facilities or any portions thereof, any other
improvements on the Property and the Carnegie Center Complex,
except that this subsection shall not require the Tenant to
make any structural changes that may be required thereby that
are generally applicable to the Building as a whole;
7.2.8. the Tenant and the Tenant's employees, other agents and
Guests shall not bring or discharge any substance (solid
liquid or gaseous), or conduct any activity, in or on the
Carnegie Center Complex, the Property, the Building, the
Common Facilities or the Leased Premises that shall have
been identified by the scientific community or by any
Federal, state or local statute (including, without limiting
the generality of the foregoing, the Spill Compensation and
Control Act (58 N.J.S.A. sec.23.11 et seq.) and the
Industrial Site Recovery Act (13 N.J.S.A. sec.1 K-6 et
seq.), as they may be amended), ordinance, rule, regulation
or order as toxic or hazardous to health or to the
environment;
7.2.9. the Tenant and the Tenant's employees, other agents and
Guests shall not draw electricity in the Leased Premises in
excess of the rated capacity of the electrical conductors
and safety devices including, without limiting the
generality of the foregoing, circuit breakers and fuses, by
which electricity is distributed to and throughout the
Leased Premises and, without the prior written consent of
the Landlord in each instance, shall not connect any
fixtures, appliances or equipment to the electrical
distribution system serving the Building and the Leased
Premises other than typical professional office equipment
such as minicomputers, microcomputers, typewriters, copiers,
telephone systems, coffee machines and table top microwave
ovens, none of which, considered individually and in the
aggregate, overall and per fused or circuit breaker
protected circuit, shall exceed the above limits;
7.2.10. on a timely basis the Tenant shall pay directly and
promptly to the respective taxing authorities any taxes
(other than Taxes) charged, assessed or levied exclusively
on the Leased Premises or arising exclusively from the
Tenant's use and occupancy of the Leased Premises; and
7.2.11. the Tenant shall not initiate any appeal or contest of
any assessment or collection of Taxes for any period
without, in each instance, the prior written consent of the
Landlord
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which, without being deemed unreasonable, the Landlord may
withhold if the Building was not 90% occupied by paying tenants
throughout that period or if the Tenant is not joined by tenants
of Other Leased Premises that leased throughout that period, and
that are then leasing, at least 80% of all Other Leased
Premises, determined by their gross rentable floor space.
7.3. Tenant agrees to prepare, furnish and enforce a traffic management plan
(the "Traffic Plan") that the Landlord can submit in connection with
site plan approval or other governmental requirements. The Traffic Plan
shall include, but not be limited to, such matters as staggered work
schedules and van pooling. Landlord agrees that the Regular Business
Hours shall be extended, if necessary, to take into account any
staggered work schedule required under the Traffic Plan.
8. Utilities, Services, Maintenance and Repairs.
8.1. The Landlord shall provide or arrange for the provision of:
8.1.1. such maintenance and repair of the Building (except the Leased
Premises and Other Leased Premises); the Common Facilities;
and the heating, ventilation and air conditioning systems, any
plumbing systems and the electrical systems in the Building,
the Common Facilities, the Leased Premises and Other Leased
Premises as is customarily provided for first class office
buildings in the immediate area;
8.1.2. such garbage removal from the Building and the Common
Facilities and such janitorial services for the Building, the
Leased Premises and Other Leased Premises as is customarily
provided for first class office buildings in the immediate
area;
8.1.3. water to the Building and, if the appropriate plumbing has
been installed therein, the Leased Premises and Other Leased
Premises;
8.1.4. sewage disposal for the Building;
8.1.5. passenger elevator service for the Building;
8.1.6. snow clearance from, and sweeping of, Parking Facilities and
driveways which are part of the Property; and
8.1.7. the maintenance of landscaping which is part of the Property.
8.2. The Landlord shall provide or arrange for the provision of:
8.2.1. such maintenance and repair of the Leased Premises, except for
refinishing walls and wall treatments, base, ceilings, floor
treatments and doors in general from time to time or for
gouges, spots, marks, damage or defacement caused by anyone
other than the Landlord, its employees and other agents, and
except for the Tenant's furniture, furnishings, equipment and
other property;
8.2.2. such maintenance and repair of the Other Leased Premises,
except for refinishing walls and wall treatments, base,
ceilings, floor treatments and doors in general from time to
time or for gouges, spots, marks, damage or defacement caused
by anyone other than the
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Landlord, its employees and other agents, and except for the
respective tenants' furniture, furnishings, equipment and
other property;
8.2.3. the electricity required for the operation of the Building,
the Property and the Common Facilities during Regular Business
Hours and, on a reduced service basis, during other than
Regular Business Hours, and, at all times, the electricity
required for the Leased Premises and Other Leased Premises;
8.2.4. such heat, ventilation and air conditioning for the Building,
the Leased Premises and Other Leased Premises as is
customarily provided for first class office buildings in the
immediate area for the comfortable use of the Building during
Regular Business Hours; and
8.2.5. heated water to the Building (except the Leased Premises and
Other Leased Premises, unless the appropriate plumbing,
fixtures and hot water heating units have been installed
therein).
8.3. Except as specifically set forth in subsections 8.1 and 8.2.1 of this
Agreement, the Tenant shall maintain and repair the Leased Premises and
keep the Leased Premises in as good condition and repair, reasonable
wear and use excepted, as the Leased Premises are upon the completion
of any improvements contemplated by section 5 of this Agreement.
9. Allocation of the Expense of Utilities, Services, Maintenance, Repairs and
Taxes.
9.1. All Tenant Electric Charges shall be borne by the Tenant.
9.2. Between the Commencement Date and the end of the No Pass Through
Period, the Tenant's Share of all Operational Expenses and Taxes
incurred during such period shall be borne by the Landlord.
9.3. Between the day after the end of the No Pass Through Period and the end
of the Term, the Tenant's Share of Operational Expenses and Taxes
incurred during each annual or shorter period ending on (a) December 31
of each year and (b) the end of the Term shall be borne as follows:
9.3.1. the Tenant's Share of: Operational Expenses and Taxes incurred
during each such period of 12 months (or shorter period), up
to the amounts of Base Year Operational Expenses and Base Year
Taxes, respectively (or proportional amount thereof for
periods shorter than 12 months), shall be borne by the
Landlord; and
9.3.2. the Tenant's Share of: the amounts by which Operational
Expenses and Taxes incurred during each such period of 12
months (or shorter period) exceed Base Year Operational
Expenses and Base Year Taxes, respectively (or proportional
amount thereof for periods shorter than 12 months) shall be
allocated to, and borne by, the Tenant as more specifically
set forth in section 10 of this Agreement.
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10. Computation and Payment of Allocated Expenses of Utilities, Services,
Maintenance, Repairs, Taxes and Capital Expenditures.
10.1. The Tenant shall promptly pay the following additional amounts to the
Landlord at the respective times set forth below:
10.1.1. commencing with the first day after the end of the No Pass
Through Period, and on the first day of each month thereafter
during the Term, one-twelfth of the Tenant's Share of the amount
by which Taxes for the then current calendar year exceeds Base
Year Taxes, computed in accordance with subsection 10.5 of this
Agreement. When Landlord knows of facts which cause a revision
of the estimate, it may serve a revised estimate and, for the
balance of the current calendar year, the estimated payments
shall be made accordingly;
10.1.2. within 20 days of the Landlord's giving notice to the Tenant
after the close of each calendar year closing during the Term,
commencing with the first calendar year closing after the close
of the No Pass Through Period, and after the end of the Term,
the Tenant's Share of the difference between the Landlord's
previously projected amount of Taxes for such period and the
actual amount of Taxes for such period, in either case in excess
of Base Year Taxes, computed in accordance with subsection 10.6
of this Agreement (unless such difference is a negative amount,
in which case the Landlord shall credit such difference against
any amounts next due from the Tenant under subsections 10.1.1
and 10.5 of this Agreement);
10.1.3. commencing with the first day after the end of the No Pass
Through Period, and on the first day of each month thereafter
during the Term, one-twelfth of the Tenant's Share of the amount
by which Operational Expenses for the then current calendar year
exceed Base Year Operational Expenses, computed in accordance
with subsection 10.7 of this Agreement. When Landlord knows of
facts which cause a revision of the estimate, it may serve a
revised estimate and, for the balance of the current calendar
year, the estimated payments shall be made accordingly;
10.1.4. within 20 days of the Landlord's giving notice to the Tenant
after the close of each calendar year closing during the Term,
commencing with the first calendar year closing after the close
of the No Pass Through Period, and after the end of the Term,
the Tenant's Share of the difference between the Landlord's
previously projected amount of Operational Expenses for such
period and the actual amount of Operational Expenses for such
period, in either case in excess of Base Year Operational
Expenses, computed in accordance with subsection 10.8 of this
Agreement (unless such difference is a negative amount, in which
case the Landlord shall credit such difference against any
amounts next due from the Tenant under subsections 10.1.5 and
10.7 of this Agreement);
10.1.5. commencing with the first day of the first month after the
Landlord gives any notice contemplated by subsection 10.9 of
this Agreement to the Tenant and continuing on the first day of
each month thereafter until the earlier of (a) the end of the
Term or (b) the last month of the useful life set forth in the
respective notice, one-twelfth of the
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Tenant's Share of any Annual Amortized Capital Expenditure,
computed in accordance with subsection 10.9 of this Agreement;
10.1.6. on the first day of each month during the Term, the monthly
Tenant Electric Charges, computed in accordance with subsection
10.10 of this Agreement; and
10.1.7. promptly as and when billed therefor by the Landlord, the
amount of any expense which would otherwise fall within the
definition of Operational Expenses, but which is specifically
paid or incurred by the Landlord for operation and maintenance
of the Building, the Common Facilities or the Property outside
Regular Business Hours at the specific request of the Tenant or
the amount of any expenditure incurred for maintenance or repair
of damage to the Building, the Common Facilities, the Property,
the Leased Premises or the Other Leased Premises caused directly
or indirectly, in whole or in part, by the active or passive
negligence or intentional act of the Tenant or any of its
employees, other agents or Guests.
10.2. "Operational Expenses" means all expenses paid or incurred by the
Landlord in connection with the Property, the Building, the Common
Facilities and any other improvements on the Property and their
operation and maintenance (other than Taxes (which are separately
allocated to the Tenant in accordance with subsections 10.1.1 and
10.1.2 of this Agreement), Capital Expenditures (which are separately
allocated to the Tenant in accordance with subsection 10.1.5 of this
Agreement) and those expenses contemplated by subsections 10.1.6 and
10.1.7 of this Agreement)) including, without limiting the generality
of the foregoing:
10.2.1. Utilities Expenses;
10.2.2. the expense of providing the services, maintenance and
repairs contemplated by subsections 8.1, 8.2.1 and 8.2.2 of
this Agreement, whether furnished by the Land lord's
employees or by independent contractors or other agents;
10.2.3. wages, salaries, fees and other compensation and
payments and payroll taxes and contributions to any social
security, unemployment insurance, welfare, pension or
similar fund and payments for other fringe benefits required
by law or union agree ment (or, if the employees or any of
them are not represented by a union, then payments for
benefits comparable to those generally required by union
agreement in first class office buildings in the immediate
area which are unionized) made to or on behalf of any
employees of Landlord performing services rendered in
connection with the operation and maintenance of the
Building, the Common Facilities and the Property, including,
without limiting the generality of the foregoing, elevator
opera tors, elevator starters, window cleaners, porters,
janitors, maids, miscellaneous handymen, watchmen, persons
engaged in patrolling and protecting the Building, the
Common Facilities and the Property, carpenters, engineers,
firemen, mechanics, electricians, plumbers, other tradesmen,
other persons engaged in the operation and maintenance of
the Building, Common Facilities and Property, Building
superinten dent and assistants, Building manager, and
clerical and administrative personnel;
10.2.4. the uniforms of all employees and the cleaning, pressing and
repair thereof;
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10.2.5. premiums and other charges incurred by Landlord with
respect to all insurance relating to the Building, the
Common Facilities and the Property and the operation and
maintenance thereof, including, without limitation: property
and casualty, fire and extended coverage insurance,
including windstorm, flood, hail, explosion, other casualty,
riot, rioting attending a strike, civil commotion, aircraft,
vehicle and smoke insurance; public liability insurance;
elevator, boiler and machinery insurance; excess liability
coverage insurance; use and occupancy insurance; workers'
compensation and health, accident, disability and group life
insurance for all employees; and casualty rent insurance;
10.2.6. sales and excise taxes and the like upon any Operational
Expenses and Capital Expenditures;
10.2.7. management fees of any independent managing agent for
the Property, the Building or the Common Facilities; and if
there shall be no independent managing agent, or if the
managing agent shall be a person affiliated with the
Landlord, the management fees that would customarily be
charged for the management of the Property, the Building and
the Common Facilities by an independent, first class
managing agent in the immediate area;
10.2.8. the cost of replacements for tools, supplies and
equipment used in the operation, service, maintenance,
improvement, inspection, repair and alteration of the
Building, the Common Facilities and the Property;
10.2.9. the cost of repainting or otherwise redecorating any
part of the Building or the Common Facilities;
10.2.10. decorations for the lobbies and other Common Facilities
in the Building;
10.2.11. the cost of licenses, permits and similar fees and
charges related to operation, repair and maintenance of the
Building, the Property and the Common Facilities;
10.2.12. an allocable share of service, replacement, repair,
maintenance and other charges assessed from time to time by
the Carnegie Center Owner's Association II to the Building;
and
10.2.13. any and all other expenditures of the Landlord in
connection with the operation, alteration, repair or
maintenance of the Property, the Common Facilities or the
Building as a first-class office building and facilities in
the immediate area which are properly treated as an expense
fully deductible as incurred in accordance with generally
applied real estate accounting practice.
10.3. "Capital Expenditures" means the following expenditures incurred or
paid by the Landlord in connection with the Property, the Building, the
Common Facilities and any other improvements on the Property:
10.3.1. all costs and expenses incurred by the Landlord in
connection with retro-fitting the entire Building or the
Common Facilities, or any portion thereof, to comply with
any change in Federal, state or local statute, rule,
regulation, order or requirement which change takes effect
after the original completion of the Building;
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10.3.2. all costs and expenses incurred by the Landlord to replace
and improve the Property, the Building or the Common
Facilities or portions thereof for the purpose of contin ued
operation of the Property, the Building and the Common
Facilities as a first class office complex in the immediate
area; and
10.3.3. all costs and expenses incurred by the Landlord in
connection with the installation of any energy, labor or
other cost saving device or system on the Property or in the
Building or the Common Facilities.
10.4. Neither "Operational Expenses" nor "Capital Expenditures" shall
include any of the following:
10.4.1. principal or interest on any mortgage indebtedness on the
Property, the Building or any portion thereof;
10.4.2. any capital expenditure, or amortized portion thereof, other
than those included in the definition of Capital
Expenditures set forth in subsection 10.3 above;
10.4.3. expenditures for any leasehold improvement which is made in
connection with the preparation of any portion of the
Building for occupancy by a new tenant or which is not made
generally to or for the benefit of the Leased Premises and
all Other Leased Premises or generally to the Building or
the Common Facilities;
10.4.4. to the extent the Landlord actually receives proceeds of
property and casualty insur ance policies on the Building,
other improvements on the Property or the Common Facilities,
expenditures for repairs or replacements occasioned by fire
or other casualty to the Building or the Common Facilities;
10.4.5. expenditures for repairs, replacements or rebuilding
occasioned by any of the events contemplated by section 16
of this Agreement;
10.4.6. expenditures for costs, including advertising and leasing
commissions, incurred in connection with efforts to lease
portions of the Building and to procure new tenants for the
Building;
10.4.7. expenditures for the salaries and benefits of the executive
officers, if any, of the Landlord; and
10.4.8. depreciation (as that term is used in the accounting sense
in the context of generally applied real estate accounting
practice) of the Building, the Common Facilities and any
other improvement on the Property.
10.5. As soon as practicable after the close of the No Pass Through Period
and December 31 of each year thereafter, any portion of which is during
the Term, the Landlord shall furnish the Tenant with a notice setting
forth:
10.5.1. Taxes billed, or if a bill has not then been received
for the entire period, the Land lord's projection of Taxes
to be billed, for the then current calendar year;
10.5.2. the amount of Base Year Taxes;
10.5.3. the amount, if any, by which item 10.5.1 above exceeds item
10.5.2 above; and
10.5.4. the Tenant's Share of item 10.5.3 above.
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10.6. As soon as practicable after December 31 of each year during the Term
and after the end of the Term, the Landlord shall furnish the Tenant
with a notice setting forth:
10.6.1. the actual amount of Taxes for the preceding calendar
year in excess of Base Year Taxes (or proportional amount
thereof for shorter periods during the Term);
10.6.2. the Landlord's previously projected amount of Taxes for
the preceding calendar year in excess of Base Year Taxes (or
proportional amount thereof for shorter periods during the
Term);
10.6.3. the difference obtained by subtracting item 10.6.2 above
from item 10.6.1 above; and
10.6.4. the Tenant's Share of item 10.6.3 above.
10.7. As soon as practicable after the close of the No Pass Through Period
and December 31 of each year thereafter, any portion of which is during
the Term, the Landlord shall furnish the Tenant with a notice setting
forth:
10.7.1. the Landlord's projection of annual Operational Expenses
for the current period (if any portion thereof is during the
Term);
10.7.2. the amount of the Base Year Operational Expenses;
10.7.3. the amount, if any, by which item 10.7.1 above exceeds item
10.7.2 above; and
10.7.4. the Tenant's Share of item 10.7.3 above.
10.8. As soon as practicable after December 31 of each year during the Term
and after the end of the Term, the Landlord shall furnish the Tenant
with a notice setting forth:
10.8.1. the actual amount of Operational Expenses for the
preceding calendar year in excess of Base Year Operational
Expenses (or proportional amount thereof for shorter periods
during the Term);
10.8.2. the Landlord's previously projected amount of Operational
Expenses for the preced ing calendar year in excess of Base
Year Operational Expenses (or proportional amount thereof
for shorter periods during the Term);
10.8.3. the difference obtained by subtracting item 10.8.2 above
from item 10.8.1 above; and
10.8.4. the Tenant's Share of item 10.8.3 above.
10.9. As soon as practicable after incurring any Capital Expenditure, the
Landlord shall furnish the Tenant with a notice setting forth:
10.9.1. a description of the Capital Expenditure and the subject
thereof;
10.9.2. the date the subject of the respective Capital
Expenditure was first placed into service and the period of
useful life selected by the Landlord in connection with the
determi nation of the Annual Amortized Capital Expenditure;
10.9.3. the amount of the Annual Amortized Capital Expenditure; and
10.9.4. the Tenant's Share of item 10.9.3 above.
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10.10. As soon as practicable after the Commencement Date and from time to
time thereafter, the Landlord shall furnish the Tenant with a notice
setting forth its estimate of Tenant Electric Charges per month. Unless
the Tenant desires to question the Landlord's then most recent estimate
of Tenant Electric Charges exclusively in the manner set forth below,
the Landlord's then most recent estimate shall be binding and shall
continue in effect until any question raised by the Tenant is otherwise
resolved in accordance with this subsection 10.10 of the Agreement. If
the Tenant desires to question the Landlord's estimate of Tenant
Electric Charges, the Tenant shall give notice to the Landlord of its
desire. Upon receipt of the Tenant's notice, the Landlord shall obtain,
at the Tenant's expense, a reputable, independent electrical engineer's
formal written estimate and computation of the Tenant Electric Charges.
The engineer's estimate and computation of Tenant Electric Charges shall
thereupon control for a 12 month period com mencing with the date as of
which it is given effect as to Tenant Electric Charges, and until the
Landlord furnishes the Tenant with a subsequent notice setting forth its
estimate of Tenant Electric Charges per month, except to the extent that
the Landlord may increase them in proportion to increases in Utilities
Expenses during the same period.
10.11. Within 30 days after the Landlord gives any notice enumerated in
subsections 10.5 through 10.10 of this Agreement, the Tenant or the
Tenant's authorized agent, upon one week's prior notice to the Landlord,
may inspect the Landlord's books and records, as they pertain to the
particular expense in question, at the Landlord's office regarding the
subject of any such notice to verify the amount(s) and calculation(s)
thereof. After payment of the Tenant's Share in accordance with the
provisions of section 10 of this Agreement, no further audit shall be
conducted except with respect to items which may have been questioned
within the 30 day period. Tenant agrees that no audit will be conducted
by an auditor engaged, in whole or in part, on a contingent fee basis.
If an audit is conducted, the Landlord shall have the right to verify
that the provisions of this prohibition have been satisfied.
10.12. The mere enumeration of an item within the definitions of Operational
Expenses and Capital Expenditures in subsections 10.2 and 10.3 of this
Agreement, respectively, shall not be deemed to create an obligation on
the part of the Landlord to provide such item unless the Landlord is
affirmatively required to provide such item elsewhere in this Agreement.
11. Leasehold Improvements, Fixtures and Trade Fixtures.
All leasehold improvements to the Leased Premises, fixtures installed in the
Leased Premises and the blinds and floor treatments or coverings shall be the
property of the Landlord, regardless of when, by which party or at which party's
cost the item is installed. Movable furniture, furnishings, trade fixtures and
equipment of the Tenant which are in the Leased Premises shall be the property
of the Tenant, except as may otherwise be set forth in section 23 of this
Agreement.
12. Alterations, Improvements and Other Modifications by the Tenant.
12.1. The Tenant shall not make any alterations, improvements or other
modifications to the Leased Premises which effect structural changes in
the Building or any portion thereof, change the functional utility or
rental value of the Leased Premises or, except as may be contemplated by
section 5 of this Agreement prior to the Commencement Date, affect the
mechanical, electrical, plumbing or other systems installed in the
Building or the Leased Premises.
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12.2. The Tenant shall not make any other alterations, improvements or
modifications to the Leased Premises, the Building or the Property or
make any boring in the ceiling, walls or floor of the Leased Premises
or the Building unless the Tenant shall have first:
12.2.1. furnished to the Landlord detailed, New Jersey
architect-certified construction drawings, construction
specifications and, if they pertain in any way to the
heating, ventilation and air conditioning or other systems
of the Building, related engineering design work and
specifications regarding, the proposed alterations,
improvements or other modifications;
12.2.2. not received a notice from the Landlord objecting thereto in
any respect within 30 days of the furnishing thereof (which
shall not be deemed the Landlord's affirmative consent for
any purpose);
12.2.3. obtained any necessary or appropriate building permits or
other approvals from the Municipality and, if such permits
or other approvals are conditional, satisfied all conditions
to the satisfaction of the Municipality; and
12.2.4. met, and continued to meet, all the following conditions
with regard to any contractors selected by the Tenant and
any subcontractors, including materialmen, in turn selected
by any of them:
12.2.4.1. the Tenant shall have sole responsibility
for payment of, and shall pay, such
contractors;
12.2.4.2. the Tenant shall have sole responsibility
for coordinating, and shall coordinate, the
work to be supplied or performed by such
contractors, both among themselves and with
any contractors selected by the Landlord;
12.2.4.3. the Tenant shall not permit or suffer the
filing of any mechanic's notice of
intention or other lien or prospective
lien by any such contractor or subcontractor
with respect to the Property, the Common
Facilities, the Building or any other
improvements on the Property; and if any of
the foregoing should be filed by any such
contractor or subcontractor,the Tenant shall
forthwith obtain and file the complete
discharge and release thereof or provide
such payment bond(s) from a reputable,
financially sound institutional surety as
will, in the opinions of the Landlord,
the holders of any mortgage indebtedness on,
or other interest in, the Property, the
Building, the Common Facilities or any other
improvements on the Property, or any
portions thereof, and their respective title
insurers, be adequate to assure the
complete discharge and release thereof;
12.2.4.4. prior to any such contractor's entering upon
the Property, the Building or the Leased
Premises or commencing work the Tenant shall
have deliv ered to the Landlord (a) all the
Tenant's certificates of insurance set forth
in section 14 of this Agreement, conforming
in all respects to the require ments of
section 14 of this Agreement, except that
the effective dates of all such insurance
policies shall be prior to any such
contractor's entering
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upon the Property, the Building or the
Leased Premises or commencing work (if any
work is scheduled to begin before the
Commencement Date) and (b) similar
certificates of insurance from each of the
Tenant's con tractors providing for coverage
in equivalent amounts, together with their
respective certificates of workers'
compensation insurance, employer's liability
insurance and products-completed operations
insurance, the latter providing coverage in
at least the amount required for the
Tenant's comprehensive general public
liability and excess insurance;
12.2.4.5. each such contractor shall be a party to
collective bargaining agreements with those
unions that are certified as the collective
bargaining agents of all bargaining units of
such contractor, of which all such
contractor's workpersons shall be members in
good standing;
12.2.4.6. each such contractor shall perform its work
in a good and workpersonlike manner and
shall not interfere with or hinder the
Landlord or any other contractor in any
manner;
12.2.4.7. there shall be no labor dispute of any
nature whatsoever involving any such
contractor or any workpersons of such
contractor or the unions of which they are
members with anyone; and if such a labor
dispute exists or comes into existence the
Tenant shall forthwith, at the Tenant's sole
cost and expense, remove all such
contractors and their workpersons from the
Building, the Common Facilities and the
Property; and
12.2.4.8. the Tenant shall have the sole
responsibility for the security of the
Leased Premises and all contractors'
materials, equipment and work, regardless of
whether their work is in progress or
completed.
12.3. After the Commencement Date, the Tenant shall not apply any wall
covering (except latex based flat paint) or other treatment to the
walls of the Leased Premises without the prior written consent of the
Landlord.
13. Landlord's Rights of Entry and Access.
The Landlord and its authorized agents shall have the following rights of entry
and access to the Leased Premises:
13.1. In case of any emergency or threatened emergency, at any time for any
purpose which the Landlord reasonably believes under such circumstances
will serve to prevent, eliminate or reduce the emergency, or the threat
thereof, or damage or threatened damage to persons and property.
13.2 Upon at least one day's prior verbal advice to the Tenant, at any time
for the purpose of erecting or constructing improvements, modifications,
alterations and other changes to the Building or any portion thereof,
including, without limiting the generality of the foregoing, the Leased
Premises, the Common Facilities or the Property or for the purpose of
repairing, maintaining or cleaning them, whether for the benefit of the
Landlord, the Building, all tenants of Other Leased Premises in the
Building, or one or more tenants of Other Leased Premises, the Carnegie
Center Complex or others. In connection with any such improvements,
modifications, alterations, other
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changes, repairs, maintenance or cleaning, the Landlord may close off
such portions of the Property, the Building and the Common Facilities
and interrupt such services as may be necessary to accomplish such
work, without liability to the Tenant therefor and without such closing
or interruption being deemed an eviction or constructive eviction or
requiring an abatement of Rent. However, in accomplishing any such
work, the Landlord shall endeavor not to materially interfere with the
Tenant's use and enjoyment of the Leased Premises or the conduct of the
Tenant's business and to minimize interference, inconvenience and
annoyance to the Tenant.
13.3. At all reasonable hours for the purpose of operating, inspecting or
examining the Building, including the Leased Premises, or the Property.
13.4. At any time after the Tenant has vacated the Leased Premises, for the
purpose of preparing the Leased Premises for another tenant or
prospective tenant.
13.5. If practicable by appointment with the Tenant, at all reasonable hours
for the purpose of showing the Building to prospective purchasers,
mortgagees and prospective mortgagees and prospective ground lessees
and lessors.
13.6. If practicable by appointment with the Tenant, at all reasonable hours
during the last six months of the Term for the purpose of showing the
Leased Premises to prospective tenants thereof.
13.7. The mere enumeration of any right of the Landlord within this section
13 of the Agreement shall not be deemed to create an obligation on the
part of the Landlord to exercise any such right unless the Landlord is
affirmatively required to exercise such right elsewhere in this
Agreement.
