<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period From _________ to _________
Commission File Number 0-68440
STRATEGIC DIAGNOSTICS INC.
(Exact name of Registrant as specified in its charter)
____________________
Delaware 56-1581761
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
128 Sandy Drive
Newark, Delaware 19713
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 456-6789
____________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $14,629,871 as of March 31, 1997.
On March 31, 1997 the Registrant had outstanding 13,057,672 shares of
Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Definitive Proxy
Statement") to be filed with the Securities and Exchange Commission relative to
the Company's 1997 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Report.
<PAGE>
TABLE OF CONTENTS
Item Page
- ---- ----
PART I.................................................................1
ITEM 1. BUSINESS................................................1
Overview....................................................1
General Development of Business.............................1
Immunoassay Technology......................................4
Markets and Products........................................6
Sales and Marketing Strategy...............................11
Regulatory Approvals.......................................12
Manufacturing..............................................14
Research and Development...................................15
Proprietary Technology and Patents.........................16
Competition................................................18
Employees..................................................18
ITEM 2. PROPERTIES.............................................19
ITEM 3. LEGAL PROCEEDINGS......................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
...........................................................19
ITEM 4(a).EXECUTIVE OFFICERS OF THE REGISTRANT...................20
PART II...............................................................22
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..................................22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA...................23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...........28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................29
PART III..............................................................30
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.........30
ITEM 11. EXECUTIVE COMPENSATION.................................30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.......................................30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
.......................................................30
PART IV...............................................................31
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K..............................................31
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
Strategic Diagnostics Inc. (the "Company") develops, manufactures, and
markets immunoassay-based test kits for rapid and inexpensive detection of a
wide variety of substances in three primary market segments: water quality,
industrial testing, and agricultural. The Company is a leader in the field of
immunoassay research, development and manufacturing and develops products in
markets where the attributes of immunoassay technology (i.e., speed,
ease-of-use, low cost-per-test, quantitation, and flexibility) meet specific
customer needs. The substances detected by the Company's test kits include
chemicals used to treat drinking water, proprietary chemicals used in
industrial processes, environmental contaminants, pesticides, genetically
engineered traits in plants, and diseases of commercial crops.
The Company's kits for the detection of pesticides and environmental
contaminants (D TECH-Registered Trademark-, EnviroGard-TM-, EnSys RISc-TM-
and RaPID Assay-Registered Trademark-), are well recognized in the
immunoassay field testing market. The Company sells its environmental
products in the U.S. through its direct sales force and through distributors
in Europe and the rest of the world. The Company's one-step strip tests
hold a leading position in the emerging market of genetically engineered crop
testing. In addition to products serving the three primary market segments,
the Company also manufactures and sells Macra-Registered Trademark- Lp(a), an
immunoassay test kit for medical applications, which is a leading method for
measuring lipoprotein(a) in human serum.
In addition to developing, manufacturing and marketing immunoassay test
kits, the Company provides fully integrated monoclonal antibody development
and production, as well as large scale manufacturing services, to
pharmaceutical and medical diagnostic companies through its wholly-owned
subsidiary, TSD BioServices, Inc.
General Development of Business
Developments in 1996
Prior to December 30, 1996, the Company was named EnSys Environmental
Products, Inc. ("EnSys"). On December 30, 1996, EnSys merged with a
privately held company, Strategic Diagnostics Inc. ("SDI"), with EnSys being
the surviving entity, but changing its name to Strategic Diagnostics Inc.
On March 29, 1996, EnSys acquired from Millipore Corporation
("Millipore") certain assets which consisted primarily of inventory,
work-in-progress, equipment, intellectual property rights, contract rights
and customer lists, of Millipore's EnviroGard-TM- product line. In exchange
for such assets, EnSys paid to
<PAGE>
Millipore $1,000,000 in cash and issued to Millipore 1,100,000 shares of
EnSys Common Stock, which represented approximately 15% of the outstanding
Common Stock of EnSys after the acquisition. The EnviroGard-TM- product line
consists of immunoassay-based test systems used in the detection of
environmental contaminants and pesticide residues.