14. Liabilities and Insurance Obligations.
14.1. The Tenant shall, at the Tenant's own expense, purchase before the
Commencement Date, and maintain in full force and effect throughout the
Term and any other period during which the Tenant may have possession of
the Leased Premises, the following types of insurance coverage from
financially sound and reputable insurers, licensed by the State of New
Jersey to provide such insurance and acceptable to the Landlord, in the
minimum amounts set forth below, each of which insurance policies shall
be for the benefit of, and shall name the Landlord, the Landlord's
managing agent and mortgagees and ground lessors known to the Tenant, if
any, of the Building, the Common Facilities, the Property or any
interest therein, their successors and assigns as additional persons
insured, and none of which insurance policies shall contain a
"co-insurance" clause:
14.1.1. commercial general liability insurance (including "broad
form and contractual liabil ity" coverage) and excess
("umbrella") insurance which, without limiting the general ity
of the foregoing, considered together shall insure against such
risks as bodily injury, death and property damage, with a
combined single limit of not less than $3,000,000.00 for each
occurrence; and
14.1.2. "all-risks" property insurance covering the Leased Premises
in an amount sufficient, as determined by the Landlord from time
to time, to cover the replacement costs for all Tenant's
alterations, improvements, fixtures and personal property
located in or on the Leased Premises.
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14.2. With respect to risks:
14.2.1. as to which this Agreement requires either party to maintain
insurance, or
14.2.2. as to which either party is effectively insured and for
which risks the other party may be liable, the party required to
maintain such insurance and the party effectively insured shall
use its best efforts to obtain a clause, if available from the
respective insurer, in each such insurance policy expressly
waiving any right of recovery, by reason of subrogation to such
party's rights or otherwise, the respective insurer might
otherwise have or obtain against the other party, so long as
such a clause can be obtained in the respective insurance policy
without additional premium cost. If such a clause can be
obtained in the respective insurance policy, but only at
additional premium cost, such party shall, by notice to the
other party, promptly advise the other party of such fact and
the amount of the additional premium cost. If the other party
desires the inclusion of such a clause in the notifying party's
respective insurance policy, the other party shall, within 10
days of receipt of the notifying party's notice, by notice
advise the notifying party of its desire and enclose therewith
its check in the full amount of the additional premium cost;
otherwise the notifying party need not obtain such a clause in
the respective insurance.
14.3. Each party hereby waives any right of recovery against the other party
for any and all damages for property losses and property damages which
are actually insured by either party, but only to the extent:
14.3.1. that the waiver set forth in this subsection 14.3 does
not cause or result in any cancellation of, or diminution
in, the insurance coverage otherwise available under any
applicable insurance policy;
14.3.2. of the proceeds of any applicable insurance policy (without
adjustment for any deductible amount set forth therein)
actually received by such party for such respec tive loss or
damages; and
14.3.3. the substance of the clause contemplated by subsection 14.2
of this Agreement is actually and effectively set forth in
the respective insurance policy. The waiver set forth in
this subsection 14.3 of the Agreement shall not apply with
respect to liability insurance policies (as opposed to
property and casualty insurance policies).
14.4. The Tenant hereby waives any right of recovery it might otherwise have
against the Landlord for losses and damages caused actively or
passively, in whole or in part, by any of the risks the Tenant is
required to insure against in accordance with subsections 14.1.1 or
14.1.2 of this Agreement, unless such waiver would cause or result in a
cancellation of, or diminution in, the coverage of the Tenant's
policies of insurance against such risks.
14.5. The Landlord shall have no liability whatsoever to the Tenant or the
Tenant's employees, other agents or Guests or anyone else for any
death, bodily injury, property loss or other damages suffered by any of
them or any of their property which is not caused directly, exclusively
and entirely by the active gross negligence or intentional misconduct
of the Landlord without the intervention or contribution of any other
cause or contributing factor whatsoever.
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<PAGE>
14.6. Each policy of insurance required under subsection 14.1 of this
Agreement shall include provisions to the effect that:
14.6.1. no act or omission of the Tenant, its employees, other
agents or Guests shall result in a loss of insurance
coverage otherwise available under such policy to any person
required to be named as an additional insured in accordance
with subsection 14.1 of this Agreement; and
14.6.2. the insurance coverage afforded by such policy shall not be
diminished, cancelled, permitted to expire or otherwise
terminated for any reason except upon 30 days' prior written
notice from the insurer to every person required to be named
as an additional insured in accordance with subsection 14.1
of this Agreement.
14.7. With respect to each type of insurance coverage referred to in
subsection 14.1 of this Agree ment, prior to the Commencement Date the
Tenant shall cause its insurer(s) to deliver to the Landlord the
certificate(s) of the insurer(s) setting forth the name and address of
the insurer, the name and address of each additional insured, the type
of coverage provided, the limits of the coverage, any deductible
amounts, the effective dates of coverage and that each policy under
which coverage is provided affirmatively includes provisions to the
effect set forth in subsec tion 14.6 of this Agreement. In the event any
of such certificates indicates a coverage termina tion date earlier than
the end of the Term or the end of any other period during which the
Tenant may have possession of the Leased Premises, no later than 10 days
before any such coverage termination date, the Tenant shall deliver to
the Landlord respective, equivalent, new certificate(s) of the
insurer(s).
15. Casualty Damage to Building or Leased Premises.
15.1. In the event of any damage to the Building or any portion thereof by
fire or other casualty, with the result that the Leased Premises are
rendered unusable, in whole or in part, then, unless the Building is
destroyed or so damaged that the Landlord does not intend to rebuild the
same, the Landlord shall, within 30 business days of the casualty,
determine the period of time required to restore the Building and the
Leased Premises (but not including the improvements constructed or
installed prior to the Term or during the Term in excess of the original
allowance for the same).
15.1.1. If, in Landlord's opinion, the restoration described
above will take more than 180 days then Landlord may elect
to cancel this Agreement effective as of the date of
casualty. Notice of the Landlord's election shall be served
upon the Tenant within the 30 business day period described
above.
15.1.2. If, in Landlord's opinion, the restoration described above
will take 180 days or less, then Landlord shall not cancel
this Agreement and must restore the Building and the Leased
Premises as aforesaid. In either of such events, the
Landlord shall cause restoration to proceed diligently and
expediently to the extent the Landlord has received proceeds
of any property, casualty or liability insurance on the
damaged portions (or would have received such proceeds had
it obtained such coverage).
15.2. Rent shall abate from the date of the casualty until:
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15.2.1. such time as the Leased Premises are again fully usable
and be reduced during such period by the amount which bears
the same proportion to the Rent otherwise payable during
such period as the gross rentable floor space of the Leased
Premises which are rendered unusable bears to the gross
rentable floor space of the Leased Premises. The restoration
of the improvements constructed or installed prior to the
Term or during the Term in excess of the original allowance
for the same shall be the Tenant's responsibility. Tenant
shall make reasonable, good faith efforts to integrate the
restoration which is its responsiblity with the work which
is being performed by Landlord. To the extent that is not
feasible, Tenant shall be allowed an additional, reasonable
interval to complete its work, not to exceed sixty days and
Rent shall abate during the interval required for such
restoration. The Landlord shall cooperate with Tenant to
integrate the restoration of such improvements during the
reconstruction period; or
15.2.2. this Agreement is canceled pursuant to the provisions of
subsections 15.1.
15.3. If, in the Landlord's opinion, the restoration described above will
take more than 180 days and the Landlord makes the election to cancel
set forth in subsection 15.1 above then Landlord, in such event, may
proceed with restoration (or non-restoration) in any manner it chooses,
without any liability to Tenant.
15.4. The Tenant shall promptly advise the Landlord by the quickest means of
communication of the occurrence of any casualty damage to the Building
or the Leased Premises of which the Tenant becomes aware.
16. Condemnation.
If the Leased Premises, or any portion thereof, or the Building or the Common
Facilities, or any substantial portion of any of the foregoing, shall be
acquired for any public or quasi-public use or purpose by statute, right of
eminent domain or private sale in lieu thereof, with the result the Tenant can
not use and occupy the Leased Premises for the purpose set forth in subsection
7.1 of this Agreement, the Tenant hereby waives any claim against the Landlord,
the condemning authority or other person acquiring same for any thing of value,
tangible or intangible, including, without limiting the generality of the
foregoing, the putative value of any leasehold interest or loss of the use of
same, except for any right the Tenant might have to make a claim, independent
of, and without reference to or having any effect on, any award or claim of the
Landlord, against the condemning authority or other acquiring party regarding
the value of the Tenant's installed trade fixtures and other installed equip
ment which are not removable from the Leased Premises or for ordinary and
necessary moving expenses occasioned thereby.
17. Assignment or Subletting by Tenant.
17.1. Except as may be specifically set forth in this section 17 of the
Agreement, the Tenant shall not:
17.1.1. assign, or purport to assign, this Agreement or any of
the Tenant's rights hereunder;
17.1.2. sublet, or purport to sublet, the Leased Premises or any
portion thereof;
17.1.3. license, or purport to license, the use or occupancy of
the Leased Premises or any portion thereof;
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17.1.4. otherwise transfer, or attempt to transfer any interest
including, without limiting the generality of the foregoing,
a mortgage, pledge or security interest, in this Agreement,
the Leased Premises or the right to the use and occupancy of
the Leased Premises; or
17.1.5. indirectly accomplish, or permit or suffer the
accomplishment of, any of the foregoing by merger or
consolidation with another entity, by acquisition or
disposition of assets or liabilities outside the ordinary
course of the Tenant's business or by acquisition or
disposition, by the Tenant's equity owners or subordinated
creditors, of any of their respective interests in the
Tenant.
17.2. The Tenant shall not assign this Agreement or any of the Tenant's
rights hereunder or sublet the Leased Premises or any portion thereof
without first giving three months' prior notice to the Landlord of its
desire to assign or sublet and requesting the Landlord's consent and
without first receiving the Landlord's prior written consent. The
Tenant's notice to the Landlord shall include:
17.2.1. the full name, address and telephone number of the
proposed assignee or sublessee;
17.2.2. a description of the type(s) of business in which the
proposed assignee or sublessee is engaged and proposes to
engage;
17.2.3. a description of the precise use to which the proposed
assignee or sublessee intends to put the Leased Premises or
portion thereof;
17.2.4. the proposed assignee's or subtenant's most recent quarterly
and annual financial statements prepared in accordance with
generally accepted accounting principles and any other
evidence of financial position and responsibility that the
Tenant or proposed assignee or sublessee may desire to
submit;
17.2.5. by diagram and measurement of the actual square feet of
floor space, the precise portion of the Leased Premises
proposed to be subject to the assignment of this Agreement
or to be sublet;
17.2.6. a complete, accurate and detailed description of the terms
of the proposed assignment or sublease including, without
limiting the generality of the foregoing, all consider ation
paid or given, or proposed to be paid or to be given, by the
proposed assignee, sublessee or other person to the Tenant
and the respective times of payment or delivery; and
17.2.7. any other information reasonably requested by the Landlord.
17.3. By the expiration of the notice period contemplated by subsection 17.2
of this Agreement, the Landlord, in its sole discretion, shall take one
of the following actions by notice to the Tenant:
17.3.1. grant consent on the terms and conditions set forth in
subsection 17.4 of this Agree ment and such other reasonable
terms and conditions set forth in the Landlord's notice;
17.3.2. refuse to grant consent for any of the reasons set forth in
subsection 17.5 of this Agreement or for any other
reasonable reason set forth in the Landlord's notice; or
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17.3.3. elect to terminate the Term as of (a) the end of the third
full month after the Tenant has given notice of the Tenant's
desire to assign or sublet or (b) the proposed effective
date of the proposed assignment or sublease.
17.4. The Landlord's consent to the Tenant's proposed assignment or sublease,
if granted under subsection 17.3.1 of this Agreement, shall be subject
to all the following terms and conditions (and to any other terms and
conditions permitted by that subsection):
17.4.1. any proposed assignee or sublessee shall, by document
executed and delivered forthwith to the Landlord, agree to
assume and be bound by all the obligations of the Tenant set
forth in this Agreement;
17.4.2. the Tenant shall remain liable under this Agreement, jointly
and severally with any proposed assignee or sublessee, for
the timely performance of all obligations of the Tenant set
forth in this Agreement;
17.4.3. the Tenant shall forthwith deliver to the Landlord manually
executed copies of all documents regarding the proposed
assignment or sublease and a written, accurate and complete
description, manually executed both by the Tenant and the
proposed assignee or sublessee, of any other agreement,
arrangement or understanding between them regarding the
same;
17.4.4. with respect to any consideration or other thing of value
received or to be received by the Tenant in connection with
any such assignment or sublease (other than those payable in
equal monthly installments each month during the proposed
term of any such assignment or sublease), the Tenant shall
pay to the Landlord one-half of any such amount and one-half
of the fair market value of any other thing of value within
10 days of receipt of same; and
17.4.5. with respect to any amount payable to the Tenant in
equal monthly installments each month during the proposed
term of any such assignment or sublease in connection with
such assignment or sublease, which amount is in excess of
the amount which bears the same ratio to the monthly
installment of Rent due from the Tenant as the usable floor
space of the Leased Premises subject to the assignment or
sublease bears to the usable floor space of the entire
Leased Premises, the Tenant shall pay one-half of such
excess to the Landlord together with the Tenant's monthly
installment of Rent.
17.5. The Landlord's refusal to grant consent under subsection 17.3.2 of this
Agreement shall not be deemed an unreasonable withholding of consent if
based upon any of the following reasons (or any other reason permitted
by that subsection):
17.5.1. the Landlord desires to take one of the other actions
enumerated in subsection 17.3 of this Agreement;
17.5.2. there is already another assignee, sublessee or licensee
of all or a portion of the Leased Premises;
17.5.3. the proposed sublease is for a term of less than one year;
17.5.4. the proposed sublease is for a term which would expire after
the Term;
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17.5.5. less than one year remains in the Term as of the proposed
effective date of the proposed assignment or sublease;
17.5.6. the general reputation, financial position or ability or
type of business of, or the anticipated use of the Leased
Premises by, the proposed assignee or proposed subles see is
unsatisfactory to the Landlord or is inconsistent with those
of tenants of Other Leased Premises or of the Carnegie
Center Complex or inconsistent with any commit ment made by
the Landlord to any such other tenant;
17.5.7. the proposed consideration to be paid to the Tenant during
any period of 12 months is less than the amount of the
Market Rental Rate divided by the gross rentable floor space
of the Leased Premises and multiplied by that portion of the
gross rentable floor space of the Leased Premises proposed
to be subject to the proposed assignment or sublease; or
17.5.8. the gross rentable floor space of the portion of the Leased
Premises proposed to be sublet is less than one-third of the
gross rentable floor space of the Leased Premises.
18. Signs, Displays and Advertising.
18.1. The Tenant shall have one sign identifying the Landlord's assigned
number for the Leased Premises at the principal entrance to the Leased
Premises. The Tenant may identify itself in or on each of: the sign at
the principal entrance to the Leased Premises, the Building directory
and the directory, if any, on the floor of the Building on which the
Leased Premises is located. All such signs, and the method and materials
used in mounting and dismounting them, shall be in accordance with the
Landlord's specifications. All such signs shall be provided and mounted
by the Landlord at the Landlord's expense, except that the Tenant shall
bear any expense of identifying itself on the sign at the principal
entrance to the Leased Premises.
18.2. No other sign, advertisement, fixture or display shall be used by the
Tenant on the Property or in the Building or the Common Facilities. Any
signs other than those specifically permitted under subsection 18.1 of
this Agreement shall be removed promptly by the Tenant or by the
Landlord at the Tenant's expense.
19. Quiet Enjoyment.
The Landlord is the owner of the Building, the Property and those Common
Facilities located on the Property. The Landlord has the right and authority to
enter into and execute and deliver this Agreement with the Tenant. So long as an
Event of Default shall not have occurred, the Tenant shall and may peaceably and
quietly have, hold and enjoy the Leased Premises during the Term in accordance
with this Agreement.
20. Relocation.
At any time and from time to time during the Term, on at least 30 days' prior
notice to the Tenant, but subject to the provisions of subsection 26.4 of this
agreement, the Landlord shall have the right to move the Tenant out of the
Leased Premises and into premises having at least equal floor space located in
the Building or in any other comparable building located in the Carnegie Center
Complex for the duration of the Term, subject to the express written consent of
State Mutual Life Assurance Company of America, as long as it is the holder of
the first mortgage on the Property. In the event the Landlord
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exercises this right of relocation, the Landlord shall decorate the new premises
similarly to the Leased Premises and remove, relocate and reinstall the Tenant's
furniture, trade fixtures, furnishings and equipment, all at the sole cost and
expense of the Landlord. When the substitute new premises are ready, the Tenant
shall surrender the Leased Premises. Following any such relocation, this
Agreement shall continue in full force and effect except for the description of
the Leased Premises, the Building and the Property which, upon completion of
such relocation, shall be deemed amended to describe the substitute new
premises, building and property, respectively, to which the Tenant shall have
been relocated in accordance with this section 20 of the Agreement.
21. Surrender.
Upon termination of the Term, or at any other time at which the Landlord, by
virtue of any provision of this Agreement or otherwise has the right to re-enter
and re-take possession of the Leased Premises, the Tenant shall surrender
possession of the Leased Premises; remove from the Leased Premises all property
owned by the Tenant or anyone else other than the Landlord; remove from the
Leased Premises any alterations, improvements or other modifications to the
Leased Premises that the Landlord may request by notice; make any repairs
required by such removal; clean the Leased Premises; leave the Leased Premises
in as good order and condition as it was upon the completion of any improvements
contemplated by section 5 of this Agreement, ordinary wear and use excepted;
return all copies of all keys and passes to the Leased Premises, the Common
Facilities and the Building to the Landlord; and receive the Landlord's written
acceptance of the Tenant's surrender. The Landlord shall not be deemed to have
accepted the Tenant's surrender of the Leased Premises unless and until the
Landlord shall have executed and delivered the Landlord's written acceptance of
surrender to the Tenant, which shall not be unreasonably withheld or delayed.
22. Events of Default.
The occurrence of any of the following events shall constitute an Event of
Default under this Agree ment:
22.1. the Tenant's failure to pay any installment of Basic Rent or any
amount of Additional Rent when it is first due;
22.2. the Tenant's failure to perform any of its obligations under this
Agreement if such failure has caused, or may cause, loss or damage
that can not promptly be cured by subsequent act of the Tenant;
22.3. the Tenant's failure to complete performance of any of the
Tenant's obligations under this Agreement (other than those
contemplated by subsections 22.1 and 22.2 of this Agreement) within
10 days after the Landlord shall have given notice to the Tenant
specifying which of the Tenant's obligations has not been performed
and in what respects, unless completion of performance within such
period of 10 days is not possible using diligence and expedience,
then within a reasonable time of the Landlord's notice so long as
the Tenant shall have commenced substantial performance within the
first three days of such period of 10 days and shall have continued
to provide substantial performance, diligently and expediently,
through to completion of performance;
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22.4. the discovery that any representation made by the Tenant in this
Agreement shall have been inaccurate or incomplete in any material
respect either on the date it was made or the date as of which it
was made;
22.5. the sale, transfer or other disposition of any interest of the
Tenant in the Leased Premises by way of execution or other legal
process;
22.6. with the exception of those of the following events to which
section 365 of the Bankruptcy Code shall apply in the context of an
office lease (in which case subsection 22.7 of this Agreement shall
apply):
22.6.1. the Tenant's becoming a "debtor," as that term is
defined in section 101 of the Bankruptcy Code;
22.6.2. any time when either the value of the Tenant's liabilities
exceed the value of the Tenant's assets or the Tenant is
unable to pay its obligations as and when they respectively
become due in the ordinary course of business;
22.6.3. the appointment of a receiver or trustee of the Tenant's
property or affairs; or
22.6.4. the Tenant's making an assignment for the benefit of, or
an arrangement with or among, creditors or filing a petition
in insolvency or for reorganization or for the appointment
of a receiver;
22.7. in the event of the occurrence of any of the events enumerated in
subsection 22.6 of this Agreement to which section 365 of the
Bankruptcy Code shall apply in the context of an office lease, the
earlier of the bankruptcy trustee's rejection or deemed rejection (as
those terms are used in section 365 of the Bankruptcy Code) of this
Agreement; or
22.8. the Tenant's abandoning the Leased Premises before expiration of the
Term without the prior written consent of the Landlord.
23. Rights and Remedies.
23.1. Upon the occurrence of an Event of Default the Landlord shall have all
the following rights and remedies:
23.1.1. to elect to terminate the Term by giving notice of such
election, and the effective date thereof, to the Tenant and
to receive Termination Damages;
23.1.2. to elect to re-enter and re-take possession of the Leased
Premises, without thereby terminating the Term, by giving
notice of such election, and the effective date thereof, to
the Tenant and to receive Re-Leasing Damages;
23.1.3. if the Tenant remains in possession of the Leased
Premises after the Tenant's obliga tion to surrender the
Leased Premises shall have arisen, to remove the Tenant and
the Tenant's and any others' possessions from the Leased
Premises by any of the follow ing means without any
liability to the Tenant therefor, any such liability to the
Tenant therefor which might otherwise arise being hereby
waived by the Tenant: legal proceedings (summary or
otherwise), writ of dispossession and any other means and to
receive Holdover Damages and, except in the circumstances
contemplated by section 20 of this Agreement, to receive all
expenses incurred in removing the Tenant
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and the Tenant's and any others' possessions from the Leased
Premises, and of storing such possessions if the Landlord so
elects;
23.1.4. to be awarded specific performance, temporary restraints and
preliminary and permanent injunctive relief regarding Events
of Default where the Landlord's rights and remedies at law
may be inadequate, without the necessity of proving actual
damages or the inadequacy of the rights and remedies at law;
23.1.5. to receive all expenses incurred in securing, preserving,
maintaining and operating the Leased Premises during any
period of vacancy, in making repairs to the Leased Premises,
in preparing the Leased Premises for re-leasing and in
re-leasing the Leased Premises including, without limiting
the generality of the foregoing, any brokerage commissions;
23.1.6. to receive all legal expenses, including without limiting
the generality of the forego ing, attorneys' fees incurred
in connection with pursuing any of the Landlord's rights and
remedies, including indemnification rights and remedies;
23.1.7. if the Landlord, in its sole discretion, elects to perform
any obligation of the Tenant under this Agreement (other
than the obligation to pay Rent) which the Tenant has not
timely performed, to receive all expenses incurred in so
doing;
23.1.8. to elect to pursue any legal or equitable right and
remedy available to the Landlord under this Agreement or
otherwise; and
23.1.9. to elect any combination, or any sequential combination of
any of the rights and remedies set forth in subsection 23.1
of this Agreement.
23.2. In the event the Landlord elects the right and remedy set forth in
subsection 23.1.1 of this Agreement, Termination Damages shall be equal
to the amount which, at the time of actual payment thereof to the
Landlord, is the sum of:
23.2.1. all accrued but unpaid Rent;
23.2.2. the present value (calculated using the most recently
available (at the time of calcula tion) published weekly
average yield on United States Treasury securities having
maturities comparable to the balance of the then remaining
Term) of the sum of all payments of Rent remaining due (at
the time of calculation) until the date the Term would have
expired (had there been no election to terminate it earlier)
less the present value (similarly calculated) of all
payments of rent to be received through the end of the Term
(had there been no election to terminate it earlier) from a
lessee, if any, of the Leased Premises at the time of
calculation (and it shall be assumed for purposes of such
calculations that (i) the amount of future Additional Rent
due per year under this Agreement will be equal to the
average Additional Rent per month due during the 12 full
calendar months immediately preceding the date of any such
calculation, increas ing annually at a rate of eight percent
compounded, (ii) if any calculation is made before the first
anniversary of the end of the No Pass Through Period, the
average Additional Rent due for any month after the end of
the No Pass Through Period will be equal to nine percent of
the sum of the Base Year Operational Expenses, Base Year
Taxes and Tenant Electric Charges (considered on an annual
basis), (iii) if any
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calculation is made before the beginning of the Base Year,
the sum of Base Year Taxes and Base Year Operational
Expenses shall be assumed to be $6.50 per gross rentable
square foot and (iv) if any calculation is made before the
end of the Base Year, Base Year Taxes and Base Year
Operational Expenses may be extrapolated based on the year
to date experience of the Landlord);
23.2.3. the Landlord's reasonably estimated cost of demolishing any
leasehold improvements to the Leased Premises; and
23.2.4. that amount, which as of the occurrence of the Event of
Default, bears the same ratio to the costs, if any, incurred
by the Landlord (and not paid by the Tenant) in building out
the Leased Premises in accordance with section 5 of this
Agreement as the number of months remaining in the Term
(immediately before the occurrence of the Event of Default)
bears to the number of months in the entire Term
(immediately before the occurrence of the Event of Default).
23.3. In the event the Landlord elects the right and remedy set forth in
subsection 23.1.2 of this Agreement, Re-Leasing Damages shall be equal
to the Rent less any rent actually and timely received by the Landlord
from any lessee of the Leased Premises or any portion thereof, payable
at the respective times that Rent is payable under the Agreement plus
the cost, if any, to the Landlord of building out or otherwise
preparing the Leased Premises for, and leasing the Leased Premises to,
any such lessee.
23.4. In the event the Landlord elects the right and remedy set forth in
subsection 23.1.3 of this Agreement, Holdover Damages shall mean damages
at the rate per month or part thereof equal to the greater of: (a) one
and one-half times one-twelfth of the then Market Rental Rate plus all
Additional Rent as set forth in this Agreement or (b) double the average
amount of all payments of Rent due under this Agreement during each of
the last 12 full calendar months prior to the Landlord's so electing or,
in the event the Term shall have terminated by expiration under
subsection 24.1.1 of this Agreement, the last full 12 calendar months of
the Term, in either case payable in full on the first day of each
holdover month or part thereof.
23.5. In connection with any summary proceeding to dispossess and remove the
Tenant from the Leased Premises under subsection 23.1.3 of this
Agreement, the Tenant hereby waives:
23.5.1. any notices for delivery of possession thereof, of
termination, of demand for removal therefrom, of the cause
therefor, to cease, to quit and all other notices that might
otherwise be required pursuant to 2 A N.J.S.A. sec. 18-53 et
seq.;
23.5.2. any right the Tenant might otherwise have to cause a
termination of the action or proceeding by paying to the
Landlord or into court or otherwise any Rent in arrears;
23.5.3. any right the Tenant might otherwise have to a period of
waiting between issuance of any warrant in execution of any
judgment for possession obtained by the Landlord and the
execution thereof;
23.5.4. any right the Tenant might otherwise have to transfer or
remove such proceeding from the court (or the particular
division or part of the court) or other forum in which it
shall have been instituted by the Landlord to another court,
division or part;
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23.5.5. any right the Tenant might otherwise have to redeem the
Tenant's former leasehold interest between the entry of any
judgment and the execution of any warrant issued in
connection therewith by paying to the Landlord or into Court
or otherwise any Rent in arrears; and
23.5.6. any right the Tenant might otherwise have to appeal any
judgment awarding posses sion of the Leased Premises to the
Landlord.
23.6. The enumeration of rights and remedies in this section 23 of the
Agreement is not intended to be exhaustive or exclusive of any rights
and remedies which might otherwise be available to the Landlord, or to
force an election of one or more rights and remedies to the exclusion of
others, concurrently, consecutively or sequentially. On the contrary,
each right and remedy enumerated in this section 23 of the Agreement is
intended to be cumulative with each other right and remedy enumerated in
this section 23 of the Agreement and with each other right and remedy
that might otherwise be available to the Landlord; and the selection of
one or more of such rights and remedies at any time shall not be deemed
to prevent resort to one or more others of such rights and remedies at
the same time or a subsequent time, even with regard to the same
occurrence sought to be remedied.
23.7. It is expressly understood and agreed that the Landlord shall have no
duty to mitigate damages. In the event the Landlord elects the right and
remedy set forth in subsection 23.1.2 of this Agreement, Re-Leasing
Damages shall be equal to the Rent less any rent actually and timely
received by the Landlord from any lessee of the Leased Premises or any
portion thereof, payable at the respective times that Rent is payable
under the Agreement plus the cost, if any, to the Landlord of building
out or otherwise preparing the Leased Premises for, and leasing the
Leased Premises to, any such lessee. The Landlord may relet some or all
of the Leased Premises but shall have no duty to do so. The Tenant shall
retain its rights to sublet or assign the Leased Premises, or portions
thereof, pursuant to Article 17 hereof except to the extent that the
Landlord shall have already relet the same which shall abrogate the
Tenant's rights, pro tanto.
24. Termination of the Term.
24.1. The Term shall terminate upon the earliest of the following events to
occur:
24.1.1. expiration of the Term;
24.1.2. in connection with a transaction contemplated by section
16 of this Agreement, the later of (a) the vesting of the
acquiring party's right to possession or (b) the Tenant's
vacating the Leased Premises;
24.1.3. under the circumstances contemplated by subsection 15.1 of
this Agreement, upon the Tenant's giving prompt notice of
the failure of the Landlord to give, on a timely basis, the
notice contemplated by subsection 15.1.2 of this Agreement
and that the Tenant desires termination of the Term (which
termination shall be effective as of the date of the subject
casualty with respect to those portions of the Leased
Premises rendered untenantable and as of the date of the
Tenant's giving notice with respect to those portions of the
Leased Premises which were not rendered untenantable);
24.1.4. under the circumstances contemplated by subsection 15.1 of
this Agreement, upon the expiration of 45 additional days
(without the Landlord's completion of restoration in
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the interim) after the Tenant shall have given prompt notice
that the Landlord has not restored the Leased Premises on a
timely basis and that the Tenant desires termination of the
Term (which termination shall be effective as of the date of
the subject casualty with respect to those portions of the
Leased Premises rendered untenantable and as of the date of
the Tenant's giving notice with respect to those portions of
the Leased Premises which were not rendered untenantable);
24.1.5. the effective date of any election by the Landlord under
subsection 17.3.3 of this Agreement in response to the
Tenant's notice of the Tenant's desire to assign this
Agreement or to sublet all or a portion of the Leased
Premises; or
24.1.6. the effective date of any election by the Landlord to
terminate the Term under subsection 23.1.1 of this
Agreement.
24.2. No termination of the Term shall have the effect of releasing the
Tenant from any obligation or liability theretofore or thereby incurred
and, until the Tenant shall have surrendered the Leased Premises in
accordance with section 21 of this Agreement, from any obligation or
liability thereafter incurred.
25. Mortgage and Underlying Lease Priority.
This Agreement and the estate, interest and rights hereby created for the
benefit of the Tenant are, and shall always be, subordinate to any mortgage
(other than a mortgage created by the Tenant or a sale, transfer or other
disposition by the Tenant in the nature of a security interest in violation of
subsections 17.1.4 and 22.5, respectively, of this Agreement) already or
afterwards placed on the Property, the Common Facilities, the Building or any
estate or interest therein including, without limiting the generality of the
foregoing, any new mortgage or any mortgage extension, renewal, modification,
consolidation, replacement, supplement or substitution. This Agreement and the
estate, interest and rights hereby created for the benefit of the Tenant are,
and shall always be, subordinate to any ground lease already or afterwards made
with regard to the Property, the Common Facilities, the Building or any estate
or interest therein including, without limiting the generality of the foregoing,
any new ground lease or any ground lease extension, renewal, modification,
consolidation, replacement, supplement or substitution. The provisions of this
section 25 of the Agreement shall be self-effecting; and no further instrument
shall be necessary to effect any such subordination. Nevertheless, the Tenant
hereby consents that any mortgagee or mortgagee's successor in interest may, at
any time and from time to time, by notice to the Tenant, subordinate its
mortgage to the estate and interest created by this Agreement; and upon the
giving of such notice, the subject mortgage shall be deemed subordinate to the
estate and interest created by this Agreement regardless of the respective times
of execution or delivery of either or of recording the subject mortgage.
26. Transfer by Landlord.
26.1. The Landlord shall have the right at any time and from time to time to
sell, transfer, lease or otherwise dispose of the Carnegie Center
Complex, the Property, the Common Facilities or the Building or any of
the Landlord's interests therein, or to assign this Agreement or any of
the Landlord's rights thereunder.
26.2. Upon giving notice of the occurrence of any transaction contemplated by
subsection 26.1 of this Agreement, the Landlord shall thereby be
relieved of any obligation that might otherwise exist
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under this Agreement with respect to periods subsequent to the
effective date of any such transaction. If, in connection with any
transaction contemplated by subsection 26.1 of this Agreement the
Landlord transfers, or makes allowance for, any Security Deposit of the
Tenant and gives notice of that fact to the Tenant, the Landlord shall
thereby be relieved of any further obligation to the Tenant with regard
to any such Security Deposit; and the Tenant shall look solely to the
transferee with respect to any such Security Deposit.
26.3. In the event of the occurrence of any transaction contemplated by
subsection 26.1 of this Agreement the Tenant, upon written request
therefor from the transferee, shall attorn to and become the tenant of
such transferee upon the terms and conditions set forth in this
Agreement.
26.4. Notwithstanding anything to the contrary that may be set forth in
subsections 26.1, 26.2 and 26.3 of this Agreement, in the event any
mortgage contemplated by section 25 of this Agree ment is enforced by
the respective mortgagee pursuant to remedies provided in the mortgage
or otherwise provided by law or equity and any person succeeds to the
interest of the Landlord as a result of, or in connection with, any such
enforcement, the Tenant shall, upon the request of such successor in
interest, automatically attorn to and become the Tenant of such
successor in interest without any change in the terms or provisions of
this Agreement, except that such successor in interest shall not be
(a) liable for any act or omission of the Landlord; or
(b) liable for the return of the Security Deposit unless
actually received by such motgagee or such successor
in interest; or
(c) subject to any counterclaims, credits, rights to deduct from
rent, offsets or defenses which the Tenant might have
against the Landlord; or
(d) bound by any payment of Rent or Additional Rent to the
Landlord in advance for more than each current month; or
(e) bound by any agreement, amendment, modification, renewal or
extension (other than pursuant to the exercise by the Tenant
of an option therefor contained in this Agree ment),
termination, surrender, release, waiver, consent, or
approval, or the exercise by the Landlord of any option or
right (including without limitation the right to relocate
the Tenant contained in Section 20 of this Agreement), any
of which actions is taken or done with respect to this
Agreement without first obtaining the prior written consent
thereto by such mortgagee; or
(f) bound by any payment of any consideration or compensation of
any kind to the Landlord which may relate in any way to any
of the actions referred to in the immedi ately preceding
clause (e) or any payment of any damages or other amounts to
the Landlord relating in any way to any breach or default by
the Tenant under this agreement.
Upon the request of such successor in interest, the Tenant shall
execute, acknowledge and deliver any instrument(s) confirming any and
all of the matters referred to in this Subsection 26.4.
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26.5. If this Agreement and the estate, interest and rights hereby created
for the benefit of the Tenant are ever subject and subordinate to any
ground lease contemplated by section 25 of this Agreement:
26.5.1. upon the expiration or earlier termination of the term
of any such ground lease before the termination of the Term
under this Agreement, the Tenant shall attorn to, and become
the Tenant of, the lessor under any such ground lease and
recognize such lessor as the Landlord under this Agreement
for the balance of the Term; and
26.5.2. such expiration or earlier termination of the term of any
such ground lease shall have no effect on the Term under
this Agreement.
27. Indemnification.
27.1. The Tenant shall, and hereby does, indemnify the Landlord against any
and all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses including, without limiting the generality of the
foregoing, expenses of investigation, defense and enforcement thereof
or of the obligation set forth in this section 27 of the Agreement
including, without limiting the generality of the foregoing, attorneys'
fees, imposed on or incurred by the Landlord in connec tion with any of
the following matters which occurs during the Term:
27.1.1. any matter, cause or thing arising out of the use,
occupancy, control or management of the Leased Premises or
any portion thereof which is not caused directly,
exclusively and entirely by the Landlord's active gross
negligence or intentional act without the intervention of
any other cause or contributing factor whatsoever;
27.1.2. any negligence or intentional act on the part of the Tenant
or any of its employees, other agents or Guests;
27.1.3. any accident, injury or damage to any person or property
occurring in or about the Leased Premises which is not
caused directly, exclusively and entirely by the Land lord's
active gross negligence or intentional act without the
intervention of any other cause or contributing factor
whatsoever;
27.1.4. any representation made by the Tenant in this Agreement
shall have been inaccurate or incomplete in any material
respect either on the date it was made or the date as of
which it was made;
27.1.5. the imposition of any mechanic's, materialman's or other
lien on the Property, the Common Facilities, the Building,
the Leased Premises or any portion of any of the foregoing,
or the filing of any notice of intention to obtain any such
lien, in connection with any alteration, improvement or
other modification of the Leased Premises made or authorized
by the Tenant (which indemnification obligation shall be
deemed to include the Tenant's obligations set forth in
subsection 12.2.4.3 of this Agreement); or
27.1.6. any failure on the part of the Tenant to perform or comply
with any obligation of the Tenant set forth in this
Agreement.
27.2. Payment of indemnification claims by the Tenant to the Landlord shall
be due upon the Landlord's giving notice thereof to the Tenant.
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27.3. The Landlord shall promptly give notice of any claim asserted, or
action or proceeding commenced, against it as to which it intends to
claim indemnification from the Tenant and, upon notice from the Tenant
so requesting, shall forward to the Tenant copies of all claim or
litigation documents received by it. Upon receipt of such notice the
Tenant may, by notice to the Landlord, participate therein and, to the
extent it may desire, assume the defense thereof through independent
counsel selected by the Tenant and reasonably satisfactory to the
Landlord. The Landlord shall not be bound by any compromise or
settlement of any such claim, action or proceeding without its prior
written consent.
28. Parties' Liability.
28.1. None of the following occurrences shall constitute a breach of this
Agreement by the Landlord, a termination of the Term, an active or
constructive eviction or an occurrence requiring an abatement of Rent:
28.1.1. the inability of the Landlord to provide any utility or
service to be provided by the Landlord, as described in
section 8 of this Agreement which is due to causes beyond
the Landlord's control, or to necessary or advisable
improvements, maintenance, repairs or emergency, so long as
the Landlord uses reasonable efforts and diligence under the
circumstances to restore the interrupted service or utility;
28.1.2. any improvement, modification, alteration or other change
made to the Carnegie Center Complex, the Property, the
Building or the Common Facilities by the Landlord
consistently with the Landlord's obligations set forth in
subsection 13.2 of this Agreement; and
28.1.3. any change in any Federal, state or local law or ordinance.
28.2. Except for the commencement, duration or termination of the
Term (other than under the circumstances contemplated by subsection 15.1
of this Agreement), the Tenant's obligation to make timely payments of
Rent, the Tenant's obligation to maintain certain insurance coverage in
effect, the Tenant's failure to perform any of its other obligations
under this Agreement if such failure has caused loss or damage that can
not promptly be cured by subsequent act of the Tenant and the period
within which any Option to Renew or any other type of option or optional
right exercisable by the Tenant must be exercised, any period of time
during which the Landlord or the Tenant is prevented from performing any
of its respective obligations under this Agreement because of fire, any
other casualty or catastrophe, strikes, lockouts, civil commo tion, acts
of God or the public enemy, governmental prohibitions or preemptions,
embargoes or inability to obtain labor or material due to shortage,
governmental regulation or prohibition, shall be added to the time when
such performance is otherwise required under this Agreement.
28.3. In the event the Landlord is an individual, partnership, joint venture,
association or a participant in a joint tenancy or tenancy in common,
the Landlord, the partners, venturers, members and joint owners shall
not have any personal liability or obligation under or in connection
with this Agreement or the Tenant's use and occupancy of the Leased
Premises; but recourse shall be limited exclusively to the Landlord's
interest in the Building.
28.4. If, at any time during the Term, the payment or collection of any Rent
otherwise due under this Agreement shall be limited, frozen or
otherwise subjected to a moratorium by applicable law,
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and such limitation, freeze or other moratorium shall subsequently be
lifted, whether before or after the termination of the Term, such
aggregate amount of Rent as shall not have been paid or collected
during the Term on account of any such limitation, freeze or other
moratorium, shall thereupon be due and payable at once. There shall be
added to the maximum period of any otherwise applicable statute of
limitation the entire period during which any such limitation, freeze
or other moratorium shall have been in effect.
28.5. If this Agreement is executed by more than one person as Tenant, their
liability under this Agreement and in connection with the use and
occupancy of the Leased Premises shall be joint and several.
28.6. In the event any rate of interest, or other charge in the nature of
interest, calculated as set forth in this Agreement would lead to the
imposition of a rate of interest in excess of the maximum rate
permitted by applicable usury law, only the maximum rate permitted
shall be charged and collected.
28.7. The rule of construction that any ambiguities that may be contained in
any contract shall be construed against the party drafting the contract
shall be inapplicable in construing this Agreement.
29. Security Deposit.
The Tenant shall pay to the Landlord upon execution and delivery of this
Agreement the sum of $12,158.13 as a security deposit to be held by the Landlord
as security for the Tenant's performance of all the Tenant's obligations under
this Agreement. The Landlord may commingle the Security Deposit with its general
funds. Any interest earned on the Security Deposit shall belong to the Landlord.
The Tenant shall not encumber the Security Deposit. The Landlord, in its sole
discretion, may apply the Security Deposit to cure any Event of Default under
this Agreement. If any such application is made, upon notice by the Landlord to
the Tenant, the Tenant shall promptly replace the amount so applied. If there
has been no Event of Default, within 30 days after termination of the Term the
Landlord shall return the entire balance of the Security Deposit to the Tenant.
The Tenant will not look to any foreclosing mortgagee of the Property, the
Building, the Common Facilities or any interest therein for such return of the
balance of the Security Deposit, unless the mortgagee has expressly assumed the
Landlord's obligations under this Agreement or has actually received the balance
of the Security Deposit.
30. Representations.
The Tenant hereby represents and warrants that:
30.1. its Standard Industrial Classification (SIC) code is 3970 and it will
promptly give notice of any change therein during the Term to the
Landlord;
30.2. no broker or other agent has shown the Leased Premises or the Building
to the Tenant, or brought either to the Tenant's attention, except
Princeton Realty Advisors, whose entire commission therefor is set forth
in a separate document and which commission the Tenant understands will
be paid by the Landlord directly to the person named;
30.3. the execution and delivery of, the consummation of the transactions
contemplated by and the performance of all its obligations under, this
Agreement by the Tenant have been duly and
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validly authorized by its general partners, to the extent required by
their partnership agreement and applicable law, if the Tenant is a
partnership or, if the Tenant is a corporation, by its board of
directors and, if necessary, by its stockholders at meetings duly called
and held on proper notice for that purpose at which there were
respective quorums present and voting throughout; and no other approval,
partnership, corporate, governmental or otherwise, is required to
authorize any of the foregoing or to give effect to the Tenant's
execution and delivery of this Agreement; and
30.4. the execution and delivery of, the consummation of the transactions
contemplated by and the performance of all its obligations under, this
Agreement by the Tenant will not result in a breach or violation of, or
constitute a default under, the provisions of any statute, charter,
certificate of incorporation or bylaws or partnership agreement of the
Tenant or any affiliate of the Tenant, as presently in effect, or any
indenture, mortgage, lease, deed of trust, other agreement, instrument,
franchise, permit, license, decree, order, notice, judgment, rule or
order to or of which the Tenant or any affiliate of the Tenant is a
party, a subject or a recipient or by which the Tenant, any affiliate of
the Tenant or any of their respective properties and other assets is
bound.
31. Reservation in Favor of Tenant.
Neither the Landlord's forwarding a copy of this document to any prospective
tenant nor any other act on the part of the Landlord prior to execution and
delivery of this Agreement by the Landlord shall give rise to any implication
that any prospective tenant has a reservation, an option to lease or an outstand
ing offer to lease any premises.
32. Tenant's Certificates and Mortgagee Notice Requirements.
32.1. Promptly upon request of the Landlord at any time or from time to
time, but in no event more than five days after the Landlord's
respective request, the Tenant shall execute, acknowledge and deliver to
the Landlord or its designee an estoppel or other certificate,
satisfactory in form and substance to the Landlord and any of its
mortgagees, ground lessors or lessees or trans ferees or prospective
mortgagees, ground lessors or lessees or transferees, with respect to
any of or all the following matters, which certificate shall be in the
form attached hereto as Exhibit G if so requested by State Mutual Life
Assurance Company of America while it remains a mortgagee of the
Property, the Building or any interest therein:
32.1.1. whether this Agreement is then in full force and effect;
32.1.2. whether this Agreement has not been amended, modified,
superseded, canceled, repudiated or revoked;
32.1.3. whether the Landlord has satisfactorily completed all
construction work, if any, required of the Landlord or
contractors selected and retained by the Landlord in connection
with readying the Leased Premises for occupancy by the Tenant in
accordance with section 5 of this Agreement;
32.1.4. whether the Tenant is then in actual possession of the
Leased Premises;
32.1.5. whether the Tenant then has no defenses or counterclaims
under this Agreement or otherwise against the Landlord or with
respect to the Leased Premises;
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32.1.6. whether Landlord is not then in breach of this Agreement
in any respect;
32.1.7. whether the Tenant then has no knowledge of any
assignment of this Agreement, the pledging or granting of
any security interest in this Agreement or in Rent due and
to become due under this Agreement;
32.1.8. whether Rent is not then accruing under this Agreement
in accordance with its terms;
32.1.9. whether any Rent is not then in arrears;
32.1.10. whether Rent due or to become due under this Agreement
has not been prepaid by more than one month;
32.1.11. if the response to any of the foregoing matters is in
the negative, a specification of all the precise reasons
that necessitated the negative response in each instance;
and
32.1.12. any other matter reasonably requested by the Landlord or any
of its mortgagees, ground lessors or lessees or transferees
or prospective mortgagees, ground lessors or lessees or
transferees, including, without limiting the generality of
the foregoing, such information as the Landlord may request
for purposes of assuring compliance with the Industrial Site
Recovery Act (13 N.J.S.A. sec. 1K-6 et seq.), as it may be
amended, and any other applicable Federal, state or local
statute, ordinance, rule, regulation or order concerned with
environmental matters.
32.2. If, in connection with the Landlord's or a prospective transferee's
obtaining financing or refinancing of the Carnegie Center Complex, the
Property, the Building, the Common Facili ties, any portion thereof or
any interest therein, the Landlord or a prospective lender shall so
request, the Tenant shall furnish to the requesting party within 15
days of the request:
32.2.1. its written consent to any requested modifications of
this Agreement provided that, in each such instance, the
requested modification does not increase the Rent otherwise
due or, in the reasonable judgment of the Tenant, otherwise
materially increase the obligations of the Tenant under this
Agreement or materially adversely affect the Tenant's
leasehold interest created hereby or the Tenant's use and
enjoyment of the Leased Premises (except in the
circumstances contemplated by section 16 of this Agreement);
and
32.2.2. summary financial information regarding its financial
position as of the close of its most recently completed
fiscal year and its most recently completed interim fiscal
period and regarding its results of operations for the
periods then ended and compara ble year earlier periods,
certified by Tenant's chief financial officer to be a
complete, accurate and fair presentation of the summary
financial information purporting to be set forth therein.
32.3. If the Landlord or any of its mortgagees gives notice to the Tenant of
any of their respective names and addresses from time to time, the
Tenant shall give notice to each such mortgagee of any notice of breach
or default previously or afterwards given by the Tenant to the Landlord
under this Agreement and provide in such notice that if the Landlord
has not cured such breach or default within any permissible cure period
then such mortgagee shall have the greater of (a) an additional period
of 30 days or (b) if such default cannot practically be cured by such
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mortgagee within such period, such additional period as is reasonable
under the circumstances, within which such mortgagee may cure such
default. Upon request of the Landlord at any time or from time to time,
the Tenant shall execute, acknowledge and deliver to the Landlord or
its designee an acknowledgment of receipt of any such notice, an
acknowledgment of receipt of any notice of assignment of this Agreement
or rights hereunder by the Landlord to any of its mortgagees and the
Tenant's agreement to the foregoing effect on the respective forms, if
any, furnished by the Landlord or the respective mortgagees.
32.4. Approximately (i) 90 days prior to the termination of the Term and (ii)
30 days prior to any relocation of the Tenant from the Leased Premises
(as constituted on the Commencement Date), the Tenant shall obtain from
the New Jersey Department of Environmental Protection, and deliver to
the Landlord, the Department's unconditional certificate of
non-applicability or approval of the Tenant's negative declaration or
clean-up plan, together with copies of all documents furnished to the
Department in connection with obtaining such certificate or approval.
33. Waiver of Jury Trial and Arbitration.
The parties hereby waive any right they might otherwise have to a trial by jury
in connection with any dispute arising out of or in connection with this
Agreement or the use and occupancy of the Leased Premises; and they hereby
consent to arbitration of any such dispute in Princeton, New Jersey, in
accordance with the rules for commercial arbitration of the American Arbitration
Association or successor organization, except that the Landlord, in its sole
discretion, may, with respect to any dispute involving either (i) the Landlord's
right to re-enter and re-take possession of the Leased Premises or (ii) the
determination of money damages following the occurrence of an Event of Default
under this Agreement, elect to pursue any of or all its rights in any court of
competent jurisdiction. Judgment upon any arbitration award may be entered in
any court of competent jurisdiction.
34. Severability.
In the event that any provision of this Agreement, or the application of any
provision in any instance, shall be conclusively determined by a court of
competent jurisdiction to be illegal, invalid or otherwise unenforceable, such
determination shall not affect the validity or enforceability of the balance of
this Agreement.
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5. Notices.
All notices contemplated by, permitted or required by this Agreement shall be in
writing. All notices required by this Agreement shall be personally delivered or
forwarded by certified mail--return receipt requested, addressed to the intended
party at its address first set forth above (adding, in the case of notices to
the Landlord after the Commencement Date, "Attention: Lease Administration") or,
in the case of notices to the Tenant during the Term or any other period during
which the Tenant shall be in possession of the Leased Premises, at the Leased
Premises. Either party may from time to time change the address prescribed in
this Agreement for notices to it by notice to the other. All notices required
under this Agreement shall be deemed given upon their deposit, properly
addressed and postage prepaid, in a postal depository or upon personal delivery
to the intended party, regardless of whether delivery shall be refused.
36. Captions.
Captions have been inserted at the beginning of each section of this Agreement
for convenience of reference only and such captions shall not affect the
construction or interpretation of any such section of this Agreement.
37. Counterparts.
This Agreement may be executed in more than one counterpart, each of which shall
constitute an original of this Agreement but all of which, taken together, shall
constitute one and the same Agree ment.
38. Applicable Law.
This Agreement and the obligations of the parties hereunder shall be governed by
and construed in accordance with the laws of the State of New Jersey.
39. Exclusive Benefit.
Except as may be otherwise specifically set forth in this Agreement, this
Agreement is made exclu sively for the benefit of the parties hereto and their
permitted assignees and no one else shall be entitled to any right, remedy or
claim by reason of any provision of this Agreement.
40. Successors.
This Agreement shall be binding upon the parties hereto and their respective
successors and assigns.
41. Amendments.
This Agreement contains the entire agreement of the parties hereto, subsumes all
prior discussions and negotiations and, except as may otherwise be specifically
set forth in this Agreement, this Agreement may not be amended or otherwise
modified except by a writing signed by all the parties to this Agreement.
42. Waiver.
Except as may otherwise be specifically set forth in this Agreement, the failure
of any party at any time or times to require performance of any provision of
this Agreement shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or of the breach of any
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term, covenant, representation or warranty set forth in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach, or
as a waiver of any other condition or of the breach of any other term, covenant,
representation or warranty set forth in this Agreement. The Landlord's accep
tance of, or endorsement on, any partial payment of Rent or any late payment of
Rent from the Tenant shall not operate as a waiver of the Landlord's right to
the balance of the Rent due on a timely basis regardless of any writing to the
contrary on, or accompanying, the Tenant's partial payment or the Landlord's
putative acquiescence therein. 43. Course of Performance. No course of dealing
or performance by the parties, or any of them, shall be admissible for the
purpose of obtaining an interpretation or construction of this Agreement at
variance with the express language of the Agreement itself.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
LANDLORD:
CARNEGIE 214 ASSOCIATES LIMITED PARTNERSHIP
By : 214 Capital Corp.
By: /s/ Alan B. Landis
-------------------------
Alan B. Landis, President
TENANT:
PALATIN TECHNOLOGIES, INC.
By: /s/ Edward J. Quilty
-------------------------
Edward J. Quilty
Chairman and CEO
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EXHIBIT A
LEASED PREMISES FLOOR SPACE DIAGRAM
[GROUND FLOOR PLAN DIAGRAM]
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EXHIBIT B
DESCRIPTION OF LOT 76, BLOCK S-9
WEST WINDSOR TOWNSHIP
MERCER COUNTY, NEW JERSEY
All that certain lot, parcel, or tract of land situate and lying in the Township
of West Windsor, County of Mercer and State of New Jersey and being more
particularly bounded and described as follows:
BEGINNING at a point, said point being distant the following five courses
(designated A through E) from the intersection of the southerly line of Roszel
Road (60' R.O.W.) and the westerly line of Lot 61, Block S-9 as shown on a Major
Subdivision Map entitled "Preliminary-Final Major Subdivision, Lot 7, Block S-9
situated in West Windsor Township, Mercer County, New Jersey," prepared by
Lynch, Carmody, Giuliano & Karol, P.A., filed in the Mercer County Clerk's
Office on February 18, 1983, as Map No. 2513, and running thence:
(A) South 44 13' 07" East, a distance of 324.42 feet to a point; thence
(B) South 58 57' 14" West, a distance of 716.08 feet to a point; thence
(C) South 16 48' 22" West, a distance of 198.72 feet to a point; thence
(D) South 49 39' 04" West, a distance of 583.64 feet to a point; thence
(E) South 42 48' 22" West, a distance of 10.00 feet to the aforementioned point
of BEGINNING, and running thence from the point of BEGINNING:
1. Along a curve to the right, said curve having a radius of 250.00 feet
and an arc length of 196.35 feet, to a point of tangency; thence
2. South 87 48' 22" West, a distance of 340.00 feet to a point; thence
3. North 02 11' 38" West, a distance of 394.25 feet to a point of
curvature; thence
4. Along a curve to the left, said curve having a radius of 200.00 feet
and an arc length of 157.08 feet, to a point of tangency; thence
5. North 47 11' 38" West, a distance of 295.16 feet to a point; thence
6. North 42 48' 22" East, a distance of 615.00 feet to a point; thence
7. South 47 11' 38" East, a distance of 279.19 feet to a point; thence
8. South 02 11' 38" East, a distance of 756.83 feet to a point; thence
9. South 47 11' 38" East, a distance of 214.65 feet to the point and place
of BEGINNING.
The above described parcel of land is intended to be the same as shown on a map
entitled "Preliminary-Final Major Subdivision, Lots 7 & 20, Block S-9, situated
in West Windsor Township, Mercer County, New Jersey," prepared by Lynch,
Carmody, Giuliano & Karol, P.A., dated October 8, 1984, and revised to December
10, 1985, and filed in the Mercer County Clerk's office on October 30, 1985 as
Map No. 2730.
The above description is in accordance with a survey prepared by Fellows Read &
Associates, Inc. dated January 9, 1986, revised to January 30, 1986.
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EXHIBIT C
WORK LETTER
The Building's structure is a three-story office building of Construction Type
2C with a steel frame, a metal deck floor system, a granite and concrete
exterior facade and insulated glass. The floors will sustain a live load of 100
pounds per square foot of usable floor space plus an allowance of 20 pounds per
square foot for partitions and has a typical bay size of 30 feet by 30 feet.