On August 30, 1996, SDI acquired all of the stock of Ohmicron Corporation
and its subsidiaries ("Ohmicron"), excluding Ohmicron Medical Diagnostics,
Inc. which was spun-off to its stockholders prior to the acquisition date.
Ohmicron stockholders received common stock of SDI representing approximately
26% of the fully diluted equity of SDI (as defined in the Ohmicron
acquisition agreement) as of June 30, 1996. Ohmicron developed,
manufactured and marketed immunoassay-based products which measure
contaminants in water, soil and food and employ magnetic particle immunoassay
technology for precise determination of very low concentrations of
contaminants.
The rationale employed by both SDI and EnSys regarding market
consolidation led to the merger of the two companies on December 30, 1996.
SDI merged into EnSys and the name of the surviving corporation was changed
to Strategic Diagnostics Inc. Grover C. Wrenn, Chief Executive Officer
of EnSys prior to the merger, was named Chairman of the Board of Directors of
the Company, and Richard C. Birkmeyer, President and Chief Executive Officer
of SDI prior to the merger, and the other principal executive officers of
SDI, retained their respective roles in the Company. The EnSys facility in
North Carolina was closed and operations were moved to the SDI facilities in
Newark, Delaware, and Newtown, Pennsylvania.
The Company believes that its competitiveness will be enhanced by virtue
of its larger size, broader product line and the achievement of operational
economies of scale. The Company believes that the expansion of its industrial
testing product line resulting from its consolidation activities
significantly enhances its ability to provide customers with the most
appropriate test for each specific application. The Company believes that
its products in the water quality, industrial testing and agricultural
markets are unique and fill a potentially large, unmet need. The Company
also believes that the products and technology currently being developed have
broad application in diverse markets.
The Company believes that its established product base, quality
manufacturing expertise, experienced sales and marketing organization,
established network of distributors, corporate partner relationships, and
proven research and development expertise are critical elements of its
potential for future success.
2
<PAGE>
Developments Prior to 1996
SDI was founded to develop and commercialize rapid, field-portable
immunoassay tests primarily for non-medical diagnostic testing applications
in water quality, industrial testing and agricultural markets. SDI's core
expertise was research, development and manufacturing of immunoassays,
including immunogen and antibody development (especially monoclonal
antibodies), immunoreagent development, assay development and manufacturing.
SDI's founders initiated commercial operations in 1990 with a contract
from a corporate partner to develop and manufacture a rapid field test to
detect corrosion causing sulfate-reducing bacteria. The sale and marketing
of the resulting product, RapidChek-Registered Trademark- SRB, was the
responsibility of the corporate partner, Conoco Specialty Products, Inc.
The initial corporate partnering agreement is illustrative of one of the
strategies SDI used to grow its business. Corporate partners who had
identified a market opportunity provided funding to SDI to develop and
manufacture immunoassay products to meet the identified market need. Most of
the corporate partner agreements were written so that SDI retained the right,
or had a right of first refusal, to manufacture the finished product, and the
technology developed during the course of the project was co-owned by SDI and
its partner. In this way, SDI developed proprietary core technology and built
a manufacturing base of commercial products. This strategy has proven an
effective way for the Company to identify new market areas, to enhance its
product pipeline and to provide funding for research and development. The
Company plans to continue this partnering strategy for the foreseeable future.
Another key strategy that SDI used to develop its business was the
formation in 1991 of TSD BioServices, a joint venture between SDI and a
subsidiary of Taconic Farms, Inc. ("Taconic Farms") of Germantown, NY.
Taconic Farms is a privately held company whose business is the production
and sale of mice and rats, primarily to the research community. The mission
of TSD BioServices was to supply antibodies, especially monoclonal
antibodies, immunochemical reagents and related services to medical
diagnostic and pharmaceutical companies, as well as the research community.