Among other Common Facilities, the Building contains two men's and two women's
bathrooms on each floor, two drinking fountains on each floor and two hydraulic
elevators with a capacity of 2,500 pounds each and has Parking Facilities with
approximately 500 lined parking spaces.
As used in this Work Letter, "building standard" shall mean the type and grade
of material, equipment or device designated by the Landlord as standard for
leased premises in the Building. Any work performed in the Building shall
conform to such standard.
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EXHIBIT D
BUILDING RULES AND REGULATIONS
The following are the Building Rules and Regulations adopted in accordance with
subsection 7.2.3 of the Agreement of which this exhibit is a part; and the
Tenant and the Tenant's employees, other agents and Guests shall comply with
these Building Rules and Regulations:
1. The sidewalks, driveways, entrances, passages, courts, lobby, esplanade
areas, plazas, elevators, vestibules, stairways, corridors, halls and other
Common Facilities shall not be obstructed or encum bered or used for any purpose
other than ingress and egress to and from the Leased Premises. The Tenant shall
not permit or suffer any of its employees, other agents or Guests to congregate
in any of the said areas. No door mat of any kind whatsoever shall be placed or
left in any public hall or outside any entry door of the Leased Premises.
2. No awnings or other projections shall be attached to the outside walls of the
Building. No curtains, drapes, blinds, shades or screens shall be attached to,
hung in or used in connection with any window or door of the Leased Premises
without the prior written consent of Landlord. If such consent is given, such
curtains, drapes, blinds, shades or screens shall be of a quality, type, design
and color, and attached in the manner, approved by Landlord.
3. Except as
otherwise specifically provided in subsection 18.1 of the Agreement, no sign,
insignia, advertisement, object, notice or other lettering shall be exhibited,
inscribed, painted or affixed so as to be visible from outside the Leased
Premises or the Building. In the event of the violation of the foregoing by the
Tenant, the Landlord may remove same without any liability and may charge the
expense incurred in such removal to the Tenant.
4. The sashes, doors, skylights, windows, and doors that reflect or admit light
and air into the halls, passageways or other public places in the Building shall
not be covered or obstructed and no bottles, parcels or other articles shall be
placed on the window sills.
5. No showcase or other articles shall be placed in front of or affixed to any
part of the Building or the Common Facilities.
6. The lavatories, water and wash closets and other plumbing fixtures shall not
be used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or other substances shall be
thrown or deposited therein. All damages resulting from any misuse thereof shall
be repaired at the expense of the Tenant that permitted or suffered the
violation hereof by the Tenant, the Tenant's employees, other agents or Guests.
7. The Tenant shall not mark, paint, drill into or in any way deface any part of
the Leased Premises, the Building, the Common Facilities or the Property. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of the Landlord, and as the Landlord may direct. Linoleum and
other resilient floor coverings shall be laid so that the same shall not come in
direct contact with the floor of the Leased Premises; and if linoleum or other
resilient floor coverings are desired, an interlining of builder's deadening
felt shall be first affixed to the floor by a paste or
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other material that is, and will remain, soluble in water. The use of cement or
other adhesive material that either is not, or will not remain, soluble in water
is prohibited.
8. No bicycles, vehicles, animals, reptiles, fish or birds of any kind shall be
brought into or kept in or about the Leased Premises.
9. No noise including, without limiting the generality of the foregoing, music
or the playing of musical instruments, recordings, radio or television which, in
the reasonable judgment of Landlord, might disturb tenants of Other Leased
Premises shall be made or permitted by the Tenant. Nothing shall be done or
permitted in the Leased Premises by the Tenant which would impair or interfere
with the use or enjoyment of Other Leased Premises by any tenant thereof.
Nothing shall be thrown out of the doors, windows or skylights or down the
passageways of the Building.
10. The Tenant shall not manufacture any commodity, or prepare or dispense any
foods or beverages, tobacco, flowers or other commodities or articles without
the prior written consent of the Landlord.
11. Duplicates of keys and passes distributed to the Tenant by the Landlord
shall not be made. The Tenant shall provide appropriate security for keys.
Nothing shall be done to render any lock inoperable by the Building Grand Master
Key. No lock shall be installed without the Landlord's prior written consent;
and any lock so installed shall be operable by the Building Grand Master Key.
Upon termination of the Term, all keys, passes and duplicates provided by the
Landlord to the Tenant, or otherwise procured by the Tenant, shall be returned
to the Landlord. Any failure to comply with the foregoing which requires changes
in locks, new or additional keys, passes or duplicates or other services of a
locksmith shall be paid by the Tenant.
12. All deliveries and removals, and the carrying in or out of any safes,
freight, furniture, packages, boxes, crates or any other object or matter of any
description shall take place during such hours, in such manner and in such
elevators and passageways as the Landlord may determine from time to time. The
Landlord reserves the right to inspect all objects and matter being brought into
the Building or the Common Facilities and to exclude from the Building and the
Common Facilities all objects and matter that violates any of these Building
Rules and Regulations or that are contraband. The Landlord may (but shall not be
obligated to) require any person leaving the Building or the Common Facilities
with any package or object or matter from the Leased Premises to establish his
authority from the Tenant to do so. The establishment and enforcement of such a
requirement shall not impose any responsibility on the Landlord for the
protection of the Tenant against the removal of property from the Leased
Premises. The Landlord shall not be liable to the Tenant for damages or loss
arising from the admis sion, exclusion or ejection of any person to or from the
Leased Premises or the Building or the Common Facilities under this rule.
13. The Tenant shall not place any object in any portion of the Building that is
in excess of the safe carrying or designed load capacity of the structure.
14. The Landlord shall have the right to prohibit any advertising or display of
any identifying sign by the Tenant which in the Landlord's judgment tends to
impair the reputation of the Building or its desirability; and, on written
notice from the Landlord, the Tenant shall refrain from or discontinue such
advertising or display of such identifying sign.
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15. The Landlord reserves the right to exclude from the Building and the Common
Facilities during hours other than Regular Business Hours all persons who do not
present a pass thereto signed by both the Landlord and the Tenant. All persons
entering or leaving the Building or the Common Facilities during hours other
than Regular Business may be required to sign a register. The Landlord will
furnish passes to persons for whom the Tenant requests same in writing. The
establishment and enforcement of such a requirement shall not impose any
responsibility on the Landlord for the protection of the Tenant against
unauthorized entry of persons.
16. The Tenant, before closing and leaving the Leased Premises at any time shall
see that all lights and appliances generating heat (other than the heating
system) are turned off. All entrance doors to the Leased Premises shall be left
locked by the Tenant when the Leased Premises are not in use. At any time when
the Building or the Common Facilities are locked during hours other than Regular
Business Hours, the Building and the Common Facilities locks shall not be
defeated by any means, such as by leaving a door ajar.
17. No person shall go upon the roof of the Building without the prior written
consent of the Landlord.
18. Any requirements of the Tenant may be attended to only upon application at
the office of the Building. The Landlord and its agents shall not perform any
work or do any work or do anything outside of the Landlord's obligations under
the Agreement except upon special instructions from the Landlord on terms
acceptable to the Landlord and the Tenant.
19. Canvassing, soliciting and peddling in the Building and the Common
Facilities are prohibited and the Tenant shall cooperate to prevent same.
20. There shall not be used in any space, or in the public halls or other Common
Facilities of the Building, in connection with the moving or delivery or receipt
of safes, freight, furniture, packages, boxes, crates, paper, office material,
or any other matter or thing, any hand trucks or dollies except those equipped
with rubber tires, side guards and such other safeguards as the Landlord shall
require. No hand trucks shall be used in passenger elevators, and no passenger
elevators shall be used for the moving, delivery or receipt of the
aforementioned articles. In connection with moving in or out any furniture,
furnishings, equipment, heavy articles and heavy packages, the Tenant shall take
such precautions as may be necessary to prevent excessive wear and tear in the
Building's Common Facilities and the Leased Premises including, without limiting
the generality of the foregoing, floor and wall treatments.
21. The Tenant shall not cause or permit any odors of cooking or other processes
or any unusual or objectional odors to emanate from the Leased Premises which
might constitute a Nuisance. No cooking shall be done in the Leased Premises
other than as specifically permitted in the Agreement.
22. The Landlord reserves the right not to enforce any Building Rule or
Regulation against any tenants of Other Leased Premises. The Landlord reserves
the right to rescind, amend or waive any Building Rule and Regulation when, in
the Landlord's reasonable judgment, it appears necessary or desirable for the
reputation, safety, care or appearance of the Building or the preservation of
good order therein or the operation of the Building or the comfort of tenants or
others in the Building. No rescission, amendment or waiver of any Building Rule
and Regulation in favor of one tenant shall operate as a rescission, amendment
or waiver in favor of any other tenant.
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EXHIBIT E
DEFINITIONS AND INDEX OF DEFINITIONS
In accordance with section 1 of the Agreement of which this exhibit is a part,
throughout the Agree ment the following terms and phrases shall have the
meanings set forth or referred to below:
1. "Additional Rent" means all amounts, other than Basic Rent and any
Security Deposit, required to be paid by the Tenant to the Landlord
in accordance with this Agreement.
2. "Agreement" means this Lease and Lease Agreement (including exhibits),
as it may have been amended.
3. "Annual Amortized Capital Expenditure" means the payment amount
determined as an annuity in arrears using the cost incurred by the
Landlord for any Capital Expenditure as the present value, the number
of years of its useful life (not exceeding 10 years) selected by the
Landlord in accordance with generally applied real estate accounting
practice as the number of periods and the Base Rate in effect when the
respective improvement is first placed into service plus two additional
percentage points as the annual rate of interest.
4. "Base Rate" means the prime commercial lending rate per year as
announced from time to time by The Chase Manhattan Bank (National
Association) at its principal office in New York City.
5. "Base Year" means the full calendar year 1997 with respect to
Operational Expenses and Taxes.
6. "Base Year Operational Expenses" means actual Operational Expenses
incurred by the Landlord during the Base Year.
7. "Base Year Taxes" means the product of the final assessed value, as the
same may subsequently be adjusted in any appeal of the tax assessor's
valuation, of the Property, the Building and any other improvements on
the Property in the Base Year and the Municipality's lowest tax rate
for office buildings and the property on which they stand in effect
during the Base Year.
8. "Basic Rent" is defined in subsection 3.2 of this Agreement.
9. "Building" means the office building erected on the Property which is
commonly known as 214 Carnegie Center, Princeton, New Jersey 08540, as
it may, in the Landlord's sole discretion, be increased, decreased,
modified, altered or otherwise changed from time to time before, during
or after the Term. As the Building is presently constructed it consists
of 149,043 gross rentable square feet of floor space.
10. "Capital Expenditure" is defined in subsection 10.3 of this Agreement.
11. "Commencement Date" is defined in section 4 of this Agreement.
12. "Common Facilities" means the areas, facilities and improvements
provided by the Landlord in the Building (except the Leased
Premises and the Other Leased Premises)and on the Property, including,
without limiting the generality of the foregoing, the Parking
Facilities and driveways on the Property, for non-exclusive use by
the Tenant in accordance with subsection 2.2 of this Agreement, as
they may, in the Landlord's sole discretion, be increased,
decreased, modified, altered or otherwise changed from time to time
before, during or after the Term, and subject to rights which may be
granted to the major tenant to utilize the lobby as a common
reception area.
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13. "Common Walls" means those walls which separate the Leased Premises
from Other Leased Premises.
14. "Electric Charges" means all the supplying utility's charges for, or in
connection with, furnishing electricity including charges determined by
actual usage, any seasonal adjustments, demand charges, energy charges,
energy adjustment charges and any other charges, howsoever denominated,
of the supplying utility, including sales and excise taxes and the
like.
15. "Event of Default" is defined in section 22 of this Agreement.
16. "Expiring Term" means, when used in the context of any Option to Renew,
the Term as it is then scheduled to expire (immediately prior to
exercise of the next available Option to Renew).
17. The Tenant's "Guests" shall mean the Tenant's licensees, invitees and
all others in, on or about the Leased Premises, the Building, the
Common Facilities or the Property, either at the Tenant's express or
implied request or invitation or for the purpose of soliciting or
visiting the Tenant.
18. A "History of Recurring Events of Default" means the occurrence of
three or more Events of Default (whether or not cured by the Tenant) in
any period of 12 months.
19. "Holdover Damages" is defined in subsection 23.4 of this Agreement.
20. The "Index" means the "all items" index figure for the New York
Northeastern New Jersey average of the Consumer Price Index for all
urban wage earners and clerical workers which uses a base period of
1982-84=100, published by the United States Department of Labor, so
long as it continues to be published. If the Index is not published
for a period of three consecutive months, or if its base period is
changed, the term "Index" shall mean that index, as nearly equivalent
in purpose, function and coverage as practicable to the original
Index, which the Landlord shall have designated by notice to the
Tenant.
21. "Initial Term" means the period so designated in subsection 4.1 of this
Agreement.
22. "Initial Year" means the first 12 full calendar months of the Initial
Term.
23. "Landlord" means the person so designated at the beginning of this
Agreement and those successors to the Landlord's interest in the
Property and/or the Landlord's rights and obligations under this
Agreement contemplated by section 26 of this Agreement.
24. "Leased Premises" means that portion of the interior of the Building
(as viewed from the interior of the Leased Premises) bounded by the
interior sides of the unfinished floor and the finished ceiling on the
first floor (as the floors have been designated by the Landlord) of
the Building, the centers of all Common Walls and the exterior sides
of all walls other than Common Walls, the outline of which floor space
is designated on the diagram set forth in Exhibit A attached hereto,
which portion contains 3,336 square feet of usable floor space and
3,970 square feet of gross rentable floor space; and references within
this Agreement to the gross rentable floor space and the usable floor
space, respectively, of the Leased Premises shall mean the respective
quantities herein specified.
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25. "Legal Holidays" means New Year's Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
26. "Market Rental Rate" means, at the time of reference, the gross
rentable floor space of the Leased Premises multiplied by the greater
of: (a) that annual rate of Basic Rent per square foot of gross
rentable floor space which is then being quoted by the Landlord for
comparable Other Leased Premises (or would then be quoted if comparable
Other Leased Premises were then available) or (b) that annual rate of
Basic Rent per square foot of gross rentable floor space in effect
during the Expiring Term.
27. "Municipality" means the Township of West Windsor in Mercer County, New
Jersey, or any successor municipality with jurisdiction over the
Property.
28. "No Pass Through Period" means, in the context of Operational Expenses
and Taxes, the period beginning on the Commencement Date and ending on
December 31, 1997.
29. "Nuisance" means any condition or occurrence which unreasonably or
materially interferes with the authorized use and enjoyment of the
Other Leased Premises and the Common Facilities by any tenant of Other
Leased Premises or by any person authorized to use any Other Leased
Premises or Common Facilities or with the authorized use of any other
areas, buildings or other improvements in the Carnegie Center Complex.
30. "Operational Expenses" is defined in subsection 10.2 of this
Agreement.
31. "Option to Renew" is defined in subsection 6.1 of this Agreement.
32. "Other Leased Premises" means all premises within the Building, with
the exception of the Leased Premises, that are, or are available to
be, leased to tenants or prospective tenants, respectively.
33. "Parking Facilities" means the parking area adjacent to the Building,
containing the approxi mate number of lined parking spaces set forth in
the Work Letter, which parking area is provided as Common Facilities
34. "Person" includes an individual, a corporation, a partnership, a trust,
an estate, an unincorpo rated group of persons and any group of
persons.
35. "Property" means the parcel of land, as it may, in the Landlord's sole
discretion, be increased, decreased, modified, altered or otherwise
changed from time to time before, during or after the Term, on which
the Building is (or is about to be) erected. As the Property is
presently constituted, it is more particularly described in Exhibit B
attached hereto.
36. "Regular Business Hours" means 8:00 A.M. to 6:00 P.M., Monday through
Friday, except on Legal Holidays.
37. "Re-Leasing Damages" is defined in subsection 23.3.
38. "Renewal Term" means, at the time of reference, any portion of the
Term, other than the Initial Term, as to which the Tenant has properly
exercised an Option to Renew which Option to Renew has not been
rescinded in accordance with subsection 6.4.1 of this Agreement.
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39. "Rent" means Basic Rent and Additional Rent.
40. "Security Deposit" is designated in section 29 of this Agreement.
41. "Target Date" means, upon execution and delivery of this Agreement, the
then estimated Commencement Date which is hereby established to be
August 1, 1997.
42. "Taxes" means, in any calendar year, the aggregate amount of real
property taxes, assess- ments and sewer rents, rates and charges,
state and local taxes, transit taxes and every other govern mental
charge, whether general or special, ordinary or extraordinary (except
corporate franchise taxes and taxes imposed on, or computed as a
function of, net income or net profits from all sources and except
taxes charged, assessed or levied exclusively on the Leased Premises
or arising exclusively from the Tenant's occupancy of the Leased
Premises) charged, assessed or levied by any taxing authority with
respect to the Property, the Building, the Common Facilities and any
other improvements on the Property and an allocable portion of Taxes
with respect to other portions of the Carnegie Center Complex, less
any refunds or rebates (net of expenses incurred in obtaining any such
refunds or rebates) of Taxes actually received by the Landlord during
such calendar year with respect to any period during the Term for the
benefit of the Tenant, tenants of Other Leased Premises and the
Landlord. If during the Term there shall be a change in the means or
methods of taxing real property generally in effect at the beginning
of the Term and another type of tax or method of taxation should be
substituted in whole or in part for, or in lieu of, Taxes, the amounts
calculated under such other types of tax or by such other methods of
taxation shall also be deemed to be Taxes. Until such time as the
actual amount of Taxes for any calendar year becomes known, the amount
thereof shall be the Landlord's estimate of Taxes for that calendar
year.
43. "Tenant" means the person so designated at the beginning of this
Agreement.
44. "Tenant Electric Charges" means (a) during Regular Business Hours,
Electric Charges attributable to the Tenant's use of electricity in
the Leased Premises for purposes other than heating, ventilation and
air conditioning provided to the Leased Premises by the Landlord in
accordance with subsection 8.2.4 of this Agreement and (b) during
other than Regular Business Hours, a charge at the rate of $75.00 per
hour or partial hour of use plus Electric Charges attributable to the
Tenant's use of electricity in the Leased Premises for all purposes
including, without limiting the generality of the foregoing, heating,
ventilation and air conditioning.
45. "Tenant's Share" of any amount means 2.664%.
46. "Term" means the Initial Term plus, at the time of reference, any
Renewal Term.
47. "Termination Damages" is defined in subsection 23.2 of this Agreement.
48. "Traffic Plan" is defined in subsection 7.3 of this
Agreement."Utilities Expenses" means Electric Charges (other than
Tenant Electric Charges) and all charges for any other fuel that may
be used in providing electricity and services powered by electricity
that the Landlord provides in accordance with section 8 of this
Agreement to the Building, the Leased Premises, Other Leased Premises,
the Common Facilities and the Property, including sales and excise
taxes and the like.
-48-
<PAGE>
49. "Utilities Expenses" means Electric Charges (other than Tenant Electric
Charges) and all charges for any other fuel that may be used in
providing electricity and services powered by electricity that the
Landlord provides in accordance with section 8 of this Agreement to the
Building, the Leased Premises, Other Leased Premises, the Common
Facilities and the Property, including sales and excise taxes and the
like.
50. "Work Letter" means Exhibit C attached hereto which generally describes
the type of construc tion of the Building and, unless the Tenant Plan
does not require any such respective improve ment, those improvements
the Landlord will provide or install in the Leased Premises without
installation charge to the Tenant in connection with the preparation of
the Leased Premises contemplated by section 5 of this Agreement.
-49-
<PAGE>
EXHIBIT F
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
FORM OF ESTOPPEL CERTIFICATE
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
440 Lincoln Street
Worcester, MA 01605
Gentlemen:
This instrument is being furnished to State Mutual Life Assurance Company of
America ("Lender") by ------------------- ("Tenant"), which is the tenant under
a lease (the "Lease") dated --------------- from CARNEGIE 214 ASSOCIATES LIMITED
PARTNERSHIP ("Landlord"), pertaining to and covering a portion, as such portion
is specifically described in the Lease (the "Demised Premises"), of that real
estate commonly designated as 214 Carnegie Center, Princeton, Mercer County, New
Jersey (the "Property" or "Building"), such real estate being more specifically
described in Exhibit "A" attached hereto.
As an inducement to Lender to make a loan (the "Loan") as permanent financing
for the Property, with the intention of having Lender rely thereon, and for
other good and valuable consideration, Tenant hereby warrants and represents to
Lender and agrees with Lender as follows:
(a) That the Lease has not been amended or modified, except as follows:
and is in ------------------------- full force and effect as
originally executed or as so amended, whichever is appropriate, and
that neither Landlord nor the Tenant is in default in any respect
under any terms of the Lease;
(b) The commencement date of the term of the Lease was ------------, and
the term of the Lease will expire on ------------- , unless extended
or sooner terminated as provided in the Lease;
(c) That Tenant is in possession of the Demised Premises and that Landlord
has complied fully and completely with all of Landlord's covenants,
warranties and other undertakings and obligations under the Lease to
this date, including, without limitation, those with respect to (i)
the construction, character, condition and location of the Demised
Premises; (ii) improvements, tenant's spaces and the common areas
situated on the Property; (iii) other tenancies, occupancies, stores
or businesses on the Property; (iv) any property adjacent to the
Property; (v) parking and access; and (vi) the provision of
maintenance and services under the Lease, with the result that Tenant
is fully obligated to pay, and is paying, the rent and other charges
due thereunder, and is fully obligated to perform, and is performing,
all of the other obligations of Tenant under the Lease without current
claim or counterclaim, offset, defense or otherwise;
(d) That Tenant has not and will not make any prepayment of rental under
the Lease for more than one (1) month in advance of the due date
thereof, and that there are currently no offsets, defenses,
counterclaims or credits against the rentals due thereunder;
(e) That Tenant has not received notice and has no knowledge of any
assignment, hypothecation or pledge of the rents or of Landlord's
interest under the Lease other than ----------------.
(f) That Tenant understands and acknowledges that (i)Landlord shall
execute a conditional assignment of the Lease in favor of Lender; (ii)
notwithstanding said assignment, all rental payments under the Lease
shall be paid as heretofore stated and in accordance with the terms of
the Lease until and unless Tenant is notified to the contrary in
writing by Lender; (iii) under the conditions of said assignment and
after the date thereof, it is expressly agreed that, unless the
written consent of Lender be first obtained, no rents are to be
collected more than one month in advance of the due date thereof, and
no alterations, modification, amendments, terminations, waivers,
consents, approvals or other actions whatsoever are to be made or
become effective with respect to the Lease except as permitted under
the terms of said conditional assignment; and (iv) the interest of the
Landlord in the Lease shall be assigned to Lender solely as additional
security for said Loan and Lender assumes no duty, liability or
obligation under the Lease, either by virtue of said assignment, the
exercise of remedies thereunder, or by any subsequent receipt or
collection of rents thereunder or any other sums due under the terms
of the Lease;
-50-
<PAGE>
(g) That Lender shall not be (i) liable for any action or omission of any
person or party who may be Landlord under the Lease prior to your
acquisition of title to the Property by foreclosure or otherwise; (ii)
subject to any offsets or defenses which Tenant may have against any
such prior Landlord; or (iii) liable for the return of any security
deposit unless Lender actually receives such deposit;
(h) That Tenant has not subordinated by separate written instrument its
interest under the Lease to any mortgage, deed of trust or other lien
on title to the Property.
(i) That Tenant has paid in full for all labor and materials and other
services in connection with Tenant's construction work and Tenant's
other work in the Demised Premises, so that no lien by reason thereof
may attach against the Landlord's interest in the Demised Premises or
the Property of which they are a part and that Tenant, to the extent
required by the terms of the Lease, has been fully reimbursed by
Landlord for all improvements made by Tenant to the Demised Premises.
(j) In consideration of the premises and other good and valuable
consideration to the Tenant by Lender, the receipt and sufficiency of
which are hereby acknowledged, Tenant further agrees with Lender as
follows: In the event of any default by Landlord under the Lease,
Tenant shall promptly send to Lender at the address hereinabove set
forth a copy of any notice of such default sent to Landlord, in the
same manner as such notice to Landlord is sent, and in such event and
prior to the exercise by Tenant of any of its rights or remedies under
the Lease or otherwise with respect to such default, Lender shall be
permitted to cure such default within the period of time during which
Landlord would be permitted to cure such default as set forth in the
Lease.
(k) Tenant agrees that, with respect to any successor to Landlord's
interest in the Property, to look solely to such successor's interest
in the Property for recovery of any judgment from such successor to
Landlord; it being specifically agreed that no successor to Landlord's
interest in the Property shall ever be personally liable for any such
judgment.
(l) This Certificate shall inure to the benefit of Lender, its successors
and assigns, and shall be binding upon Tenant and Tenant's heirs,
legal representatives, successors and assigns. This Certificate shall
not be deemed to alter or modify any of the terms, conditions,
covenants or obligations of the Lease, except to the extent, if any
specifically set forth herein.
EXECUTED this ________ day of ____________________, 19__.
ATTEST:
______________________________ BY:___________________________
-51-
LEASE AGREEMENT BETWEEN
WHC-SIX REAL ESTATE, L.P.,
A DELAWARE LIMITED PARTNERSHIP,
AS LANDLORD,
AND
PALATIN TECHNOLOGIES, INC.,
A DELAWARE CORPORATION,
AS TENANT
DATED MARCH 13, 1997
<PAGE>
TABLE OF CONTENTS
Article Caption Page
1 Lease Grant. . . . . . . . . . . . . . . . . . . . . . . .1
2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . .2
(a) Basic Rent. . . . . . . . . . . . . . . . . . . . . . .2
(b) Payment . . . . . . . . . . . . . . . . . . . . . . . .2
(c) Operating Expenses. . . . . . . . . . . . . . . . . . .3
4 Delinquent Payment; Handling Charges . . . . . . . . . . .5
5 Security Deposit . . . . . . . . . . . . . . . . . . . . .5
6 Landlord's Obligations . . . . . . . . . . . . . . . . . .6
(a) Services. . . . . . . . . . . . . . . . . . . . . . . .6
(b) Excess Utility Use. . . . . . . . . . . . . . . . . . .7
(c) Restoration of Services; Abatement. . . . . . . . . . .7
7 Improvements; Alterations; Repairs; Maintenance. . . . . .8
(a) Improvements; Alterations . . . . . . . . . . . . . . .8
(b) Repairs; Maintenance. . . . . . . . . . . . . . . . . 8
(c) Performance of Work . . . . . . . . . . . . . . . . . .9
(d) Mechanic's Liens. . . . . . . . . . . . . . . . . . . .9
8 Use. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
9 Assignment and Subletting. . . . . . . . . . . . . . . . 10
(a) Transfers; Consent. . . . . . . . . . . . . . . . . . 10
(b) Cancellation. . . . . . . . . . . . . . . . . . . . . 11
(c) Additional Compensation . . . . . . . . . . . . . . . 11
10 Insurance; Waivers; Subrogation; Indemnity . . . . . . . 11
(a) Insurance . . . . . . . . . . . . . . . . . . . . . . 11
(b) Waiver of Negligence; No Subrogation. . . . . . . . . 12
(c) Indemnity . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
11 Subordination Attornment; Notice to Landlord's
Mortgagee. . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Subordination . . . . . . . . . . . . . . . . . . . . 12
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Attornment. . . . . . . . . . . . . . . . . . . . . . 13
(d) Notice to Landlord's Mortgagee. . . . . . . . . . . . 13
12 Rules and Regulations. . . . . . . . . . . . . . . . . . 13
13 Condemnation . . . . . . . . . . . . . . . . . . . . . . 13
(a) Total Taking. . . . . . . . . . . . . . . . . . . . . 13
(b) Partial Taking - Tenant's Rights. . . . . . . . . . . 13
(c) Partial Taking - Landlord's Rights. . . . . . . . . . 14
(d) Award . . . . . . . . . . . . . . . . . . . . . . . . 14
14 Fire or Other Casualty . . . . . . . . . . . . . . . . . 14
(a) Repair Estimate . . . . . . . . . . . . . . . . . . . 14
(b) Landlord's and Tenant's Rights. . . . . . . . . . . . 15
(c) Landlord's Rights . . . . . . . . . . . . . . . . . . 15
(d) Repair Obligation . . . . . . . . . . . . . . . . . . 15
15 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 15
16 Events of Default. . . . . . . . . . . . . . . . . . . . 15
17 Remedies . . . . . . . . . . . . . . . . . . . . . . . . 16
18 Payment by Tenant; Non-Waiver. . . . . . . . . . . . . . 17
(a) Payment by Tenant . . . . . . . . . . . . . . . . . . 17
(b) No Waiver . . . . . . . . . . . . . . . . . . . . . . 17
19 Landlord's Lien. . . . . . . . . . . . . . . . . . . . . 17
20 Surrender of Premises. . . . . . . . . . . . . . . . . . 17
21 Holding Over . . . . . . . . . . . . . . . . . . . . . . 18
22 Certain Rights Reserved by Landlord. . . . . . . . . . . 18
23 Intentionally Omitted. . . . . . . . . . . . . . . . . . 19
24 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . 19
(a) Landlord's Transfer . . . . . . . . . . . . . . . . . 19
(b) Landlord's Liability. . . . . . . . . . . . . . . . . 19
<PAGE>
(c) Force Majeure . . . . . . . . . . . . . . . . . . . . 19
(d) Brokerage . . . . . . . . . . . . . . . . . . . . . . 19
(e) Estoppel Certificates . . . . . . . . . . . . . . . . 19
(f) Notices . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Separability. . . . . . . . . . . . . . . . . . . . . 20
(h) Amendments; and Binding Effect. . . . . . . . . . . . 20
(i) Quiet Enjoyment . . . . . . . . . . . . . . . . . . . 20
(j) No Merger . . . . . . . . . . . . . . . . . . . . . . 20
(k) No Offer. . . . . . . . . . . . . . . . . . . . . . . 20
(l) Entire Agreement. . . . . . . . . . . . . . . . . . . 21
(m) Waiver of Jury Trial. . . . . . . . . . . . . . . . . 21
(n) Governing Law . . . . . . . . . . . . . . . . . . . . 21
(o) Joint and Several Liability . . . . . . . . . . . . . 21
(p) Financial Reports . . . . . . . . . . . . . . . . . . 21
(q) Landlord's Fees . . . . . . . . . . . . . . . . . . . 21
(r) Intentionally Omitted . . . . . . . . . . . . . . . . 21
(s) Confidentiality . . . . . . . . . . . . . . . . . . . 21
(t) List of Exhibits. . . . . . . . . . . . . . . . . . . 22
25 Other Provisions . . . . . . . . . . . . . . . . . . . . 22
26 Environmental Laws . . . . . . . . . . . . . . . . . . . 22
27 Signs. . . . . . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
LIST OF DEFINED TERMS
Defined Term Page
Additional Rent. . . . . . . . . . . . . . . . . . . . . . . . .3
Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . .110
AS-IS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .G-1
Balance of Suite 500 . . . . . . . . . . . . . . . . . . . . . .1
Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . .143
Commencement Date. . . . . . . . . . . . . . . . . . . . . . . .1
Construction Allowance . . . . . . . . . . . . . . . . . . . .C-2
Damage Notice. . . . . . . . . . . . . . . . . . . . . . . . . 14
Determination Notice . . . . . . . . . . . . . . . . . . . . .F-1
Event of Default . . . . . . . . . . . . . . . . . . . . . . . 15
Exercise Date. . . . . . . . . . . . . . . . . . . . . . . . .F-1
Initial Portion of Premises. . . . . . . . . . . . . . . . . . .1
Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Landlord's Mortgagee . . . . . . . . . . . . . . . . . . . . . 12
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . .5
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Market Value Rent. . . . . . . . . . . . . . . . . . . . . . .F-1
Offer Notice . . . . . . . . . . . . . . . . . . . . . . . . .G-1
Offer Space. . . . . . . . . . . . . . . . . . . . . . . . . .G-1
Operating Costs. . . . . . . . . . . . . . . . . . . . . . . . .3
Operating Costs and Tax Statement. . . . . . . . . . . . . . . .5
Parking Area . . . . . . . . . . . . . . . . . . . . . . . . .D-1
Permitted Use. . . . . . . . . . . . . . . . . . . . . . . . . .8
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Renewal Option(s). . . . . . . . . . . . . . . . . . . . . . .F-1
Renewal Term(s). . . . . . . . . . . . . . . . . . . . . . . .F-1
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Security Deposit . . . . . . . . . . . . . . . . . . . . . . . .5
Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Tenant Delay Date. . . . . . . . . . . . . . . . . . . . . . .C-3
Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . .C-1
Working Drawings . . . . . . . . . . . . . . . . . . . . . . .C-1
<PAGE>
LEASE
THIS LEASE AGREEMENT (this "Lease") is dated March 13, 1997, between WHC-SIX
REAL ESTATE L.P., a Delaware limited partnership ("Landlord"), and PALATIN
TECHNOLOGIES, INC., a Delaware corporation, (Tenant").
1. Lease Grant. Subject to the terms of this Lease, Landlord initially
leases to Tenant, and Tenant initially leases from Landlord Suite No. 500 (the
"Premises") in the office building (the "Building") located at 125 May Street,
Edison, New Jersey. Landlord and Tenant acknowledge that initially Tenant shall
be occupying only a 9,000 square foot portion ("Initial Portion of Premises") of
the Premises, notwithstanding that certain Tenant improvements shall be
constructed by Tenant for the 1,538 square foot balance of Suite 500 ("Balance
of Suite 500") simultaneously with the construction of Tenant improvements for
the Initial Portion of Premises. The land on which the Building is located and
the Premises are described on Exhibits A. The term "Building" includes the
related land, driveways, parking facilities, and similar improvements, but for
purposes of Operating Expenses (Operating Cost and Taxes) shall be deemed to
mean the two (2) Buildings within the office complex and the related land
(described on Exhibit A), driveways, parking facilities, and similar
improvements.
2. Term.
(a) The term of this Lease shall be ten (10) years commencing the earlier of
(i) ninety-seven (97) days following the date that the existing tenant in the
Premises vacates the Premises or (ii) the date a temporary or permanent
certificate of occupancy is issued for the Initial Portion of Premises, (the
"Commencement Date") and expiring at 5:00 p.m., ten (10) years following the
Commencement Date (the "Term", which definition shall, upon Tenant's timely and
other proper exercise of the Renewal Option(s) (as hereinafter defined), also
include all renewals of the initial Term). If the Commencement Date is not the
first day of a calendar month, then the Term shall be extended for the number of
days between the Commencement Date and the first day of the following month.
Notwithstanding the foregoing, the ninety-seven (97) day period shall be
extended by the number of days in excess of five (5) business days, if any, that
Landlord takes to respond to Tenant's request for approval of the working
drawings submitted to Landlord by Tenant in accordance with Exhibit C (i.e., if
Landlord takes 8 days [of which the first 5 days are business days] to respond
to Tenant, the 97 day period is extended by 3 days).
(b) Once the Commencement Date is ascertained, Landlord and Tenant shall
each execute a notice of the Commencement Date, and thenceforth the date set
forth in the notice shall be conclusively presumed to be the Commencement Date.
(c) In the event the existing tenant in the Premises has not vacated the
Premises prior to June 15, 1997, Tenant can terminate this Lease upon written
notice to Landlord prior to June 20, 1997, whereupon any Rent paid to Landlord
(including, but not limited to, the Security Deposit) shall be returned to
Tenant and neither party shall have any further rights or obligations towards
the other.
<PAGE>
(d) Landlord shall not be in default hereunder nor liable for damages for
any delay to, or extension of, the Commencement Date.
3. Rent
(a) (i) Basic Rent. "Basic Rent" (herein so called) shall be the following
amounts for the following periods of time, subject to the increase in Basic Rent
as determined in subparagraph 3(a)(ii), which shall in no event affect the rent
schedule from and after the twenty-fifth (25th) month:
Time Period Anual Rent Monthly Basic Rent
- ---------------- ----------- ------------------
Months 1-12 $115,690.00 $ 9,640.83
13-24 118,766.00 9,897.17
25-36 126,456.00 10,538.00
37-60 158,070.00 13,172.50
61-120 200,222.00 16,685.17
(ii) As of the earlier of (a) two (2) years following the Commencement Date
or (b) the date Tenant utilizes or occupies the Balance of Suite 500 in its
regular course of business ("Total Occupancy Date") and up to the commencement
of the 25th month of the Term (pro rated for any partial month), the Basic Rent
for the Premises shall be increased from and after the Total Occupancy Date to
the rate of $126,456.00 per annum, payable in consecutive monthly payments of
$10,538.00.
(b) Payment. Tenant shall timely pay to Landlord Basic Rent and all
additional sums to be paid by Tenant to Landlord under this Lease (collectively,
the "Rent") without deduction or set off (except as may be otherwise
specifically set forth in this Lease), at Landlord's notice address provided for
in this Lease or as otherwise specified by Landlord. Basic Rent, adjusted as
herein provided, shall be payable monthly in advance, and shall be accompanied
by all applicable state and local sales or use taxes, if any. The monthly
installment for the first month of Basic Rent shall be payable contemporaneously
with the execution of this Lease; thereafter, Basic Rent shall be payable on the
first day of each month of the Term beginning on the first day of the second
full calendar month of the Term. The monthly Basic Rent for any partial month at
the beginning or expiration of the Term shall equal the product of 1/365 of the
annual Basic Rent in effect during the partial month and the number of days in
the partial month.
2
<PAGE>
(c) Operating Expenses.
(1) Tenant shall pay an amount ("Additional Rent") equal to its
proportionate share of Operating Costs. Landlord may collect such amount
annually in arrears in a lump sum, which shall be due within 30 days after
Landlord furnishes to Tenant the Operating Costs and Tax Statement (defined
below). Alternatively, Landlord may make a good faith estimate of the
Additional Rent to be due by Tenant for any calendar year or part thereof by
thirty (30) days prior notice to Tenant during the Term, and Tenant shall pay
to Landlord, on the Commencement Date and on the first day of each calendar
month thereafter, an amount equal to the estimated Additional Rent for such
calendar year or part thereof divided by the number of months therein. From
time to time, Landlord may estimate and re-estimate in good faith the
Additional Rent to be due by Tenant and deliver a copy of the estimate or
re-estimate to Tenant. Thereafter, the monthly installments of Additional
Rent payable by Tenant shall be appropriately adjusted in accordance with the
estimations so that, by the end of the calendar year in question, Tenant
shall have paid all of the Additional Rent as estimated by Landlord. Any
amounts paid based on such an estimate shall be subject to adjustment as
herein provided when actual Operating Costs are available for each calendar
year.
(2) The term "Operating Costs" shall mean all expenses and disbursements
(subject to the limitations set forth below) that Landlord incurs in
connection with the ownership, operation, and maintenance of the Building,
determined in accordance with sound accounting principles consistently
applied, including, but not limited to, the following costs: (A) wages and
salaries (including management fees) of all employees engaged in the
operation, maintenance, and security of the Building, including taxes,
insurance and benefits relating thereto; (B) all supplies and materials used
in the operation, maintenance, repair, replacement, and security of the
Building; (C) costs for improvements made to the Building which, although
capital in nature, are expected to reduce the normal operating costs of the
Building, as well as capital improvements made in order to comply with any
law hereafter promulgated by any governmental authority, as amortized over
the useful economic life of such improvements as determined by Landlord in
its reasonable discretion; (D) cost of all utilities, except the cost of
utilities reimbursable to Landlord by the Building's tenants other than
pursuant to a provision similar to this Section 3.(c; (E) insurance expenses;
(F) repairs, replacements, and general maintenance of the Building; and (G)
service or maintenance contracts with independent contractors for the
operation, maintenance, repair, replacement, or security of the Building
(including, without limitation, alarm service, window cleaning, and elevator
maintenance).
The following shall not be deemed Operating Costs: (i) capital
improvements made to the Building, other than capital improvements
described in Section 3(c)(2)(C) and except for items which are
generally considered maintenance
3
<PAGE>
and repair items, such as painting of common areas, replacement of
carpet in elevator lobbies, and the like; (ii) repair, replacements
and general maintenance paid by proceeds of insurance or by Tenant
or other third parties; (iii) interest, amortization or other
payments on loans to Landlord; (iv) depreciation; (v) leasing
commissions; (vi) legal expenses for services, other than those
that benefit the Building tenants generally (e.g., tax disputes);
(vii) renovating or otherwise improving space for occupants of the
Building or vacant space in the Building; (viii) Taxes (defined
below), (ix) federal income taxes imposed on or measured by the
income of Landlord from the operation of the Building; (x)
expenditures for repairs, replacements or rebuilding occasioned by
fire or other casualty to the Building; (xi) expenditures for
repairs, replacements or rebuilding occasioned by any of the events
contemplated by Section 13 of this Lease; (xii) expenditures for
costs, including advertising and promotional expenses, incurred in
connection with efforts to lease portions of the Building and to
procure new tenants for the Building; (xiii) expenditures for the
salaries, benefits and other compensation of the employees and
other personnel of the Landlord or any managing agent who are not
contemplated by subsection 3(c)(2)(A); (xiv) expenditures to an
affiliate of the Landlord to the extent any such expenditure
exceeds the amount that would have been payable in the absence of
such affiliate relationship; (xv) expenditures for installing,
operating and maintaining any special facility in or on the
Building such as an observatory, broadcasting facility, cafeteria
or dining facility or athletic, recreational or luncheon club if
the respective facility shall not be available to the Tenant or any
of its employees; (xvi) expenditures for what would otherwise be an
Operating Cost which are reimbursed under any construction
contractors' or manufacturers' or vendors' warranties or which are
otherwise reimbursed to the Landlord; and (xvii) Operating Costs to
the extent that the sum of (a) the Tenant's proportionate share of
Operating Costs and (b) the proportionate shares of Operating Costs
of tenants of other leased premises in the Building exceeds 100% of
Operating Costs.
(3) Tenant shall also pay a proportionate share of the Taxes for each year
and partial year falling within the Term, which shall be determined by
multiplying the aggregate Taxes by a fraction, the numerator of which is the
number of rentable square feet in the Premises and the denominator of which
is the number of rentable square feet in the Building. Tenant shall pay its
proportionate share of Taxes in the same manner as provided above for
Additional Rent with regard to Operating Costs. "Taxes" shall mean taxes,
assessments, and governmental charges whether federal, state, county or
municipal, and whether they be by taxing districts or authorities presently
taxing or by others, subsequently created or otherwise, and any other taxes
and assessments
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attributable to the Building (or its operation), excluding, however,
penalties and interest thereon and federal and state taxes on income (if the
present method of taxation changes so that in lieu of the whole or any part
of any Taxes, there is levied on Landlord a capital tax directly on the rents
received therefrom or a franchise tax, assessment, or charge based, in whole
or in part, upon such rents for the Building, then all such taxes,
assessments, or charges, or the part thereof so based, shall be deemed to be
included within the term "Taxes" for purposes hereof);
(4) By April 1 of each calendar year, or as soon thereafter as practicable,
Landlord shall furnish to Tenant a statement of Operating Costs for the
previous year and of the Taxes for the previous year (the "Operating Costs
and Tax Statement"). If the Operating Costs and Tax Statement reveals that
Tenant paid more for Operating Costs than the actual amount for the year for
which such statement was prepared, or more than its actual share of Taxes for
such year, then Landlord shall promptly credit or reimburse Tenant for such
excess; likewise, if Tenant paid less than the actual Additional Rent or
share of Taxes due, then Tenant shall promptly pay Landlord such deficiency.
(5) Initially, for the purposes of calculating pro-rata Operating Costs and
Taxes in this Section 3, the parties stipulate that the area of the Premises
is 9,000 rentable square feet and the area of the Building is 105,382
rentable square feet. As of the Total Occupancy Date, the area of the
Premises shall be deemed to be 10,538 rentable square feet.
4. Delinquent Payment; Handling Charges. All past due payments required of
Tenant hereunder shall bear interest from the date due until paid at the Wall
Street Journal, Eastern Edition, published prime rate plus 2%; alternatively,
Landlord may charge Tenant a fee equal to 5% of the delinquent payment to
reimburse Landlord for its cost and inconvenience incurred as a consequence of
Tenant's delinquency. In no event, however, shall the charges permitted under
this Section 4 or elsewhere in this Lease, to the extent they are considered to
be interest under law, exceed the maximum lawful rate of interest.
5. Security Deposit. Upon execution of this Lease, in lieu of a security
deposit in immediately available funds, Tenant shall deposit with the Landlord a
one hundred eighty-five thousand dollars and 00/100 ($185,000.00) irrevocable
unconditional standby letter of credit ("Letter of Credit") in the form attached
hereto as Exhibit H (subject to the right of the issuer to make non-substantive
changes thereto) as a security deposit ("Security Deposit") for the full and
faithful performance of Tenant's obligations in this Lease in favor of Landlord
as beneficiary drawn on a financial institution acceptable to Landlord and with
such other terms and conditions reasonably acceptable to Landlord requiring the
issuer to pay the sum of One Hundred Eighty-Five Thousand and 00/100
($185,000.00) Dollars (or such reduced amount limited as hereinafter permitted)
to Landlord upon presentation to the issuer of the letter of credit and a letter
on Landlord's letterhead stating that an Event of Default by Tenant has occurred
under this Lease and such other customary and reasonable requirements of the
issuer but without requiring further evidence of default. The Letter of Credit
shall be for a minimum of one (1) year
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maturity and renewed on an annual basis (except as hereinafter permitted to be
reduced and/or terminated) during the Term, as the same may be extended and,
provided an Event of Default by Tenant has not occurred under this Lease, Tenant
may reduce the amount of the Letter of Credit by $74,000.00 at the expiration of
twenty-four (24) months from the Commencement Date and by additional amounts of
$37,000.00 at the expiration of thirty-six (36), forty-eight (48) and sixty (60)
months from the Commencement Date, such that no Security Deposit shall remain
from and after the expiration of the fifth (5th) lease year. Failure to renew
the Letter of Credit (unless expressly permitted to the contrary herein) at
least thirty (30) days prior to the expiration of any lease year shall be deemed
a material Event of Default under this Lease entitling Landlord to draw upon the
Letter of Credit and retain the amount so drawn as a Security Deposit. In the
event of any dispute between Landlord and Tenant with respect to an Event of
Default and the Letter of Credit is drawn upon, the funds so received shall be
held by Landlord in a segregated interest-bearing account (interest to follow
the principal) pending resolution of the dispute. The Security Deposit is not an
advance payment of Rent or a measure or limit of Landlord's damages upon an
Event of Default (defined in Section 16). Landlord may, from time to time and
without prejudice to any other remedy, use all or a part of the Security Deposit
to perform any obligation Tenant fails to perform hereunder. The portion of the
Letter of Credit proceeds received by Landlord and not utilized to cure a
default shall be deemed a Cash Security Deposit. Following any such application
of the Security Deposit, Tenant shall deposit with Landlord in cash on demand
the amount so applied in order to restore the Security Deposit to its original
amount. Provided that Tenant has performed all of its obligations hereunder,
Landlord shall, within the earlier of (i) the expiration of the fifth (5th)
lease year, or (ii) 30 days after the Term ends, return to Tenant the portion of
the Security Deposit which was not applied to satisfy Tenant's obligations. The
Security Deposit, letter of credit proceeds or other cash payment may be
commingled with other funds, and no interest (other than in the event of a
dispute as provided in this Article) shall be paid thereon. If Landlord
transfers its interest in the Premises and the transferee assumes Landlord's
obligations under this Lease in writing, then Landlord shall assign any cash
portion of the Security Deposit to the transferee and Tenant shall issue a
substitute Letter of Credit to the transferee simultaneously with the
cancellation of the existing Letter of Credit with all transfer costs associated
therewith being borne by Tenant and Landlord thereafter shall have no further
liability for the return of the Security Deposit. A copy of the assumption
agreement shall be provided to Tenant in writing.
6. Landlord's Obligations
(a) Services. Landlord shall furnish to Tenant (1) water at those points of
supply provided for general use of tenants of the Building; (2) heated and
refrigerated air conditioning as appropriate, at such temperatures and in such
amounts as are standard for comparable buildings in the vicinity of the
Building; (3) electrical current at all times for equipment that does not
require more than 220 volts and whose electrical energy consumption does not
exceed normal combined office and laboratory usage; (4) a dumpster located at
the Building for office garbage and trash and a hauling service to empty same;
(5) sewage disposal for the Building; (6) snow and ice clearance from, and
sweeping of, the Parking Area and access roads and walks relating to the
Building; (7) such maintenance and repair of the Building and its electrical,
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plumbing, HVAC, safety and other mechanical systems and other improvements at
the Building as is customarily provided for comparable office and laboratory
buildings within a 10-mile radius from the Building; and (8) all those items
which are contemplated as Operating Costs under section 3(c)(2) of this Lease.
Landlord shall maintain the common areas of the Building in reasonably good
order and condition, except for damage caused by Tenant, or its employees,
agents or invitees. Tenant shall pay, as Additional Rent, the total electricity,
water and gas charges for the Premises at the supplying utility's rates therefor
as determined pursuant to separate submeters for the Premises. Tenant shall pay
for all light bulbs (including exit sign light bulbs) and ballasts in the
Premises.
(b) Excess Utility Use. Landlord shall not be required to furnish electrical
current for equipment that requires more than 220 volts or other equipment whose
electrical energy consumption exceeds normal office and laboratory usage. If
Tenant's requirements for or consumption of electricity exceed the electricity
to be provided by Landlord as described in Section 6(a), Landlord shall, at
Tenant's expense, make reasonable efforts to supply such service through the
then-existing feeders and risers serving the Building and the Premises, and
Tenant shall pay to Landlord the cost of such service within ten days after
Landlord has delivered to Tenant an invoice therefor. Landlord may determine the
amount of such additional consumption and potential consumption by any
verifiable method, including installation of a separate meter in the Premises
installed, maintained, and read by Landlord, at Tenant's expense. Tenant shall
not install any electrical equipment requiring special wiring or requiring
voltage in excess of 220 volts or otherwise exceeding Building capacity unless
approved in advance by Landlord. The use of electricity in the Premises shall
not exceed the capacity of existing feeders and risers to or wiring in the
Premises. Notwithstanding any provisions in this Lease to the contrary, any
risers or wiring required to meet Tenant's excess electrical requirements shall,
upon Tenant's written request, be installed by Landlord, at Tenant's cost, if,
in Landlord's judgment, the same are necessary and shall not cause permanent
damage to the Building or the Premises, cause or create a dangerous or hazardous
condition, entail excessive or unreasonable alterations, repairs, or expenses,
or interfere with or disturb other tenants of the Building. If Tenant uses
machines or equipment in the Premises which materially adversely affects the
temperature otherwise maintained by the air conditioning system or otherwise
overload any utility, Landlord, after consulting with Tenant for the purpose of
cooperation to develop a reasonable solution, may install supplemental air
conditioning units or other supplemental equipment in the Premises designed to
remedy the adverse effect or overload, and the cost thereof, including the cost
of installation, operation, use, and maintenance, shall be paid by Tenant to
Landlord within ten days after Landlord has delivered to Tenant an invoice
therefor. Tenant acknowledges that, currently, current for 110 volts is supplied
to the Premises and that all costs associated in supplying the 220 volts
required by Tenant shall be borne by Tenant.
(c) Restoration of Services; Abatement. Landlord shall use reasonable
efforts to restore any service required of it that becomes unavailable; however,
such unavailability shall not render Landlord liable for any damages caused
thereby, be a constructive eviction of Tenant, constitute a breach of any
implied warranty, or, except as provided in the next sentence,
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entitle Tenant to any abatement of Tenant's obligations hereunder. If, however,
Tenant is prevented from using the Premises for more than 15 consecutive
business days because of the unavailability of any such services referred to in
Section 6(a)(1)-(7) or Tenant is denied access to the Building as a result of
acts within Landlord's control for more than fifteen (15) consecutive business
days, then Tenant shall, as its exclusive remedy be entitled to a reasonable
abatement of Rent for each consecutive day (after such 15-day period) that
Tenant is so prevented from using the Premises. In no event, however, shall the
abatement apply to Section 6(a)(8) items.
7. Improvements; Alterations; Repairs; Maintenance.
(a) Improvements; Alterations. Improvements to the Premises shall be
installed at Tenant's expense only in accordance with plans and specifications
which have been previously submitted to and approved in writing by Landlord. No
alterations or physical additions in or to the Premises may be made without
Landlord's prior written consent, which shall not be unreasonably withheld,
delayed or conditioned; however, Landlord may withhold its consent to any
alteration or addition that would adversely affect the Building's structure or
adversely affect its HVAC, plumbing, electrical, or mechanical systems. Tenant
shall not paint or install lighting or decorations, signs, window or door
lettering, or advertising media of any type on or about the Premises without the
prior written consent of Landlord, which shall not be unreasonably withheld,
delayed or conditioned; however, Landlord may withhold its consent to any such
painting or installation which would affect the appearance of the exterior of
the Building or of any common areas of the Building. All alterations, additions,
or improvements made in or upon the Premises shall, at Landlord's option, either
be removed by Tenant prior to the end of the Term (and Tenant shall repair all
damage caused thereby), or shall remain on the Premises at the end of the Term
without compensation to Tenant. Whenever Tenant applies to Landlord for consent
to a proposed alteration, addition or improvement that includes items in the
nature of fixtures to real property, in connection with any consent that
Landlord might give, Landlord shall advise Tenant by notice whether Landlord
will require Tenant to remove or to leave behind such items upon expiration of
the Term. All alterations, additions, and improvements shall be constructed,
maintained, and used by Tenant, at its risk and expense, in accordance with all
applicable laws; Landlord's approval of the plans and specifications therefor
shall not be a representation by Landlord that such alterations, additions, or
improvements comply with any law.
(b) Repairs; Maintenance. Tenant shall maintain the Premises in a clean,
safe, and operable condition, and shall not permit or allow to remain any waste
or damage to any portion of the Premises. Subject to the provisions of Section
14, Tenant shall repair or replace, subject to Landlord's direction and
supervision, any damage to the Building caused by Tenant, Tenant's transferees,
or their respective agents, contractors, or invitees. If Tenant fails to make
such repairs or replacements within 30 days after the occurrence of such damage,
then Landlord may make the same at Tenant's cost. If any such damage occurs
outside of the Premises, then Landlord may elect to repair such damage at
Tenant's expense, rather than having Tenant repair such damage. The cost of all
repair or replacement work performed by Landlord under this
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Section 7 shall be paid by Tenant to Landlord within ten days after Landlord has
invoiced Tenant therefor.
(c) Performance of Work. All work described in this Section 7 shall be
performed only by Landlord or by contractors and subcontractors approved in
writing by Landlord. Tenant shall cause all of its contractors and
subcontractors to procure and maintain insurance coverage naming Landlord as an
additional insured against such risks, in such amounts, and with such companies
as Landlord may reasonably require. All such work shall be performed in
accordance with all legal requirements and in a good and workmanlike manner so
as not to damage the Premises, the Building, or the components thereof.