The TSD BioServices business provided SDI with a critical mass of
technology related to the development and production of antibodies with which
to support its own product development activities. Late in 1996, in order to
consolidate and streamline activities associated with the TSD BioServices
business, Taconic Farms and SDI dissolved the original joint venture between
the two companies and SDI established TSD BioServices, Inc. ("TSD") as a
wholly-owned subsidiary. Taconic Farms is the exclusive supplier of mice for
TSD production contracts.
Another key factor in the growth of SDI occurred in 1992, when SDI
entered into a research, development and manufacturing agreement with EM
Industries, Inc. ("EM Industries") an affiliate of Merck KGaA, Darmstadt,
Germany. This collaboration produced the D TECH-Registered Trademark- product
line for rapid
3
<PAGE>
detection of priority pollutants in the field. EM Science, Inc., a
subsidiary of EM Industries, sold and marketed the D TECH-Registered
Trademark- product directly to the U.S. market through a dedicated sales
force of approximately 6 full time individuals. During 1996, sales through EM
Industries accounted for 11% of the Company's revenues. Late in 1996, in
order to facilitate and enhance the marketing of the D TECH-Registered
Trademark- product line, SDI and EM Industries restructured their corporate
partnering arrangement such that the Company now markets and sells the D
TECH-Registered Trademark- product line. EM Industries received certain
royalty rights and shares of stock in the Company and is represented on the
Company's Board of Directors.
Immunoassay Technology
An immunoassay is an analytical test which uses antibodies to detect the
presence of a target compound in a complex sample matrix with high degrees of
precision and accuracy.
The technology was first developed more than 25 years ago and has
replaced many laboratory diagnostic tests in the medical industry. The pace
in which immunoassays have been adopted in the medical arena has been driven
in large part by three factors: (1) a demand for analyses which were
otherwise unavailable through conventional methods; (2) a desire for
analytical methods which could yield results more quickly than conventional
methods; and (3) a need for more specific and accurate data. Currently,
immunoassays are used extensively in the medical arena to detect drugs of
abuse, therapeutic drugs, steroid and thyroid hormones, and microorganisms
like those causing hepatitis and AIDS. One well-known application of
immunoassay technology is the home pregnancy test kit. This test illustrates
many of the benefits of immunoassay technology, namely, it provides an
inexpensive, rapid, accurate result in an easy to use format that can be used
in the privacy of one's own home.
The Company has applied immunoassay technology to a variety of industrial
and agricultural applications. As with medical applications, immunoassay
technology has demonstrated its value in these markets by virtue of its
ability to yield specific, accurate, cost-effective and timely data in a
manner previously unavailable.
The major attributes of immunoassay technology can be summarized as
follows:
Sensitivity: Immunoassays can measure extremely low concentrations of
compounds (routinely as low as parts per billion; i.e., one
millionth of one gram in a liter of liquid).
Specificity: Immunoassays can measure one specific compound out of a
chemical "soup," reducing the need for sample preparation.
Speed: Total time to obtain a test result ranges from 1 minute to
several hours as compared to several days to several weeks with
many competing laboratory testing methods.
Cost: Price per test for immunoassays range from $1 to $50; price per
test for similar laboratory testing can range from $5 to $1,000.
Accuracy: Immunoassays are typically as or more accurate than their
laboratory counterparts.
4
<PAGE>
Flexibility: Immunoassays can be developed in a wide variety of test
formats, including multiple sample laboratory-based tests,
disposable, single-use units, and large automated instruments.
They can be designed for use by non-technical persons on-site
under a variety of field conditions for testing of diverse
sample types.
Once an antibody reagent that has the desired performance characteristics
(sensitivity and specificity) has been identified, it must be incorporated
into a test format which is appropriate for the customer's application. In
the human clinical chemistry market, antibodies are employed as reagents on
large, automated instruments that can analyze hundreds of samples per hour.
In contrast, antibodies can also be packaged into single use, disposable
formats. Immunoassays can be designed to be highly quantitative or yield a
simple yes/no result. The type of test format chosen for any given
application depends on the needs of the customer and may include factors such
as ease-of-use, cost per test, number of samples to be tested, the location
the test will be performed and experience of the user.