(d) Construction Liens. Tenant shall not permit any construction liens to be
filed against the Premises or the Building for any work performed, materials
furnished, or obligation incurred by or at the request of Tenant by a contractor
under contract to Tenant or its subcontractors or suppliers of materials to the
contractor or subcontractor. If such a lien is filed pursuant to work contracted
by Tenant, then Tenant shall, within ten days after Landlord has delivered
notice of the filing thereof to Tenant, either pay the amount of the lien or
diligently contest such lien and deliver to Landlord or to the Clerk of the
Court with jurisdiction a bond or other security reasonably satisfactory to
Landlord or in compliance with the requirements of the construction lien law in
order to have such construction lien released or bonded. If Tenant fails to
timely take either such action, then Landlord may pay the lien claim, and any
amounts so paid, including expenses and interest, shall be paid by Tenant to
Landlord within ten days after Landlord has invoiced Tenant therefor.
(e) To the extent Exhibit C of this Lease may be inconsistent with any
requirement of this Section 7 of the Lease regarding the Work contemplated by
Exhibit C, the provisions of Exhibit C shall control.
8. Use. Tenant shall continuously occupy and use the Premises only for
general office and laboratory use (the " Permitted Use") and shall comply with
all laws, orders, rules, and regulations relating to the use, condition, access
to, and occupancy of the Premises (including, but not limited to, the storage,
handling and experimentation of animals). Tenant acknowledges that the research
on animals shall be limited to rodents and that there shall be (a) no breeding
of animals, nor (b) housing of animals in excess of twenty-four (24) hours at
the Premises. Tenant shall not permit the Premises, or any part thereof to be
used in any manner which would in any way discharge objectionable fumes, vapors
or odors into the Building's air conditioning system or flues or vents not
designated to receive them. The Premises shall not be used for any use which is
disreputable, creates extraordinary fire hazards, or results in an increased
rate of insurance on the Building or its contents, or for the storage of any
hazardous materials or substances, which hazardous materials or substances are
not lawfully utilized in connection with Tenant's Permitted Use. If, because of
Tenant's acts, the rate of insurance on the Building or its contents increases,
then such acts shall be an Event of Default, Tenant shall pay to Landlord the
amount of such increase on demand, and acceptance of such payment shall not
waive any of Landlord's other rights. Tenant shall conduct
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its business and control its agents, employees, and invitees in such a manner as
not to create any nuisance or unreasonably interfere with other tenants or
Landlord in its management of the Building.
9. Assignment and Subletting
(a) Transfers; Consent. Tenant shall not, without the prior written consent
of Landlord, (1) assign, transfer, or encumber this Lease or any estate or
interest herein, whether directly or by operation of law (except an assignment
to an Affiliate (as hereinafter defined) of Tenant), (2) if Tenant is an entity
other than a corporation whose stock is publicly traded, permit any other entity
to become Tenant hereunder by merger, consolidation, or other reorganization,
(3) if Tenant is an entity other than a corporation whose stock is publicly
traded, permit the transfer of an ownership interest in Tenant so as to result
in a change in the current control of Tenant, (4) sublet any portion of the
Premises (except to an Affiliate of Tenant), (5) grant any license, concession,
or other right of occupancy of any portion of the Premises (except to an
Affiliate of Tenant), or (6) permit the use of the Premises by any parties other
than Tenant or an Affiliate of Tenant (any of the events listed in Section
9.(a)(1) through 9.(a)(6) being a "Transfer"). If Tenant requests Landlord's
consent to a Transfer, then Tenant shall provide Landlord with a written
description of all terms and conditions of the proposed Transfer, copies of the
proposed documentation, and the following information about the proposed
transferee: name and address; reasonably satisfactory information about its
business and business history; its proposed use of the Premises; banking,
financial, and other credit information; and general references sufficient to
enable Landlord to determine the proposed transferee's credit worthiness and
character. Landlord shall not unreasonably withhold, delay or condition its
consent to any assignment or subletting of the Premises, provided that the
proposed transferee (A) is credit worthy, (B) has a good reputation in the
business community, and (C) is not another occupant of the Building if the
Landlord then has space available in the Building that meets the other
occupant's requirements for additional space; otherwise, Landlord may withhold
its consent in its sole discretion by notice to Tenant. Concurrently with
Tenant's notice of any request for consent to a Transfer, Tenant shall pay to
Landlord a fee of $500.00 to defray Landlord's expenses in reviewing such
request, and Tenant shall also reimburse Landlord immediately upon request for
its reasonable attorneys' fees, if any, incurred in connection with considering
and/or performing any legal services regarding any request for consent to a
Transfer. If Landlord consents to a proposed Transfer, then the proposed
transferee shall deliver to Landlord a written agreement whereby it expressly
assumes the Tenant's obligations hereunder; however, any transferee of less than
all of the space in the Premises shall be liable only for obligations under this
Lease that are properly allocable to the space subject to the Transfer for the
period of the Transfer. Landlord's consent to a Transfer shall not release
Tenant from its obligations under this Lease, but rather Tenant and its
transferee shall be jointly and severally liable therefor. Landlord's consent to
any Transfer shall not waive Landlord's rights as to any subsequent Transfers.
If an Event of Default contemplated by Subsection 16(a) of this Lease occurs
while the Premises or any part thereof are subject to a
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Transfer, then Landlord, in addition to its other remedies, may collect directly
from such transferee all rents becoming due to Tenant and apply such rents
against Rent. Tenant authorizes its transferees to make payments of rent
directly to Landlord upon receipt of notice from Landlord to do so.
(b) Cancellation. Landlord may by notice to Tenant, within 30 days after
submission of Tenant's written request for Landlord's consent to an assignment
or subletting, cancel this Lease (unless Tenant withdraws its request to
Landlord in writing and within two (2) business days of its receipt of
Landlord's notice) as to the portion of the Premises proposed to be sublet or
assigned as of the date the proposed Transfer is to be effective. If Landlord
cancels this Lease as to any portion of the Premises, then this Lease shall
cease for such portion of the Premises and Tenant shall pay to Landlord all Rent
accrued through the cancellation date relating to the portion of the Premises
covered by the proposed Transfer. Thereafter, Landlord may lease such portion of
the Premises to the prospective transferee (or to any other person) in
compliance with all applicable building, fire and use codes without liability to
Tenant.
(c) Additional Compensation. Tenant shall pay to Landlord, immediately upon
receipt thereof, fifty percent (50%) of the excess of (1) all compensation
received by Tenant for a Transfer less the costs reasonably incurred by Tenant
with unaffiliated third parties in connection with such Transfer (i.e.,
brokerage commissions, tenant finish work, and the like) over (2) the Rent
allocable to the portion of the Premises covered thereby.
(d) The term "Affiliate" shall mean any person or entity, directly or
indirectly, controlling, controlled by, or under common control
with Tenant.
10. Insurance; Waivers; Subrogation; Indemnity
(a) Insurance. Tenant shall maintain throughout the Term the following
insurance policies: (1) comprehensive general liability insurance in amounts of
not less than a combined single limit of $2,000,000 or such other amounts as
Landlord may from time to time reasonably require as is customary for buildings
of similar size, use and nature, insuring Tenant, Landlord, Landlord's agents
and their respective affiliates against all liability for injury to or death of
a person or persons or damage to property arising from the use and occupancy of
the Premises, (2) insurance covering the full value of Tenant's property and
improvements, and other property (including property of others) in the Premises,
(3) contractual liability insurance sufficient to cover Tenant's indemnity
obligations hereunder, and (4) worker's compensation insurance, containing a
waiver of subrogation endorsement acceptable to Landlord. Tenant's insurance
shall provide primary coverage to Landlord when any policy issued to Landlord
provides duplicate or similar coverage, and in such circumstance Landlord's
policy will be excess over Tenant's policy. Tenant shall furnish to Landlord
certificates of such insurance and such other evidence satisfactory to Landlord
of the maintenance of all insurance coverages required hereunder, and Tenant
shall obtain a written obligation on the part of each insurance company to
notify Landlord at least 30 days before cancellation or a material change of any
such insurance policies. All such insurance policies shall be in form, and
issued by companies, reasonably
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satisfactory to Landlord. The term "affiliate" shall mean any person or entity,
directly or indirectly, controlling, controlled by, or under common control with
the party in question.
(b) Waiver of Negligence; No Subrogation. Landlord and Tenant each waives
any claim it might have against the other for any injury to or death of any
person or persons or damage to or theft, destruction, loss, or loss of use of
any property (a " Loss"), to the extent the same is insured against under any
insurance policy that covers the Building, the Premises, Landlord's or Tenant's
fixtures, personal property, leasehold improvements, or business, or, in the
case of Tenant's waiver, is required to be insured against under the terms
hereof, regardless of whether the negligence of the other party caused such
loss; however, Landlord's waiver shall not include any deductible amounts on
insurance policies carried by Landlord not to exceed $10,000 on any policy. Each
party shall cause its insurance carrier to endorse all applicable policies
waiving the carrier's rights of recovery under subrogation or otherwise against
the other party.
(c) Indemnity. Subject to Section 10.(b), Tenant shall defend, indemnify,
and hold harmless Landlord and its representatives and agents from and against
all claims, demands, liabilities, causes of action, suits, judgments, damages,
and expenses (including attorneys' fees) arising from (i) any Loss arising from
any occurrence on the Premises or (ii) Tenant's failure to perform its
obligations under this Lease. This indemnity provision shall exclude the acts
and/or omissions of Landlord, its agents, employees and contractors, and shall
survive termination or expiration of this Lease. If any proceeding is filed for
which indemnity is required hereunder, Tenant agrees, upon request therefor, to
defend the indemnified party in such proceeding at its sole cost utilizing
counsel satisfactory to the indemnified party.
11. Subordination Attornment; Notice to Landlord's Mortgagee
(a) Subordination. Provided the Subordination, Non-Disturbance and
Attornment Agreements and recognition agreements are delivered to Tenant for
execution in the forms as required in this subparagraph, within five (5)
business days of receipt of same, Tenant agrees to execute, acknowledge and
deliver same to Landlord and/or any other party directed by Landlord for
execution by all required parties and upon receipt by Tenant of a fully executed
duplicate original of said document(s), this Lease shall be subordinate to the
deed of trust, mortgage, or other security instrument, or any ground lease,
master lease, or primary lease, referred to in the applicable Subordination,
Non-Disturbance and Attornment Agreement and/or recognition agreement so
executed and delivered (the mortgagee under any such mortgage or the lessor
under any such lease is referred to herein as a "Landlord's Mortgagee"). With
respect to the existing mortgagee, Tenant shall execute and deliver the
Subordination, Non-Disturbance and Attornment Agreement and Estoppel Certificate
annexed hereto as Exhibit E. Landlord agrees to obtain for the benefit of Tenant
a Subordination, Non-Disturbance and Attornment Agreement from future
mortgagees, on forms substantially as set forth in Exhibit E (which form must
provide the same benefits to all parties as provided for in Exhibit E) which
Tenant agrees to execute. Landlord shall obtain
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recognition agreements for the benefit of Tenant, which Tenant agrees to
execute, with respect to any ground lease, master lease or primary lease on
forms reasonably acceptable to Landlord, Tenant and the applicable lessor which
Tenant agrees to execute. Any Landlord's Mortgagee may elect, at any time,
unilaterally, to make this Lease superior to its mortgage, ground lease, or
other interest in the Premises by so notifying Tenant in writing.
(b) In the event that Landlord submits to Tenant a Subordination,
Non-Disturbance and Attornment Agreement and/or recognition agreement, as
applicable, complying with the provisions of subparagraph (a) and Tenant fails
to execute, acknowledge and deliver same within five (5) business days of
receipt thereof, then subject to mortgagee's election rights provided in the
last sentence of subparagraph (a), this Lease shall be subordinate to the deed
of trust, mortgage, or other security instrument, or any ground lease, master
lease, or primary lease referred to in the Subordination, Non-Disturbance and
Attornment Agreement and/or recognition agreement delivered to Tenant without
further action on the part of any party.
(c) Attornment. Tenant shall attorn to any party succeeding to Landlord's
interest in the Premises, whether by purchase, foreclosure, deed in lieu of
foreclosure, power of sale, termination of lease, or otherwise, upon such
party's request, and shall execute such agreements confirming such attornment as
such party may reasonably request.
(d) Notice to Landlord's Mortgagee. Tenant shall not seek to enforce any
remedy it may have for any default on the part of the Landlord without first
giving written notice by certified mail, return receipt requested, specifying
the default in reasonable detail, to any Landlord's Mortgagee whose address has
been given to Tenant, and affording such Landlord's Mortgagee a reasonable
opportunity to perform Landlord's obligations hereunder.
12. Rules and Regulations. Tenant shall comply with the rules and
regulations of the Building which are attached hereto as Exhibit B. Landlord
may, from time to time, change such rules and regulations for the safety, care,
or cleanliness of the Building and related facilities, provided that such
changes are applicable to all tenants of the Building and will not unreasonably
interfere with Tenant's use of the Premises and are not inconsistent with the
other provisions of this Lease. Tenant shall be responsible for the compliance
with such rules and regulations by its employees, agents, and invitees.
13. Condemnation.
(a) Total Taking. If the entire Building or Premises are taken by right of
eminent domain or conveyed in lieu thereof (a "Taking"), this Lease shall
terminate as of the date of the Taking.
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(b) Partial Taking - Tenant's Rights. If any part of the Building becomes
subject to a Taking and such Taking will prevent Tenant from conducting its
business in the Premises in a manner reasonably comparable to that conducted
immediately before such Taking for a period of more than 90 days, then Tenant
may terminate this Lease as of the date of such Taking by giving written notice
to Landlord within 30 days after the Taking, and Rent shall be apportioned as of
the date of such Taking. If Tenant does not terminate this Lease, then Rent
shall be abated on a reasonable basis as to that portion of the Premises
rendered untenantable by the Taking.
(c) Partial Taking - Landlord's Rights. If any material portion, but less
than all, of the Building becomes subject to a Taking, or if Landlord is
required to pay any of the proceeds received for a Taking to a Landlord's
Mortgagee, then Landlord may terminate this Lease by delivering written notice
thereof to Tenant within 30 days after such Taking, and Rent shall be
apportioned as of the date of such Taking. If Landlord does not so terminate
this Lease, then this Lease will continue, but if any portion of the Premises
has been taken, Rent shall abate as provided in the last sentence of Section
13.(b).
(d) Award. If any Taking occurs, then Landlord shall receive the entire
award or other compensation for the land on which the Building is situated, the
Building, and other improvements taken, and Tenant may separately pursue a claim
(to the extent it will not reduce Landlord's award) against the condemnor for
the value of Tenant's personal property which Tenant is entitled to remove under
this Lease, moving costs, loss of business, and other claims it may have.
14. Fire or Other Casualty
(a) Repair Estimate. If the Premises or the Building are damaged by fire or
other casualty (a "Casualty"), Landlord shall, within 45 days after such
Casualty, deliver to Tenant a good faith estimate (the "Damage Notice") of the
time needed to repair the damage caused by such Casualty.
(b) Landlord's and Tenant's Rights. If a 50% or greater portion of the
Premises or a material portion of the Building is damaged by Casualty such that
Tenant is prevented from conducting its business in the Premises in a manner
reasonably comparable to that conducted immediately before such Casualty and
Landlord estimates that the damage caused thereby cannot be repaired within 120
days after the Casualty or in the event Landlord commences repairs as
hereinafter set forth and does not substantially complete same within 180 days
from the Casualty, then Tenant may terminate this Lease by delivering written
notice to Landlord of its election to terminate within 30 days after the Damage
Notice has been delivered to Tenant. If Tenant does not so timely terminate this
Lease, then (subject to Sections 14.(c) and (d)) Landlord shall repair the
Building or the Premises, as the case may be, as provided below, and Rent for
the portion of the Premises rendered untenantable by the damage shall be abated
from the date of damage until the earlier of (i) four (4) months from the date
of the shell of the Premises being completed by Landlord and electric brought to
the Premises by Landlord; or (ii) the date a
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Certificate of Occupancy is issued with respect to the Premises after Landlord's
and Tenant's repairs have been completed (or the repair is completed and Tenant
is permitted to occupy the Premises if no Certificate of Occupancy is required).
(c) Landlord's Rights. If a Casualty damages a material portion of the
Building, and Landlord makes a good faith determination that restoring the
Premises would be uneconomical, then Landlord may terminate this Lease by giving
written notice of its election to terminate within 30 days after the Damage
Notice has been delivered to Tenant, and Basic Rent and Additional Rent shall be
abated as of the date of the Casualty.
(d) Repair Obligation. If neither party elects to terminate this Lease
following a Casualty, then Landlord shall, within a reasonable time after such
Casualty, begin to repair the Building and the shell of the Premises and shall
proceed with reasonable diligence to restore the Building and shell of the
Premises to substantially the same condition as they existed immediately before
such Casualty; however, Landlord shall not be required to repair or replace any
of the furniture, equipment, fixtures, and other improvements which may have
been placed by, or at the request of, Tenant (it being acknowledged by Tenant
that it shall insure and replace all improvements in the Premises other than the
shell of the Premises) or other occupants in the Building or the Premises, and
Landlord's obligation to repair or restore the Building or shell of the Premises
shall be limited to the extent of the insurance proceeds notwithstanding the
application of any portion of the proceeds by a lender towards Landlord's
indebtedness to the lender. As used herein, the term "shell of the Premises"
shall mean sheetrocked exterior walls and a hung ceiling with respect to the
Premises.
15. Taxes. Tenant shall be liable for any personal property taxes levied or
assessed against personal property, furniture, or trade fixtures (not in the
nature of fixtures to real property) placed by Tenant in the Premises. If any
personal property taxes for which Tenant is liable are levied or assessed
against Landlord or Landlord's property and Landlord elects to pay the same, or
if the assessed value of Landlord's property is increased by inclusion of such
personal property, furniture or fixtures and Landlord elects to pay the taxes
based on such increase, then Tenant shall pay to Landlord, upon demand, the part
of such personal property taxes for which Tenant is primarily liable hereunder;
however, Landlord shall not pay such amount if Tenant notifies Landlord that it
will contest the validity or amount of such personal property taxes before
Landlord makes such payment, and thereafter diligently proceeds with such
contest in accordance with law and if the non-payment thereof does not pose a
threat of loss or seizure of the Building or interest of Landlord therein.
16. Events of Default. Each of the following occurrences shall be an "Event
of Default":
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(a) Tenant's failure to pay Rent within five days after Landlord has
delivered notice to Tenant that the same is due; however, an Event of Default
shall occur hereunder without any obligation of Landlord to give any notice if
Landlord has given Tenant written notice under this Section 16.(a) on more than
two (2) occasions during the twelve (12) month interval immediately preceding
such failure by Tenant;
(b) Tenant's failure to perform, comply with, or observe any other agreement
or obligation of Tenant under this Lease and the continuance of such failure for
a period of more than 30 days after Landlord has delivered to Tenant written
notice thereof; and
(c) The filing of a petition by or against Tenant (the term "Tenant" shall
include, for the purpose of this Section 16.(c), any guarantor of the Tenant's
obligations hereunder) (1) in any bankruptcy or other insolvency proceeding; (2)
seeking any relief under any state or federal debtor relief law; (3) for the
appointment of a liquidator or receiver for all or substantially all of Tenant's
property or for Tenant's interest in this Lease; or (4) for the reorganization
or modification of Tenant's capital structure; however, if such a petition is
filed against Tenant, then such filing shall not be an Event of Default unless
Tenant fails to have the proceedings initiated by such petition dismissed within
90 days after the filing thereof.
17. Remedies. Upon any Event of Default, Landlord may, in addition to all
other rights and remedies afforded Landlord hereunder or by law or equity, take
any of the following actions:
(a) Terminate this Lease by giving Tenant written notice thereof, in which
event Tenant shall pay to Landlord the sum of (1) all Rent accrued hereunder
through the date of termination, (2) all amounts due under Section 18.(a), and
(3) an amount equal to the total Rent that Tenant would have been required to
pay for the remainder of the Term discounted to its present value using a
discount rate of four (4%) per annum.
(b) Terminate Tenant's right to possess the Premises without terminating
this Lease by giving written notice thereof to Tenant, in which event Tenant
shall pay to Landlord (1) all Rent and other amounts accrued hereunder to the
date of termination of possession, (2) all amounts due from time to time under
Section 18.(a), and (3) all Rent and other net sums required hereunder to be
paid by Tenant during the remainder of the Term, diminished by any net sums
thereafter received by Landlord through reletting the Premises during such
period, after deducting all costs incurred by Landlord in reletting the
Premises. Landlord shall use reasonable efforts to relet the Premises on such
terms as Landlord in its sole discretion may determine (including a term
different from the Term, rental concessions, and alterations to, and improvement
of, the Premises); however, Landlord shall not be obligated to relet the
Premises before leasing other portions of the Building. Landlord shall not be
liable for, nor shall Tenant's obligations hereunder be diminished because of,
Landlord's failure to relet the Premises or to collect rent due for such
reletting. Tenant shall not be entitled to the excess of any consideration
obtained by reletting over the Rent due hereunder. Reentry by Landlord in the
Premises shall not affect Tenant's obligations hereunder for
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the unexpired Term; rather, Landlord may, from time to time, bring an action
against Tenant to collect amounts due by Tenant, without the necessity of
Landlord's waiting until the expiration of the Term. Unless Landlord delivers
written notice to Tenant expressly stating that it has elected to terminate this
Lease, all actions taken by Landlord to dispossess or exclude Tenant from the
Premises shall be deemed to be taken under this Section 17.(b). If Landlord
elects to proceed under this Section 17.(b), it may at any time elect to
terminate this Lease under Section 17.(a); or
(c) Additionally, without notice, if permitted by law, Landlord may alter
locks or other security devices at the Premises to deprive Tenant of access
thereto, and Landlord shall not be required to provide a new key or right of
access to Tenant.
Any and all remedies set forth in this Lease: (i) shall be in addition to any
and all other remedies Landlord may have at law or in equity; (ii) shall be
cumulative; and (iii) may be pursued successively or concurrently as Landlord
may elect. The exercise of any remedy by Landlord shall not be deemed an
election of remedies or preclude Landlord from exercising any other remedies in
the future. Notwithstanding the foregoing, Landlord shall only recover its
damages allowed hereunder once.
18. Payment by Tenant; Non-Waiver
(a) Payment by Tenant. Upon any Event of Default, Tenant shall pay to
Landlord all costs incurred by Landlord (including court costs and reasonable
attorneys' fees and expenses) in (1) obtaining possession of the Premises, (2)
removing and storing Tenant's or any other occupant's property, (3) repairing,
restoring, altering, remodeling, or otherwise putting the Premises into
condition acceptable to a new tenant, (4) reletting all or any part of the
Premises (including brokerage commissions, cost of tenant finish work, and other
costs incidental to such reletting), (5) performing Tenant's obligations which
Tenant failed to perform, and (6) enforcing, or advising Landlord of, its
rights, remedies, and recourses arising out of the Event of Default. To the full
extent permitted by law, Landlord and Tenant agree the federal and state courts
of New Jersey shall have exclusive jurisdiction over any matter relating to or
arising from this Lease and the parties' rights and obligations under this
Lease.
(b) No Waiver. Landlord's acceptance of Rent following an Event of Default
shall not waive Landlord's rights regarding such Event of Default. No waiver by
Landlord of any violation or breach of any of the terms contained herein shall
waive Landlord's rights regarding any future violation of such term. Landlord's
acceptance of any partial payment of Rent shall not waive Landlord's rights with
regard to the remaining portion of the Rent that is due, regardless of any
endorsement or other statement on any instrument delivered in payment of Rent or
any writing delivered in connection therewith; accordingly, Landlord's
acceptance of a partial payment of Rent shall not constitute an accord and
satisfaction of the full amount of the Rent that is due.
19. Landlord's Lien. Landlord hereby waives any statutory landlord's lien in
and to Tenant's equipment, inventory, furniture and fixtures.
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20. Surrender of Premises. No act by Landlord shall be deemed an acceptance
of a surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid unless it is in writing and signed by Landlord. At the
expiration or termination of this Lease, Tenant shall deliver to Landlord the
Premises with all improvements located therein in good repair and condition,
broom-clean, reasonable wear and tear (and condemnation and Casualty damage not
caused by Tenant, as to which Sections 13 and 14 shall control) excepted, and
shall deliver to Landlord all keys to the Premises. Tenant shall remove all
unattached trade fixtures, furniture, and personal property placed in the
Premises by Tenant, and shall remove such alterations, additions, improvements,
trade fixtures, personal property, equipment, and furniture as required in
subparagraph 7(a). Tenant shall repair all damage caused by such removal and cap
any fixtures and/or wiring that are affected in the process of removing the
foregoing. All items not so removed shall be deemed to have been abandoned by
Tenant and may be appropriated, sold, stored, destroyed, or otherwise disposed
of by Landlord upon ten (10) days notice to Tenant and without any obligation to
account for such items. The provisions of this Section 20 shall survive the end
of the Term.
21. Holding Over. If Tenant fails to vacate the Premises at the end of the
Term, then Tenant shall be a tenant at will and, in addition to all other
damages and remedies to which Landlord may be entitled for such holding over,
Tenant shall pay, in addition to the other Rent, a daily Basic Rent equal to the
greater of (A) 150% of the daily Basic Rent payable during the last month of the
Term, or (B) 125% of the prevailing basic rental rate in the Building for
similar space.
22. Certain Rights Reserved by Landlord. Provided that the exercise of such
rights does not unreasonably interfere with Tenant's occupancy of the Premises,
Landlord shall have the following rights:
(a) To decorate and to make inspections, repairs, alterations, additions,
changes, or improvements, whether structural or otherwise, in and about the
Building, or any part thereof; to enter upon the Premises and, during the
continuance of any such work, to temporarily close doors, entryways, public
space, and corridors in the Building; to interrupt or temporarily suspend
Building services and facilities; to change the name of the Building; and to
change the arrangement and location of entrances or passageways, doors, and
doorways, corridors, stairs, restrooms, or other public parts of the Building,
if any;
(b) To take such reasonable measures as Landlord deems advisable for the
security of the Building and its occupants; evacuating the Building for cause,
suspected cause, or for drill purposes; temporarily denying access to the
Building; and closing the Building after normal business hours and on Sundays
and holidays, subject, however, to Tenant's right to enter when the Building is
closed after normal business hours under such reasonable regulations as Landlord
may prescribe from time to time; and
(c) To enter the Premises at reasonable hours to show the Premises to
prospective purchasers, lenders, or, during the last 12 months of the Term,
tenants.
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(d) Provided Tenant is not in default under this Lease, in connection with
any entry into the Premises for any purpose or in connection with any physical
work in or about the Building in the vicinity of the Premises which might
interfere with Tenant's use and enjoyment of the Premises, other than in an
emergency, Landlord shall: (i) attempt to schedule any such physical work by
appointment with Tenant at least a week after verbally advising Tenant of a
mutually satisfactory time; (ii) use reasonable efforts to minimize any
interference with Tenant's use and enjoyment of the Premises for its regular
business operations; (iii) in connection with showing the Premises to others on
shorter advice, not seek to enter into laboratory portions of the Premises
without the explicit permission of Tenant in each instance, but be satisfied
with viewing the laboratory areas from the office areas through doors which will
have windows installed in them for the purpose of viewing the laboratory areas
from the office areas; and (iv) not enter the laboratory areas if the
consequence of doing so would be to invalidate any pre-clinical or clinical
trials in which Tenant is then engaged and Tenant notifies Landlord of same
prior to the intended entry.
23. Intentionally Omitted.
24. Miscellaneous.
(a) Landlord Transfer. Landlord may transfer any portion of the Building and
any of its rights under this Lease. If Landlord assigns its rights under this
Lease, then Landlord shall thereby be released from any further obligations
hereunder, provided that the assignee assumes Landlord's obligations hereunder
in writing.
(b) Landlord's Liability. The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be recoverable only from
the interest of Landlord in the Building, and Landlord shall not be personally
liable for any deficiency. This Section shall not limit any remedies which
Tenant may have for Landlord's defaults which do not involve the personal
liability of Landlord.
(c) Force Majeure. Other than for Tenant's obligations under this Lease that
can be performed by the payment of money (e.g., payment of Rent and maintenance
of insurance), whenever a period of time is herein prescribed for action to be
taken by either party hereto, such party shall not be liable or responsible for,
and there shall be excluded from the computation of any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations, or restrictions, or any other causes of any kind
whatsoever which are beyond the control of such party.
(d) Brokerage. Neither Landlord nor Tenant has dealt with any broker or
agent in connection with the negotiation or execution of this Lease, other than
Newmark Partners, Inc. and Grubb & Ellis Company, whose commission shall be paid
by Landlord. Tenant and Landlord shall each indemnify the other against all
costs, expenses, attorneys' fees, and other liability for commission or other
compensation claimed by any broker or agent claiming the same by, through, or
under the indemnifying party.
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(e) Estoppel Certificates. From time to time, Tenant shall furnish to any
party designated by Landlord, within ten days after Landlord has made a request
therefor, a certificate signed by Tenant confirming and containing such factual
certifications and representations as to this Lease, to the extent the same are
accurate, as Landlord may reasonably request.
(f) Notices. All notices and other communications given pursuant to this
Lease shall be in writing and shall be (1) mailed by first class, United States
Mail, postage prepaid, certified, with return receipt requested, and addressed
to the parties hereto at the address specified next to their signature block,
(2) hand delivered to the intended address, or (3) sent by prepaid telegram,
cable, facsimile transmission, or telex followed by a confirmatory overnight
(i.e., Federal Express or equivalent) letter with copies as indicated on the
signature block. All notices shall be effective upon delivery to the address of
the addressee. The parties hereto may change their addresses by giving notice
thereof to the other in conformity with this provision.
(g) Separability. If any clause or provision of this Lease is illegal,
invalid, or unenforceable under present or future laws, then the remainder of
this Lease shall not be affected thereby and in lieu of such clause or
provision, there shall be added as a part of this Lease a clause or provision as
similar in terms to such illegal, invalid, or unenforceable clause or provision
as may be possible and be legal, valid, and enforceable.
(h) Amendments; and Binding Effect. This Lease may not be amended except by
instrument in writing signed by Landlord and Tenant. No provision of this Lease
shall be deemed to have been waived by either party unless such waiver is in
writing signed by the putatively waiving party, and no custom or practice which
may evolve between the parties in the administration of the terms hereof shall
waive or diminish the right of either party to insist upon the performance by
Tenant in strict accordance with the terms hereof. The terms and conditions
contained in this Lease shall inure to the benefit of and be binding upon the
parties hereto, and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided. This Lease is
for the sole benefit of Landlord and Tenant, and, other than Landlord's
Mortgagee, no third party shall be deemed a third party beneficiary hereof.
(i) Quiet Enjoyment. Provided Tenant has performed all of its obligations
hereunder, Tenant shall peaceably and quietly hold and enjoy the Premises for
the Term, without hindrance from Landlord or any party claiming by, through, or
under Landlord, subject to the terms and conditions of this Lease.
(j) No Merger. There shall be no merger of the leasehold estate hereby
created with the fee estate in the Premises or any part thereof if the same
person acquires or holds, directly or indirectly, this Lease or any
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interest in this Lease and the fee estate in the leasehold Premises or any
interest in such fee estate.
(k) No Offer. The submission of this Lease to Tenant shall not be construed
as an offer, and Tenant shall not have any rights under this Lease unless
Landlord executes a copy of this Lease and delivers it to Tenant.
(l) Entire Agreement. This Lease constitutes the entire agreement between
Landlord and Tenant regarding the subject matter hereof and supersedes all oral
statements and prior writings relating thereto. Except for those set forth in
this Lease, no representations, warranties, or agreements have been made by
Landlord or Tenant to the other with respect to this Lease or the obligations of
Landlord or Tenant in connection therewith.
(m) Waiver of Jury Trial. To the maximum extent permitted by law, Landlord
and Tenant each waive right to trial by jury in any litigation arising out of or
with respect to this Lease.
(n) Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State in which the Premises are located.
(o) Joint and Several Liability. If Tenant is comprised of more than one
party, each such party shall be jointly and severally liable for Tenant's
obligations under this Lease.
(p) Financial Reports. Within 15 days after Landlord's request, Tenant will
furnish Tenant's most recent audited financial statements (including any notes
to them) to Landlord, or, if no such audited statements have been prepared, such
other financial statements (and notes to them) as may have been prepared by an
independent certified public accountant or, failing those, Tenant's internally
prepared financial statements. Tenant will discuss its financial statements with
Landlord. Landlord will not disclose any aspect of Tenant's financial statements
that Tenant designates to Landlord as confidential except (a) to Landlord's
lenders or prospective purchasers of the project, (b) in litigation between
Landlord and Tenant, and (c) if required by court order.
(q) Landlord's Fees. Whenever Tenant requests Landlord to take any action or
give any consent required or permitted under this Lease, Tenant will reimburse
Landlord for Landlord's reasonable costs incurred in reviewing the proposed
action or consent, including without limitation reasonable attorneys',
engineers' or architects' fees, within 10 days after Landlord's delivery to
Tenant of a statement of such costs. Tenant will be obligated to make such
reimbursement without regard to whether Landlord consents to any such proposed
action.
(r) Intentionally Omitted.
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(s) Confidentiality. Tenant acknowledges that the terms and conditions of
this Lease are to remain confidential for the Landlord's benefit, and may not be
disclosed by Tenant to anyone, by any manner or means, directly or indirectly,
without Landlord's prior written consent. The consent by the Landlord to any
disclosures shall not be deemed to be a waiver on the part of the Landlord of
any prohibition against any future disclosure.
(t) List of Exhibits. All exhibits and attachments attached hereto are
incorporated herein by this reference.
Exhibit A -Legal Description and Outline of Premises
Exhibit B -Building Rules and Regulations
Exhibit C -Work Letter
Exhibit D -Parking
Exhibit E -Subordination, Non-Disturbance and Attornment Agreement/ Tenant
Estoppel Certificate
Exhibit F -Renewal Option
Exhibit G -Right of First Offer
Exhibit H -Letter of Credit
(u) The execution and delivery of, the consummation of the transactions
contemplated by and the performance of all its obligations under, this Lease by
the Landlord have been duly and validly authorized by all its general partners;
and no other approval or consent, whether partnership, governmental or
otherwise, is required to authorize or to give effect to the Landlord's
execution and delivery of, the consummation of the transactions contemplated by
and the performance of all its obligations under, this Lease.
25. Other Provisions.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE, AND EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY THE RENT, WITHOUT
ABATEMENT, SETOFF OR DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS
DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.
26. Environmental Laws.
(a) Tenant, at its own cost and expense, agrees to comply with all
applicable environmental laws, rules and regulations of the Federal, State,
County and Municipal governments and of all other governmental authorities
having or claiming jurisdiction over the Premises or appurtenances thereto, or
any part thereof, which are applicable to the Premises and/or the conduct of
business thereon (except that Tenant shall not be responsible for any occurrence
or condition that arises prior to the Commencement Date), including but not
limited to the Environmental Cleanup Responsibility Act of 1983 as amended by
the Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq) ("ISRA"). Further,
Tenant agrees to make submissions to and provide any information
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required by all governmental authorities requesting same pursuant to Tenant's
obligations under this Paragraph 26. Tenant represents to Landlord that Tenant's
Standard Industrial Classification (SIC) Number is 2835.
(b) Tenant hereby agrees to execute such documents as Landlord reasonably
deems necessary and to make such applications as Landlord reasonably requires to
assure compliance with ISRA. Tenant shall bear all costs and expenses incurred
by Landlord associated with any required ISRA compliance resulting from Tenant's
use of the Premises including but not limited to state agency fees, engineering
fees, clean-up costs, filing fees and suretyship expenses. As used in this
Lease, ISRA compliance shall include, but not be limited to, applications for
determinations of nonapplicability by the appropriate governmental authority.
The foregoing undertaking shall survive the termination or sooner expiration of
the Lease and surrender of the Premises and shall also survive sale, or lease or
assignment of the Premises by Landlord. Tenant shall immediately provide
Landlord with copies of all correspondence, reports, notices, orders, findings,
declarations and other materials pertinent to Tenant's compliance and the New
Jersey Department of Environmental Protection's ("NJDEP") requirements under
ISRA as they are issued or received by the Tenant.
(c) Tenant shall not generate, store, manufacture, refine, transport, treat,
dispose of, or otherwise permit to be present on or about the Premises, any
Hazardous Substances unless the same are in full compliance with all applicable
environmental laws, rules and regulations. As used herein, Hazardous Substances
shall be defined as any "hazardous chemical," "hazardous substance" or similar
term as defined in the Comprehensive Environmental Responsibility Compensation
and Liability Act, as amended (42 U.S.C. 9601, et seq.), the New Jersey
Environmental Cleanup Responsibility Act, as amended by the Industrial Site
Recovery Act, (N.J.S.A. 13:1K-6 et seq.), the New Jersey Spill Compensation and
Control Act, as amended, (N.J.S.A. 58:10-23.11b, et seq.) , any rules or
regulations promulgated thereunder, or in any other present or future applicable
federal, state or local law, rule or regulation dealing with environmental
protection.
(d) In the event Tenant receives any notice that a spill or discharge of any
Hazardous Substance has occurred on or about the Premises, Building and/or Land
or into the sewer and/or waste treatment system operated by Landlord from any
person or entity, including NJDEP and the United States Environmental Protection
Agency ("EPA"), then Tenant shall provide immediate written notice of same to
Landlord, detailing all relevant facts and circumstances.
(e) Tenant agrees to indemnify, defend and hold harmless the Landlord and
each mortgagee of the Building from and against any and all liabilities,
damages, claims, losses, judgments, causes of action, costs and expenses
(including the reasonable fees and expenses of counsel) which may be incurred by
the Landlord or any such mortgagee or threatened against the Landlord or such
mortgagee, relating to or arising out of the presence, disposal, escape,
migration, leakage, spillage, discharge, emission, release, threatened release,
handling, or transportation of Hazardous Substances in, on, at, under, from, in
the vicinity of, or affecting or related to the Premises
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or any part of the land and Building arising out of the acts or omissions of
Tenant, its employees, contractors, agents, invitees and/or licensees and any
breach by Tenant of this Article, which indemnification shall survive the
expiration or sooner termination of this Lease. In no event shall Tenant's
remedial action involve engineering or institutional controls, including without
limitation capping, deed notice, declaration of restriction or other
institutional control notice pursuant to P.L. 1993, c.139, and notwithstanding
NJDEP's requirements, Tenant's remedial action shall meet the most stringent
NJDEP remediation standards for soil, surface water and groundwater. Promptly
upon completion of all required investigatory and remedial activities, Tenant
shall restore the affected areas of the land and Buildings from any damage or
condition caused by the work, including without limitation closing, pursuant to
law any wells installed at the Building.
(f) Environmental Report. Landlord has provided to Tenant a copy of a Phase
I Environmental Site Assessment Update (SSCI Job No. 30238NJ) ("Report") with
respect to the land upon which the Building is constructed, dated June 6, 1996,
prepared by SSCI Environmental and Consulting Services ("Consultant"). Tenant
agrees not to release the Report, or a copy of it, or any part of it, or
disclose any of the information contained in the Report to any third party
(other than Tenant's counsel) without the express prior written consent of
Landlord. Such consent shall not be unreasonably withheld as long as the
proposed party to whom the report is given executes a letter agreement
containing covenants similar to this Section 26(f). Tenant releases Landlord for
any inaccuracies, omissions or errors contained in the Report. Tenant agrees
that it will not rely on the Report and it will make whatever independent
investigation it feels is necessary to investigate the environmental and other
conditions of the land. Tenant agrees that Landlord has no duty to provide it
with the Report, to correct any inaccuracies, error or omissions in the Report,
to supplement the Report with any additional information, or to provide Tenant
with any information concerning the environmental conditions of the land. Tenant
agrees that Landlord considers the Report to be confidential proprietary
information and Tenant agrees to maintain the confidentiality and security of
the Report information in accordance with the highest standards of
confidentiality and security associated with the protection of "trade secrets".
Landlord hereby expressly disclaims responsibility for the investigation of the
land by Tenant and further disclaims any responsibility for the contents of the
Report. Tenant's obligations pursuant to this Section 26(f) shall survive the
expiration or termination of this Lease.
24
<PAGE>
27. Signs. Tenant shall be entitled to be listed on the building directory
and in a sign in front of the Premises comparable to signs
provided to other tenants in the Building.
IN WITNESS WHEREOF, and in consideration of the mutual entry into this Lease
and for other good and valuable consideration, and intending to be legally
bound, each party hereto has caused this Lease Agreement to be duly executed as
of the day and year first above written.
TENANT: PALATIN TECHNOLOGIES, INC.,
a Delaware Corporation
By: /s/ Edward J. Quilty
----------------------------
Notice Address: with a copy to:
------------------------------ --------------------------------
Palatin Technologies, Inc. Richard McCarthy, Esq.
214 Carnegie Center, Suite 100 212 Carnegie Center, Suite 206
Princeton, New Jersey 08540 Princeton, New Jersey 08543-8497
Attn: Chief Financial Officer Telephone No.: 609-452-7877
Telephone No.: 609-520-1911 Telecopy No.: 609-520-8731
Telecopy No.: 609-452-0880
LANDLORD: WHC-SIX REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership,
By: WHC-SIX Gen-Par, Inc., a Delaware
corporation, its general partner
By: /s/ Wm. David Lawson
----------------------------
Wm. David Lawson, Assistant Vice President
Notice Address: with a copy to:
- --------------------------------------- ---------------------------------
WHC-Six Real Estate Limited Partnership WHC-Six Real Estate Limited
c/o Newmark Partners, Inc. Partnership
1084 Route 22 West c/o Archon Group, L.P.
Mountainside, NJ 07092 600 E. Las Colinas Boulevard,
Attn: Property Manager Suite 1900
Telephone No.: 908-233-1717 Irving, Texas 75039
Telecopy No.: 908-233-7337 Attn: Asset Manager
Telephone No.: 972-831-2200
Telecopy No.: 962-831-2276
with a further copy to:
- -----------------------
Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C.
103 Eisenhower Parkway
Roseland, New Jersey 07068
Attn: Jeffrey D. Singer, Esq.
Telephone No.: 201-228-9600
Telecopy No.: 201-228-6081
<PAGE>
EXHIBIT A
[DIAGRAM OF FIRST FLOOR PLAN AND PROPERTY DESCRIPTION]
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building, and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows or doors or other part of the Building without the prior written
consent of Landlord. No nails, hooks or screws shall be driven or inserted in
any part of the Building except by Building maintenance personnel. No curtains
or other window treatments shall be placed between the glass and the Building
standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for all
tenants in the Building directory.
5. Landlord shall provide all door locks in each tenant's leased premises,
at the cost of such tenant, and no tenant shall place any additional door locks
in its leased premises without Landlord's prior written consent. Landlord shall
furnish to each tenant a reasonable number of keys to such tenant's leased
premises, at such tenant's cost, and no tenant shall make a duplicate thereof.
6. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by tenants of any bulky material, merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances shall be conducted under Landlord's supervision at such times and in
such a manner as Landlord may reasonably require. Each tenant assumes all risks
of and shall be liable for all damage to articles moved and injury to persons or
public engaged or not engaged in such movement, including equipment, property
and personnel of Landlord if damaged or injured as a result of acts in
connection with carrying out this service for such tenant.
<PAGE>
7. Landlord may prescribe weight limitations and determine the locations for
safes and other heavy equipment or items, which shall in all cases be placed in
the Building so as to distribute weight in a manner acceptable to Landlord which
may include the use of such supporting devices as Landlord may require. All
damages to the Building caused by the installation or removal of any property of
a tenant, or done by a tenant's property while in the Building, shall be
repaired at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall be
swept or thrown into the corridors, halls, elevator shafts or stairways. No
portion of any tenant's leased premises shall at any time be used or occupied as
sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its leased
premises neat and clean.
10. Intentionally omitted.
11. Tenant shall not make or permit any vibration or improper, objectionable
or unpleasant noises or odors in the Building or otherwise interfere in any way
with other tenants or persons having business with them.
12. No machinery of any kind (other than laboratory and normal office
equipment) shall be operated by any tenant on its leased area without Landlord's
prior written consent, nor shall any tenant use or keep in the Building any
flammable or explosive fluid or substance, unless required in Tenant's business
operations and then not in violation of applicable law.
13. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's leased premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not.
14. No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written permission of Landlord.
15. Tenant shall not conduct any prohibited activity on or about the
Premises or Building which will draw pickets, demonstrators, or the like.
16. All vehicles are to be currently licensed, in good operating condition,
parked for business purposes having to do with Tenant's business operated in the
Premises, parked within designated parking spaces, one vehicle to each space. No
vehicle shall be parked as a "billboard" vehicle in the parking lot. Any vehicle
parked improperly may be towed away. The Tenant, Tenant's agents, employees,
vendors and customers who do not operate or park their vehicles as required
shall subject the vehicle to being towed at the expense of the owner or driver.
The Landlord may place a "boot" on the vehicle to immobilize it and may levy a
charge of $50.00 to remove the "boot". The Tenant shall indemnify, hold and save
harmless the Landlord of any liability arising from the towing or booting of any
vehicles belonging to the Tenant, Tenant's agents, vendors, employees and
customers.
<PAGE>
EXHIBIT C
WORK LETTER
1. The Landlord shall make the Premises available to the Tenant for the
purpose of build-out on the day immediately after the date the existing tenant
in the Premises vacates the Premises.
2. As soon as practicable, Tenant shall provide to Landlord for its approval
final working drawings, prepared by an architect that has been approved by
Landlord (which approval shall not unreasonably be withheld, delayed or
conditioned), of all improvements that Tenant proposes to install or have
installed in the Premises. Such working drawings shall include the partition
layout, ceiling plan, electrical outlets and switches, telephone outlets,
drawings for any modifications to the electrical, mechanical and plumbing
systems of the Building, and detailed plans and specifications for the
construction of the improvements called for under this Exhibit in accordance
with all applicable governmental laws, codes, rules and regulations. Further, if
any of Tenant's proposed construction work will affect the Building's HVAC,
electrical, mechanical, or plumbing systems, then the working drawings
pertaining thereto must be approved by the Building's engineer of record.
Landlord's approval of such working drawings shall not be unreasonably withheld,
delayed or conditioned, provided that (a) they comply with all laws, rules, and
regulations, and (b) such working drawings are sufficiently detailed to allow
construction of the improvements in a good and workmanlike manner. As used
herein, "Working Drawings" shall mean the final working drawings approved by
Landlord, as amended from time to time by any approved changes thereto, and
"Work" shall mean all improvements to be constructed in accordance with and as
indicated on the Working Drawings. Landlord's approval of the Working Drawings
shall not be a representation or warranty of Landlord that such drawings are
adequate for any use or comply with any law, but shall merely be the consent of
Landlord thereto. Landlord shall endorse the Working Drawings to indicate its
review and approval thereof. All changes in the Work must receive the prior
written approval of Landlord, and in the event of any such approved change
Tenant shall, upon completion of the Work, furnish Landlord with an accurate,
reproducible "as-built" plan of the improvements as constructed.
3. The Work shall be performed by the Tenant's contractors at Tenant's
expense, subject to the Construction Allowance (and, if applicable, the
Additional Construction Allowance) hereinafter set forth. All of the Tenant's
contractors and their subcontractors shall be required to procure and maintain
insurance against such risks, in such amounts and with such companies as
Landlord may reasonably require. Certificates of such insurance, with paid
receipts therefor, must be received by Landlord before the Work is commenced.
The Work shall be performed in a good and workmanlike manner free of defects,
shall conform with the Working Drawings, and shall be performed in such a manner
and at such times as and not to materially interfere with or delay Landlord's
other contractors, if any, the operation of the Building, and the occupancy
thereof by other tenants. All contractors shall contact Landlord on behalf of
themselves and their respective subcontractors and schedule time periods during
which they may use Building facilities in connection with the Work; and the
Landlord shall cooperate in such scheduling so as not to delay or hinder the
Work
<PAGE>
4. (a) Landlord shall provide to Tenant a construction allowance
("Construction Allowance") equal to $40.00 per rentable square foot of the
Premises at the times and in the manner set forth below.
(b) Landlord shall make the Construction Allowance due with respect to the
9,000 square foot portion of the Premises available to Tenant, either by paying
Tenant or its contractors, after Tenant shall have documented that it has been
billed and expended $540,000.00 for the build-out. Tenant shall forward
documented invoices to Landlord not more frequently than monthly and payment
shall be made as expeditiously as practicable upon Landlord's receipt of an
invoice and lien waivers from any contractors, subcontractors and suppliers of
the Work.
(c) Landlord shall make the Construction Allowance due with respect to the
Balance of Suite 500 available to Tenant, either by paying Tenant or its
contractors, when (i) Tenant builds out the Balance of Suite 500 to completion,
and (ii) the Total Occupancy Date shall have occurred. Tenant shall forward
documented invoices to Landlord not more frequently than monthly and payment
shall be made as expeditiously as practicable upon Landlord's receipt of an
invoice and lien waivers from any contractors, subcontractors and suppliers of
the Work.
5. Landlord shall provide to Tenant an additional construction allowance
("Additional Construction Allowance") equal to 100% of all the rent and other
premiums actually received (including but not limited to retroactive holdover
rent and premiums), without Landlord having any obligation to commence a lawsuit
therefor, from the existing tenant in the Premises as it pertains to Suite 500
(as opposed to the entire space occupied by the existing tenant) paid or
attributable to the period from and after April 1, 1997 (and any retroactive
period prior thereto) with respect to the Premises, up to a maximum of
$35,000.00, for the limited purpose of reimbursing Tenant for incremental
verified costs incurred by the Tenant in its discretion for the purpose of
accelerating construction of the build-out contemplated to begin after the
existing tenant in the Premises vacates the Premises, including overtime labor
expense, expediting charges and similar costs incurred for the purpose of
accelerating construction. Tenant shall forward documented invoices to Landlord
not more frequently than monthly and payment of the Additional Construction
Allowance shall be made as expeditiously as practicable upon Landlord's receipt
of invoices and lien waivers from any contractors, subcontractors and suppliers
of the Work setting forth such costs in the aggregate amount of such costs.
6. If the existing Tenant in the Premises shall not have vacated the Premises
by the close of business on April 15, 1997, the Landlord shall promptly commence
summary dispossession proceedings by filing the summons and complaint with the
Clerk of the Court on the next business day and pursue such proceedings
diligently and expeditiously, with the goal of evicting the existing tenant in
the Premises from the Premises at the earliest possible date after April 15,
1997.
<PAGE>
EXHIBIT D
PARKING
Tenant may use 40 non-designated parking spaces in the parking area
associated with the Building (the "Parking Area") during the initial Term
subject to such terms, conditions and regulations as are from time to time
applicable to patrons of the Parking Area.
<PAGE>
EXHIBIT E
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the _________ day
of _________________, 1997 by and between GENERAL ELECTRIC CAPITAL
REALTY GROUP, a New York corporation ("Mortgagee"), and PALATIN
TECHNOLOGIES, INC., a Delaware Corporation ("Lessee").
R E C I T A L S:
A. Mortgagee has provided an acquisition and development loan
("Loan") to WHC-SIX Real Estate Limited Partnership, Owner/Lessor
("Borrower"), for the purpose of financing Borrower's acquisition
and development of the Edison Corporate Center in Edison, New Jersey
and described in Exhibit A attached hereto and incorporated herein by
reference (said real property and improvements being herein called
the "Project"), such Loan being secured by a First Mortgage and
Security Agreement dated July 29, 1994 and recorded in Mortgage Book
4772, Page 295 seq., in the Clerk's Office of Middlesex County, (the
"Mortgage"), constituting a lien or encumbrance on the Project; and
B. Lessee is the holder of a Leasehold estate in and to Suite
500 of 125 May Street, Edison, New Jersey, of the Project, consisting
of 10,538 square feet of space (the "Demised Premises"), under that
lease dated March 13, 1997 (the "Lease") executed by Borrower, as
Landlord (Borrower being sometimes hereinafter called "Lessor"), and
Lessee, as Tenant; and
C. Lessee and Mortgagee desire to confirm their understandings
with respect to the Lease and Mortgage.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, Lessee and Mortgagee agree
and covenant as follows:
1. Non-Disturbance. Mortgagee agrees that it will not disturb
the possession of Lessee under the Lease upon any judicial or non-
judicial foreclosure of the Mortgage or upon acquiring title to the
Project by deed-in-lieu of foreclosure, or otherwise, if the Lease is
in full force and effect and Lessee is not then in default under the
Lease, and that Mortgagee will accept the attornment of Lessee
thereafter so long as Lessee is not in default under the Lease.
2. Attornment. If the interests of Lessor in and to the Demised
Premises are owned by Mortgagee by reason of any deed-in-
<PAGE>
lieu of foreclosure, judicial foreclosure, sale pursuant to any
power of sale or other proceedings brought by it or by any other
manner, including, but not limited to, Mortgagee's exercise of its
rights under any assignment of leases and rents, and Mortgagee
succeeds to the interest of Lessor under the Lease; Lessee shall be
bound to Mortgagee under all of the terms, covenants and conditions
of the Lease for the balance of the term thereof remaining and any
extension thereto duly exercised by Lessee with the same force and
effect as if Mortgagee were the Lessor under the Lease, and Lessee
does hereby attorn to Mortgagee, as its lessor, said attornment to be
effective and self-operative, without the execution of any further
instruments on the part of any of the parties hereto, immediately
upon Mortgagee's succeeding to the interest of Lessor under the
Lease; provided, however, that Lessee shall be under no obligation to
pay rent to Mortgagee until Lessee receives written notice from
Mortgagee that Mortgagee has succeeded to the interest of the Lessor
under the Lease or otherwise has the right to receive such rents. The
respective rights and obligations of Lessee and Mortgagee upon such
attornment, to the extent of the then remaining balance of the term
of the Lease, shall be and are the same as now set forth therein, it
being the intention of the parties hereto for this purpose to
incorporate the Lease in this Agreement by reference, with the same
force and effect as if set forth in full herein.
3. Mortgagee's Obligations. If Mortgagee shall succeed to the
interest of Lessor under the Lease, Mortgagee, subject to the last
sentence of this Paragraph 3, shall be bound to Lessee under all of
the terms, covenants and conditions of the Lease, provided, however,
that Mortgagee shall not be:
(a) Liable for any act or omission of any prior lessor
(including Lessor) but not withstanding such lack of liability, upon
Mortgagee (i) succeeding to the interest' of Lessor under the Lease,
and (ii) receiving written notice of the act or omission from Lessee,
Mortgagee shall commence to cure any act or omission of any prior
lessor (including Lessor); or
(b) Subject to the offsets or defenses which Lessee might have
against any prior lessor (including Lessor) but not withstanding such
lack of liability, upon Mortgagee (i) succeeding to the interest of
Lessor under the Lease, and (ii) receiving written notice of the act
or omission from Lessee, Mortgagee shall commence to cure any act or
omission of any prior lessor (including Lessor); or,
2
<PAGE>
(c) Bound by any rent or additional rent or advance rent which
Lessee might have paid in advance in excess of one month's rent to
any prior lessor (including Lessor), and all such rent shall remain
due and owing, notwithstanding such advance payment; or
(d) Bound by any security or advance rental deposit made by
Lessee which is not delivered or paid over to Mortgagee and with
respect to which Lessee shall look solely to Lessor for refund or
reimbursement; or
(e) Bound by any termination, amendment or modification of the
Lease made without its consent and written approval.