The Company has expertise and proprietary technology surrounding the
development and manufacture of primarily five immunoassay formats: latex
filtration, magnetic particle, one-step strip tests, coated-tube and
microtiter plate. Latex filtration assays offer ease-of-use, field
portability and semi-quantitative results and are ideally suited for on-site,
field screening applications where limited numbers of samples are to be
analyzed.
Magnetic particle assays have a greater number of steps and require more
technical expertise to execute than latex filtration assays, but are more
suited to processing a larger number of samples at a single time, can be
highly quantitative, and are relatively inexpensive on a cost-per-test basis.
These characteristics make magnetic particle immunoassays effective
measurement tools in both laboratory and certain field applications,
especially where highly precise results are required.
Lateral flow immunoassay strips, often referred to as one-step tests,
require only that the user apply a prepared sample to the test strip to
obtain the test result--much like pH or Litmus paper tests. The low cost and
simplicity of these tests make them ideally suited for a wide range of
applications in many different markets. The current state-of-the-art of
lateral flow immunoassays is such that the results obtained using these tests
are qualitative, not quantitative, which imposes limits on the applicability
of the format.
Coated-tube immunoassays are well suited for analyzing relatively large
numbers of samples in the field, yield a semi-quantitative result and are
intermediate in their ease-of-use and cost-per-test.
Microtiter plate assays are well established in the medical diagnostic
industry and offer many of the advantages of magnetic particle assays,
including quantitative results and the capacity to analyze large numbers of
samples at a relatively low cost-per-test. Special laboratory equipment,
relatively high levels of technical training, and a time-to-result measured
in hours limits this test format to laboratory applications.
5
<PAGE>
All measurement technologies, including immunoassays, have strengths and
limitations. The Company's expertise with multiple immunoassay formats,
coupled with a thorough understanding of the needs of a market and specific
customer applications, has allowed the Company to develop a diverse array of
immunoassay products to meet the analytical needs of multiple, sizable
markets.
Markets and Products
The Company sells products in the water quality, industrial testing and
agricultural market segments through its direct sales force in the United
States, through a network of over 40 distributors in North America, Europe
and Asia, and through its corporate partners.
Product revenues in the industrial testing market segment were 29% of
total product revenue in 1994, 32% of total product revenue in 1995, and 26%
of total product revenue in 1996.
Product revenues in the agricultural market segment were 4% of total
product revenue in 1994, 22% of total product revenue in 1995, and 30% of
total product revenue in 1996.
Product revenues in other markets (primarily attributable to sales of
Macra-Registered Trademark- Lp(a) test kits) were 67% of total product
revenue in 1994, 45% of total product revenue in 1995, and 27% of total
product revenue in 1996.
Water Quality
The Company believes that all of its products sold in this market provide
high value testing solutions to fill largely unserviced analytical needs in
this critical and highly regulated industry. The Company markets established
products such as those for the detection of pesticides, as well as emerging
products for the detection of pathogenic microorganisms and toxic chemicals
resulting from chlorine disinfection of drinking water. Also included in
this market segment are products currently under development for the
detection of water treatment polymers used to clarify water and prevent scale
formation.
Water Treatment Polymers. The water treatment market encompasses both
industrial and municipal water treatment systems. Water treatment chemicals,
typically polymers, are critical to preparing finished drinking water in
municipal settings and to controlling water quality in industrial settings.
Competition between water treatment chemical manufacturers is intense and new
chemicals have evolved to the point that some of the more effective chemicals
are quite expensive. Cost effective use of these chemicals requires careful
control of polymer concentrations throughout the system in which they are
being employed. Certain of these polymers are toxic and occasionally have
been implicated in fish kills when industrial effluents have been discharged
to natural bodies of water. As a result, there may be increased regulatory
pressure to measure the amount of chemicals being discharged into surface
waters.
The Company, working in collaboration with its corporate partners, has
developed highly sensitive and accurate immunoassays for the detection of a
number of water treatment polymers. These immunoassays have been field
tested and have been demonstrated to be a reliable and cost-effective way to
measure water treatment polymers in samples from municipal water supplies,
boilers, cooling towers, and other process and raw water sources. Some
specific applications are: (i) measuring concentrations of chemicals to
allow more efficacious use of costly compounds, (ii) detecting the presence
of particular compounds in effluent discharge in order to gauge regulatory
compliance, and (iii) monitoring processes to prevent fouling of highly
expensive systems (like reverse osmosis) by excess polymer. The Company is
currently commercializing multiple tests in this area. To date, the Company
has not derived significant revenues from this product line.
6
<PAGE>
Cryptosporidium and Giardia. During 1994, EnSys entered into an exclusive
five year license agreement, under which it would manufacture and sell
Hydrofluor-TM-, an EPA-accepted immunoassay-based method for detecting the
pathogenic protozoa Cryptosporidium and Giardia in water. According to the
EPA, Cryptosporidium and Giardia cause more outbreaks of disease than any
other water-born pathogens. The Hydrofluor-Combo-TM- test kit is the American
Society for Testing and Materials ("ASTM") standard method for detection of
these pathogenic protozoa and has been designated as the method for use in
complying with the EPA's Information Collection Rule to establish the extent
of contamination in the nation's drinking water.
Total Trihalomethanes. Trihalomethanes are regulated, toxic by-products
which result from chlorine disinfection of drinking water. The Company's test
is a non-immunoassay-based test for the detection of total trihalomethanes
("TTHMs"). This recently introduced, inexpensive test detects TTHMs at levels
much lower than EPA regulated levels, and correlates well with standard EPA
laboratory methods. The EPA is currently reviewing the Company's TTHM method
for use in drinking water compliance testing.
RaPID Assay-Registered Trademark- and EnviroGard-TM-. The RaPID
Assay-Registered Trademark- and EnviroGardTM pesticide test kits are being used
by water quality researchers, resource managers, regulators and drinking water
system operators for surface and groundwater monitoring, drinking water source
and supply management, and chemical fate and transport studies. Users of the
Company's water quality pesticide products include federal agencies, such as the
U.S. Geological Survey and Department of Agriculture, state environmental and
health departments, drinking water utilities, and environmental engineering
companies.
Industrial Testing
The industrial testing market segment is comprised of immunoassays for
pesticides, pollutants, proprietary chemicals and industrial markers. Products
in this market are developed and marketed in collaboration with the Company's
corporate partners.
Proprietary Chemicals. The proprietary chemical market segment includes
tests, commissioned by chemical manufacturers, that specifically measure the
particular compound of interest. In the chemical market segment the benefits of
immunoassay testing have led to three key applications: (1) regulatory
registration, in which immunoassay data is generated to support the registration
of a product with the EPA; (2) detection, to determine whether a target compound
is present in a complex matrix; and (3) monitoring, in which tests are performed
to determine chemical concentrations for control purposes.
The application of immunoassay technology in conjunction with regulatory
registration is significant because of the requirement that large scale
chemical manufacturers register their chemicals under the Federal
Insecticide, Fungicide and Rodenticide Act ("FIFRA") with the EPA. As part of
this registration process, manufacturers must provide extensive data for both
registration and post-registration analyses regarding toxicity and
environmental impact. For many new compounds, certain aspects of this
analysis require sensitivity which instrument-based testing cannot achieve.
For others, no classical analytical methods are available to measure the
compound. In either case, the EPA requires the manufacturer to supply a
method to monitor the compound in the environment. The Company is currently
commercializing four tests in this area and agreements are in place for the
development of seven additional tests.
7
<PAGE>
Industrial Markers. The Company is collaborating with a corporate
partner in this market segment, which consists of test kits that detect
marked products. The product marking technology is based on the incorporation
of trace levels of inert chemicals or markers into solid or liquid products
or on the surface of the products. The use of these markers, in conjunction
with immunoassay techniques for marker detection, allows for the covert
marking and testing of nearly any product. This technology can help prevent
revenue loss due to counterfeiting and product diversion, limit a
manufacturer's exposure to unwarranted product liability, and enhance process
efficiency and product quality assurance.
Pollutants. Analysis of soil, water and waste samples to determine the
presence of hazardous chemicals has become increasingly important in
connection with the environmental remediation and environmental monitoring
activities. These activities are largely the result of environmental
legislation such as the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), Toxic Substances Control Act, ("TSCA"), the Safe Drinking Water
Act ("SDWA") and the Federal Water Pollution Control Act (the "Clean Water
Act"). It is estimated that environmental testing is provided by
approximately 1,200 commercial environmental testing laboratories, as well as
"in-house" laboratories at industrial and disposal facilities. Market
research reports estimate that commercial environmental testing laboratories
accounted for approximately one half of all environmental tests performed and
had revenues exceeding $1.1 billion in 1995.
Environmental remediation activities require a substantial amount of
testing in connection with the clean-up of contaminated sites. After initial
characterization of toxic chemicals at a site, substantial testing typically
is required to complete an assessment of the site to determine the extent and
location of contamination and the appropriate remediation plan. Upon the
commencement of the remediation project, additional testing is necessary to
determine the effectiveness of the remediation measures. In addition,
ongoing testing to monitor soil and groundwater is often required after
completion of the remediation activities. The contaminants of primary
concern for remediation activities include petroleum fuel products,
polyaromatic hydrocarbons ("PAH"s), polychlorinated biphenyls ("PCB"s),
benzene, certain metals and chlorinated solvents.
Environmental monitoring activities under SDWA and the National Pollution
Discharge Elimination System ("NPDES") regulations under the Clean Water Act
require periodic testing for various hazardous chemicals. The nation's
approximately 58,000 drinking water systems test for contaminants such as
metals, benzene, other volatile organic compounds and microbiological
contamination. Approximately 6,400 major industrial and municipal waste
water treatment facilities monitor and test waste water for contaminants such
as chlorinated solvents, metals and volatile organic compounds. Hazardous
waste handling and disposal companies carry out large volumes of analytical
work, including pre-acceptance testing to determine the suitability of waste
streams for disposal and routine testing of incoming shipments. In addition,
the ongoing management of chemicals in the petrochemical and pesticide
industries results in the need to test samples at many points in the
production, use and disposal cycle. Electrical utilities have on-going
analytical needs pertaining to disposal of PCB containing materials.
Pesticide Residues. The entrance of pesticides into the water supply as
a result of agricultural and residential runoff continues to be a problem
requiring analytical testing. In areas of substantial agricultural activity,
drinking water is tested for several pesticides in order to ensure compliance
with Federal regulations. Imported grains, fruits and vegetables are tested
for the presence of pesticide residues prior to use in the U.S. In addition,
pesticide residues in crops call for extensive testing at the time of
pesticide registration or reregistration under FIFRA. In spite of their
8
<PAGE>
banned status, pesticides such as DDT and chlordane still persist in soil at
sites where they were stored or distributed. The clean-up of these sites
requires the use of specific analytical methods of pesticide detection.
Pollutant Test Products. The Company sells four different format
immunoassays for detection of environmental pollutants, latex filtration
tests (D TECH-Registered Trademark-), coated-tube tests (EnSys RIScTM and
EnviroGardTM), magnetic particle tests (RaPID Assay-Registered Trademark-)
and microtiter plate tests (EnviroGardTM). Each of the four different test
formats have performance characteristics that make them more or less suited
for a particular customer application. The Company positions the sale of its
environmental products so as to provide the customer with the best product
for their specific application.
The D TECH-Registered Trademark- and EnSys RIScTM tests do not require
refrigeration which make them ideally suited for on-site, field applications.
All of the environmental test kits include components for the extraction of
target analytes from the sample and subsequent analysis. Sample preparation
time is typically less than five minutes per sample. All of the Company's
test kits are capable of analyzing at least ten samples per hour and some
allow analysis of as many as forty samples per hour. Generally, less than
four hours of training is required before an operator can effectively use the
tests.
D TECH.-Registered