Neither General Electric Capital Corporation nor any other party who
from time to time shall be included in the definition of Mortgagee
hereunder, shall have any liability or responsibility under or
pursuant to the terms of this Agreement after it ceases to own an
interest in the Project with respect to acts and omissions of its
successor in interest that occur after the effective date of such
cessation. Nothing in this Agreement shall be construed to require
Mortgagee to see to the Application of the proceeds of the Loan, and
Lessee's agreements set forth herein shall not be impaired on account
of any modification of the documents evidencing and securing the
Loan. Lessee acknowledges that Mortgagee is obligated only to
Borrower to make the Loan only upon the terms and subject to the
conditions set forth in the Loan Agreement between Mortgagee and
Borrower pertaining to the Loan. Lessee further acknowledges and
agrees that neither Mortgagee nor any purchaser of the Project at
foreclosure sale or any grantee of the Project named in a deed-in-
lieu of foreclosure nor any heir, legal representative, successor, or
assignee of Mortgagee or any such purchaser or grantee, has or shall
have any personal liability for the obligations of Lessor under the
Lease; provided, however, that the Lessee may exercise any other
right or remedy provided thereby or by law in the event of any
failure by Lessor to perform any such material obligation.
4. Subordination. The Lease and all rights of Lessee
thereunder are subject and subordinate to the Mortgage and to any
deeds of trust, mortgages, ground leases or other instruments of
security which do now or may hereafter cover the Project or any
interest of Lessor therein (collectively, the "Prior Encumbrances")
and to any and all advances made on the security thereof and to any
and all increases, renewals, modifications, consolidations,
replacements and extensions of the Mortgage or of any of the Prior
Encumbrances. This provision is acknowledged by Lessee to be self-
operative and no further instrument shall be required to
3
<PAGE>
effect such subordination of the Lease. Lessee shall, however, upon
demand at any time or times execute, acknowledge and deliver to
Mortgagee any and all instruments and certificates that in
Mortgagee's judgment may be necessary or proper to confirm or
evidence such subordination provided none of such certificates
contains any provision that purports to increase Lessee's obligations
or diminish Lessee's rights (including rights of rent abatement as
specifically stated under the Lease) and provided such certificates
are reasonably satisfactory in form and substance to Lessee. If
Lessee shall fail or neglect to execute, acknowledge and deliver any
such instrument or certificate, Mortgagee may, in addition to any
other remedies Mortgagee may have, as agent and attorney-in-fact of
Lessee, execute, acknowledge and deliver the same and Lessee hereby
irrevocably appoints Mortgagee as Lessee's agent and attorney-in-fact
for such purpose. However, notwithstanding the generality of the
foregoing provisions of this paragraph, Lessee agrees that Mortgagee
shall have the right at any time to subordinate the Mortgage, and any
such other mortgagee or ground lessor shall have the right at any
time to subordinate any such Prior Encumbrances, to the Lease.
5. New Lease. Upon the written request of either Mortgagee or
Lessee to the other given at the time of any foreclosure, trustee's
sale or conveyance in lieu thereof, the parties agree to execute a
lease of the Demised Premises upon the same terms and conditions as
the Lease between Lessor and Lessee, which lease shall cover any
unexpired term of the Lease existing prior to such foreclosure,
trustee's sale or conveyance in lieu of foreclosure, provided the
terms and conditions of any such new lease are substantively the same
as in the Lease and do not increase Lessee's economic obligations.
6. Notice. Lessee agrees to give written notice to Mortgagee of
any default by Lessor or Borrower under the Lease not less than
thirty (30) days prior to terminating the Lease or exercising any
other right or remedy thereunder or provided by law. Lessee further
agrees that it shall not terminate the Lease or exercise any such
right or remedy provided such default is cured within thirty (30)
days; provided, however, that if such default cannot by its nature be
cured within thirty (30) days, then Lessee shall not terminate the
Lease or exercise any such right or remedy, provided the curing of
such default is commenced within such thirty (30) days and is
diligently prosecuted thereafter. Such notices shall be delivered by
certified mail, return receipt requested to
General Electric Capital Realty Group
Attn: Mike Jaynes
15479 Dallas Parkway, Suite 400
4
<PAGE>
Dallas, Texas 75248-2661
7. Mortgagee. The term "Mortgagee" shall be deemed to include
General Electric Capital Realty Group and any of its successors and
assigns, including anyone who shall have succeeded to Lessor's
interest in and to the Lease and the Project by, through or under
judicial foreclosure or sale under any power or other proceedings
brought pursuant to the Mortgage, or deed in lieu of such foreclosure
or proceedings, or otherwise.
8. Estoppel. Lessee hereby certifies, represents and warrants
to Mortgagee that:
(a) That the Lease is a valid lease and in full force and
effect. That it is not aware of any existing default in any of the
terms and conditions thereof and no event has occurred which, with
the passing of time or giving of notice or both, would constitute an
event of default;
(b) That the Lease has not been amended, modified,
supplemented, extended, renewed or assigned by Lessee, and represents
the entire agreement of the parties;
(c) That, except, as provided in the Lease, Lessee is entitled
to no rent concessions or abatements;
(d) That Lessee shall not pay rental under the Lease in excess
of one (1) month's rent in advance (except for any deposit or letter
of credit in the nature of security. Lessee agrees that Lessee shall,
upon written notice by Mortgagee, pay to Mortgagee, when due, all
rental due under and in accordance with the Lease;
(e) That all obligations and conditions under the Lease to be
performed to date have been satisfied, free of defenses and set-offs;
and
(f) That Lessee has not received written notice of any claim,
litigation or proceedings, pending or threatened, against or relating
to -Lessee, or with respect to the Demised Premises which would
affect its performance under the Lease. Lessee has not received
written-notice of any-violations of any federal, state, county or
municipal statutes, laws, codes, ordinances, rules, regulations,
orders, decrees or directives relating to the use or condition of the
Demised Premises or Lessee's operations thereon.
(g) On the date or this Agreement, the proposed lease has
been executed by Lessee and forwarded to Lessor for execution and an
executed copy returned to Lessee. Until execution by Lessor and
return of an executed copy to Lessee, the Lease will not have become
effective. Paragraphs 8(a) through (e) above should be read in light
of this paragraph 8(g).
5
<PAGE>
9. Modification and Successors. This Agreement may not be
modified orally or in any manner other than by an agreement, in
writing, signed by the parties hereto and their respective successors
in interest. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, their successors and assigns.
10. Counterparts. This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement,
binding on all parties hereto, notwithstanding that all parties are
not signatories to the original or the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MORTGAGEE: GENERAL ELECTRIC CAPITAL REALTY GROUP,
a New York corporation
By:
---------------------------------
Its
---------------------------------
LESSEE: PALATIN TECHNOLOGIES, INC.
a Delaware corporation
By: /s/ Edward J. Quilty
----------------------
6
<PAGE>
STATE OF TEXAS )
)Ss.
COUNTY OF DALLAS )
BE IT REMEMBERED, that on this ____ day of _____, 1997, before me
the subscriber,_____________________, personally appeared_____________
who, I am satisfied, is the person who signed the within instrument
as __________________________ of General Electric Capital Realty Group,
a New York Corporation, the entity named therein and he thereupon
acknowledged that the said instrument made by the corporation and sealed
with its corporate seal, was signed, sealed with the corporate seal and
delivered by him as such officer and is the voluntary act and deed of the
corporation, made by virtue of authority from its Board of Directors.
_______________________
Notary Public, in and
for the State of Texas
My Commission expires ___________
STATE OF NEW JERSEY )
)ss.
COUNTY OF MERCER )
BE IT REMEMBERED, that on this 31st day of March, 1997, before me
the subscriber, Janet R. Schneider, personally appeared Edward J. Quilty
who, I am satisfied, is the person who signed the within instrument as
the CEO of Palatin Technologies, Inc., the entity named therein and he
thereupon acknowledged that the said instrument made by the corporation
and sealed with its corporate seal, was signed, sealed with the corporate
seal and delivered by him as such officer and is the voluntary act and
deed of the corporation, made by virtue of authority from its Board of
Directors.
/s/ Janet R. Schneider
- ------------------------
Notary Public, in and for
the State of
My Commission expires _________
Janet R. Schneider
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES JULY 31, 2000
7
<PAGE>
EXHIBIT E
GENERAL ELECTRIC CAPITAL REALTY GROUP
TENANT'S ESTOPPEL CERTIFICATE
-----------------------------
PREMISES: Edison Corporate Center, 125 May Street, Suite 500
(10,538 square feet), Edison, New Jersey ("PREMISES")
LANDLORD: WHC-Six Real Estate L.P., a Delaware limited partnership
("LANDLORD")
LEASE DATED: March 13, 1997 ("LEASE")
TENANT: Palatin Technologies, Inc., a Delaware corporation
("TENANT")
TENANT`S NOTICE ADDRESS: 214 Carnegie Center, Suite 100.
Princeton, New Jersey 08540
DATE: __________________, 1997
The undersigned, Tenant, hereby certifies to GENERAL ELECTRIC
CAPITAL REALTY GROUP, a New York corporation ("GECRG"), that:
1. Tenant shall accept possession of the Premises pursuant to the
Lease. The Lease term shall commence on the earlier of (i) ninety-seven
(97) days following the date that the existing tenant in the Premises
vacates the Premises or (ii) the date-a temporary or permanent
certificate of occupancy is issued for the Initial Portion of Premises
(9,000 square feet) ("Commencement Date"). The termination date of the
Initial Term of the Lease is ten (10) years following the Commencement
Date. If the Commencement Date is not the first day of a calendar month,
then the Term shall be extended for the number of days between the
Commencement Date and the first day of the following month. Subject to
the Basic Rent adjustment as provided in paragraph 3(a)(ii) of the Lease,
monthly rent under the Lease is as follows: Basic Rent, $9,640.83 per
month for months 1-12, $9,897.17 per month for months 13-24, $10,538.00
per month for months 25-36, $13,:72.50 per month for months 37-60,
$16,685.17 per month for months 61-120, plus additional rent as provided
in the Lease.
2. Any improvements-required by the terms of the Lease to be made by
Landlord prior to the Commencement Date with respect to the Premises have
been completed to the satisfaction of Tenant in all respects, and
Landlord has fulfilled all of its duties under the Lease, performance of
which was due prior to the date of this certificate.
3. The Lease has not been assigned, modified, supplemented or amended
in any way by the Tenant. The Lease constitutes the entire agreement
between the parties and
<PAGE>
there are no other agreements between Landlord and Tenant concerning the
Premises.
4. The Lease is valid and in full force and effect, and, to the best of
Tenant's knowledge, neither Landlord nor Tenant is in default thereunder.
Tenant has no defense, setoff or counterclaim against Landlord arising
out of the Lease or in any way relating thereto, or arising out of any
other transaction between Tenant and Landlord, and no event has occurred
and no condition exists, which, with the giving of notice or the passage
of time, or both, will constitute a default under the Lease.
5. No rent or other sum payable to Landlord under the Lease has been
paid in advance in excess of an amount equal to one month's Basic Rent,
except for any deposit or letter of credit in the nature of security.
6. The minimum monthly rental rate presently payable under the Lease on
and after the Commencement Date is $9,640.83.
7. Tenant acknowledges that Tenant has received this Estoppel
Certificate as notice that the Lease will be assigned to GECRG and Tenant
has received no notice of a prior assignment, hypothecation or pledge of
the Lease or the rents, income, deposits or profits arising thereunder.
GECRG hereby advises, and Tenant understands, that under the provisions
of the assignment, the Lease cannot be terminated (either directly or by
the exercise of any option which could lead to termination) or modified
in any of its terms, or consent be given to the release of any party
having liability thereon, without the prior written consent of GECRG,
that without such consent, no rent may be collected or-accepted in excess
of one month's rent in advance and that the interest of the Landlord in
the Lease has been assigned to GECRG solely as security for the purposes
specified in the assignment and GECRG assumes no duty, liability or
obligations whatever under the Lease or any extension or renewal thereof.
8. Tenant hereby acknowledges and agrees that if GECRG shall succeed to
the interest of Landlord under the Lease, GECRG shall assume (only while
owner of and in possession or control of the building of which the
Premises are a part) and perform all of Landlords obligations under the
Lease, but, except as may otherwise specifically set forth in the
Subordination, Non-Disturbance and Attornment Agreement between GECRG and
the Tenant, or elsewhere in this certificate shall not be liable for any
act or omission of any prior landlord (including the present landlord),
liable for the return of any security deposit, subject to any offset or
defense which Tenant
<PAGE>
may have against any such prior landlord or bound by any rent or
additional rent Tenant may have paid for more than the current month to
any such prior landlord or bound by any assignment, surrender,
termination, cancellation, waiver, release, amendment or modification of
the Lease made without its express written consent.
9. Tenant shall give GECRG prompt written notice of any default of
Landlord under the Lease, if such default entitles Tenant, under law or
otherwise, to terminate the Lease, reduce rent or credit or offset any
amount against future rents and shall give GECRG reasonable time (but in
no event less than 30 days after receipt of such notice) to cure or
commence curing such default prior to exercising (and as a condition
precedent to its right to exercise), any right Tenant may have to
terminate the Lease or to reduce rent or credit or offset any amounts
against the rent. Tenant shall give written notice of any default of
Landlord to any successor in interest of GECRG, any purchaser at a
foreclosure sale under the mortgage, any transferee who acquired the
property by deed in lieu of foreclosure or any successor or assign
thereof of whose name and address Tenant shall have been advised by
written notice from GECRG or its then current successor in interest.
10. Tenant shall not look to the Mortgagee, as mortgagee, mortgagee in
possession, or successor in title to the Mortgaged Property, in
connection with the return of or accountability with respect to any
security deposit required by Landlord, unless said sums have actually
been received by Mortgagee as security for Tenant's performance under the
Lease.
11. Tenant shall neither suffer nor itself manufacture, store, handle,
transport, dispose of, spill, leak, dump any toxic or hazardous waste,
waste product or substance (as they may be defined in any federal or
state statute, rule or regulation pertaining to or governing such wastes,
waste products or substances) on the Mortgaged Property at any time
during the term, or extended term, of the Lease, except as permitted by
the Lease.
12. All notices and other communications from Tenant to GECRG shall be
in writing and shall be delivered or mailed by registered mail, postage
paid, return receipt requested, addressed to GECRG at:
General Electric Capital Realty Group
Attn: Mike Jaynes
16479 Dallas Parkway, Suite 400
Dallas, Texas 75248-2661
<PAGE>
or at such other address as GECRG, any successor, purchaser or transferee
shall furnish to Tenant in writing.
13. This Estoppel Certificate is being executed and delivered by
Tenant(s) for the benefit of GECRG in connection with its loan to
Landlord which, Tenant is informed by GECRG, is secured or to be secured
in part by an assignment to GECRG of Landlord's interest in the Lease,
and (b) with the intent and understanding that the above statements will
be relied upon by GECRG.
14. On the date of this certificate, the proposed Lease has been
executed by Tenant and forwarded to Landlord for execution an an executed
copy returned to Tenant. Until execution by Landlord and return of an
executed copy to tenant, the Lease will not have become effective and no
obligations of Landlord or Tenant will have arisen under the Lease. The
foregoing Certificate should be read in light of this paragraph 14, e.g.,
paragraph 2, no improvements have been made (or buildout allowance paid)
because performance thereof was not due as of the Certificate date.
TENANT: Palatin Technologies, Inc.
a Delaware corporation
/s/ Edward J. Quilty
By:-----------------------
<PAGE>
EXHIBIT F
RENEWAL OPTION
(a) Renewal. Provided no Event of Default exists, Tenant shall have
option(s) ("Renewal Option(s)") to extend the term of this Lease for
two (2) additional periods of five (5) years each ("Renewal Term(s)"),
by giving Landlord notice thereof not more than twelve (12), but at
least nine (9) months' notice, prior to the date of expiration of the
then current term of this Lease. If Tenant shall exercise the Renewal
Option(s), then this Lease shall be extended for the then upcoming
Renewal Term upon all of the terms, covenants and conditions contained
in this Lease, except that, during the Renewal Term, the annual Basic
Rent for said term shall be 95% of the annual market rental value
("Market Value Rent") of the Premises on the date that Tenant
exercises the applicable Renewal Option ("Exercise Date"), determined
as provided in subparagraph (b) below. In calculating the Market
Value Rent, the following assumptions shall be made: (i) the Landlord
can deliver possession of the Premises on the first day of the
respective Renewal Term; (ii) the Premises or respective portions
thereof are in the same condition they were in immediately after the
completion of any build-out thereof, subject to normal wear and use,
and the Tenant would accept them in that condition without any further
improvement; (iii) the improvements then in place in the Premises have
no special value to the Tenant beyond the value they would have to a
reasonable willing tenant seeking combination office and laboratory
space; (iv) this Lease remains in effect in accordance with its terms;
(v) the Landlord is required to pay a standard brokerage commission
with respect to the respective Renewal Term; and (vi) the Landlord
will be granting no concessions during the respective Renewal Term.
(b) Arbitration. The term "Market Value Rent" shall mean the annual fixed
rent that a willing tenant would pay and a willing landlord would
accept in an arms-length lease of the Premises as of the Exercise
Date, assuming the same terms and conditions set forth in this Lease
and using the assumptions described in (a) above. If Landlord and
Tenant shall fail to agree upon the Market Value Rent within sixty
(60) days after the Exercise Date, then Landlord and Tenant each shall
give notice ("Determination Notice") to the other setting forth their
respective determinations of the Market Value Rent, and, subject to
the provisions of subparagraph (c) below, either party may apply to
the American Arbitration Association or any successor thereto for the
designation of an arbitrator satisfactory to both parties to render a
final determination of the Market Value Rent. If Landlord and Tenant
cannot agree upon an arbitrator, the parties shall jointly apply to
the assignment judge of Middlesex County to select an arbitrator. The
arbitrator shall be a real estate appraiser, consultant or broker who
shall have at least fifteen (15) years continuous experience in the
business of appraising or office and laboratory leasing. The
arbitrator shall conduct such hearings and investigations as the
arbitrator shall deem appropriate and shall, within thirty (30) days
after having been
<PAGE>
appointed, choose one of the determinations set forth in either
Landlord's or Tenant's Determination Notice, and that choice by the
arbitrator shall be binding upon Landlord and Tenant. Each party shall
pay its own counsel fees and expenses, if any, in connection with any
arbitration under this subparagraph (b), and the parties shall share
equally all other expenses and fees of any such arbitration. The
determination rendered in accordance with the provisions of this
subparagraph (b) shall be final and binding in fixing the Market Value
Rent. The arbitrator shall not have the power to add to, modify or
change any of the provisions of this Lease.
(c) Arbitration cancelled. In the event that the determination of the
Market Value Rent set forth in the Landlord's and Tenant's
Determination Notices shall differ by less than three (3%) percent per
rentable square foot per annum for the applicable Renewal Term, then
the Market Value Rent shall not be determined by arbitration, but
shall instead be set by taking the average of the determination set
forth in Landlord's and Tenant's Determination Notices. Only if the
determinations set forth in Landlord's and Tenant's Determination
Notices shall differ by more than three (3%) percent per rentable
square foot per annum for the applicable Renewal Term shall the actual
determination of Market Value Rent be made by an arbitrator as set
forth in subparagraph (b) above.
(d) Late determination. If for any reason the Market Value Rent shall not
have been determined prior to the commencement of the Renewal Term,
then, until the Market Value Rent and, accordingly, the annual Basic
Rent, shall have been finally determined, the annual Basic Rent shall
remain the same as payable during the last year of the expiring term
of the Lease. Upon final determination of the Market Value Rent, an
appropriate adjustment to the annual Basic Rent shall be made
reflecting such final determination, and Landlord or Tenant, as the
case may be, shall promptly refund or pay to the other any overpayment
or deficiency, as the case may be, in the payment of annual Basic Rent
from the commencement of the Renewal Term to the date of such final
determination.
(e) In the event the Premises has been expanded, the Renewal Option(s)
contained herein shall apply to the then existing Premises, as expanded
on a co-termination basis.
(f) Tenant shall have no further renewal options unless expressly granted by
Landlord in writing.
(g) Landlord shall lease to Tenant the Premises in their then-current
condition, and Landlord shall not provide to Tenant any allowances
(e.g., moving allowance, construction allowance, and the like) or other
tenant inducements.
(h) Tenant's rights under this Exhibit shall terminate if Tenant fails to
timely exercise its option(s) under this Exhibit, time being of the
essence with respect to Tenant's exercise thereof or Tenant assigns any
of its interest in this Lease or sublets any portion of the Premises,
other than an assignment or subletting to an Affiliate.
(i) In no event shall Tenant be entitled to exercise an option for any
Renewal Term unless it or an Affiliate is occupying all of the Premises
at the time of exercise.
<PAGE>
EXHIBIT G
RIGHT OF FIRST OFFER
Subject to then-existing renewal or expansion options of other tenants, and
the existing tenants' desires (whether or not set forth in their leases) to
extend their terms provided no Event of Default then exists, Landlord shall,
prior to offering the same to others, and first offer to lease to Tenant the
space designated on page 2 of this Exhibit (the "Offer Space") in an "AS-IS"
condition; such offer shall be in writing and specify the rent to be paid for
the Offer Space and the date on which the Offer Space shall be included in the
Premises (the "Offer Notice"). Tenant shall notify Landlord in writing whether
Tenant elects to lease the entire Offer Space at the rental rate set forth in
the Offer Notice, within 10 days after Landlord delivers to Tenant the Offer
Notice. If Tenant timely elects to lease the Offer Space, then Landlord and
Tenant shall execute an amendment to this Lease, effective as of the date the
Offer Space is to be included in the Premises, on the same terms as this Lease
except as follows:
(a) the rentable area of the Premises and Tenant's proportionate share of
applicable Rent obligations shall be increased by the rentable area in the
Offer Space;
(b) the Basic Rent shall be increased by the amount specified for such space
in the Offer Notice;
(c) Landlord shall not provide to Tenant any allowances (e.g., moving
allowance, construction allowance, and the like) or other tenant inducements;
and
(d) The Term shall be co-terminous with the Premises.
If Tenant fails or is unable to timely exercise its right hereunder, then
such right shall forever lapse, time being of the essence with respect to the
exercise thereof, and Landlord may lease the Offer Space to third parties on
such terms as Landlord may elect provided Landlord initially offers the Offer
Space to the third parties upon the same terms as offered to Tenant, but
Landlord shall be entitled to conclude its transaction with the third party on
terms other than initially offered to the third party. Tenant may not exercise
its rights under this Exhibit if an Event of Default exists or Tenant or an
Affiliate is not then occupying the entire Premises.
Tenant's rights under this Exhibit shall terminate if (a) this Lease or
Tenant's right to possession of the Premises is terminated or (b) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises, other
than an assignment to an Affiliate.
1 of 2
<PAGE>
[DIAGRAM OF FIRST OFFER SPACE ON FIRST FLOOR PLAN]
2 of 2
<PAGE>
EXHIBIT H
LETTER OF CREDIT
[BANK LETTERHEAD]
, 1997
IRREVOCABLE, UNCONDITIONAL LETTER OF CREDIT NO.
Archon Group, L.P.
600 Las Colinas Boulevard, Suite 1900
Irving Texas 75039
Gentlemen:
_________________________________, a national banking association ("Bank"),
of ____________________________, hereby issues its Irrevocable, Unconditional
Letter of Credit in favor of WHC-Six Real Estate, L.P., a Delaware limited
partnership, and/or its successors and assigns ("Landlord") for the account of
Palatin Technologies, Inc., a Delaware corporation, ("Tenant") up to the
aggregate amount of $185,000, available at sight by the drafts of Landlord on
the Bank. Drafts drawn on this Letter of Credit will be honored when presented,
accompanied only by a letter or certificate executed by a representative of
Landlord stating that it is entitled to draw on this Letter of Credit under the
terms of the Lease Agreement, dated as of ____________, 1997, between Landlord
and Tenant. Partial draws shall be permitted hereunder. This Letter of Credit
may be assigned.
The Bank shall be entitled (and required) to rely upon the statements
contained in the above-described letter or certificate and will have no
obligation to verify the truth of any statements set forth therein.
The Bank hereby agrees with drawers, endorsers and bona fide holders of
this Letter of Credit that all drafts drawn by reason of this Letter of Credit
and in accordance with the above conditions, will meet with due honor when
presented at the office of the Bank in ____________________.
The obligations of the Bank shall not be subject to any claim or defense by
reason of the invalidity, illegality or inability to enforce any of the
agreements set forth in the Lease.
<PAGE>
This Letter of Credit is subject to the Uniform Customs and Practices for
Documentary Credits (1993 Revision) fixed by the International Chamber of
Commerce (publication 400) when not in conflict with the express terms of this
Letter of Credit or with the provisions of Article 5, N.J.S.A. 12A:5- 101 et
seq. of the New Jersey Uniform Commercial Code, as amended.
This Letter of Credit shall terminate at 3:00 p.m. Eastern Daylight Savings
Time or Eastern Standard Time, as applicable, on the first anniversary date
following the date hereof.
Amounts drawn upon this Letter of Credit are to be endorsed on the reverse
side of this Letter of Credit by the negotiating bank.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES THAT MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
---------------------------
By:
------------------------
Name:
----------------------
Title:
---------------------
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to that certain Employment Agreement dated as of
November 16, 1995 (the "Employment Agreement") between RhoMed Incorporated, a
Delaware corporation ("RhoMed"), and Edward J. Quilty, an individual residing at
1031 Creamery Rd., Newtown, Pennsylvania 18940 (the "Executive"), is made and
entered into as of _____________, 1996, by and among RhoMed, the Executive, and
Palatin Technologies, Inc., a Delaware corporation of which RhoMed is a
wholly-owned subsidiary ("Palatin").
WHEREAS, Palatin desires to employ the Executive, and the Executive
desires to be employed by Palatin, on the same terms and capacities as are
contemplated in the Employment Agreement, by amending the Employment Agreement
to effect such employment, and whereas RhoMed has consented to such arrangement;
WHEREAS, the Executive, RhoMed and Palatin have determined that it is
in the best interest of the parties to this Amendment to clarify certain of the
terms of the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
1. Effective as of _________, 1996, RhoMed will not be a party to the
Employment Agreement and the Employment Agreement shall from such time and
thereafter be between Palatin and the Executive, and all references in the
Employment Agreement to "RhoMed" shall be references to "Palatin."
2. The merger of Palatin's wholly-owned subsidiary, Interfilm
Acquisition Corporation, with and into RhoMed on June 25, 1996 (the "Merger")
was not intended to and did not constitute a "change-in-control" under Paragraph
C of Article FIFTH of the Employment Agreement.
Upon the execution hereof, each reference in the Employment Agreement
to "the Employment Agreement", "this Agreement", "hereby", "hereunder",
"herein", "hereof" or words of like import referring to the Employment Agreement
shall mean and refer to the Employment Agreement as amended by this Amendment to
the Employment Agreement. All other provision of the Employment Agreement shall
remain in full force and effect except and to the extent explicitly amended
hereby.
This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which together shall constitute one and
the same Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Amendment or
caused this Amendment to be signed by their respective officers thereunto duly
authorized as of the date first written above.
PALATIN TECHNOLOGIES, INC. RHOMED INCORPORATED
/s/ Edward J. Quilty /s/ John J. McDonough
By:----------------------- By:----------------------
Name: E. J. Quilty Name: John J. McDonough
Title: Chairman & CEO Title: VP & CFO
/s/ Edward J. Quilty
By:-----------------------
Edward J. Quilty
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 12,806,717
<SECURITIES> 0
<RECEIVABLES> 84,562
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,066,275
<PP&E> 1,159,145
<DEPRECIATION> 237,049
<TOTAL-ASSETS> 14,062,865
<CURRENT-LIABILITIES> 2,738,727
<BONDS> 1,889,139
0
1,378
<COMMON> 30,204
<OTHER-SE> 9,802,966
<TOTAL-LIABILITY-AND-EQUITY> 14,062,865
<SALES> 22,184
<TOTAL-REVENUES> 722,357
<CGS> 0
<TOTAL-COSTS> 5,943,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 374,664
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,300,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,300,164)
<EPS-PRIMARY> (2.80)
<EPS-DILUTED> (2.80)
</TABLE>
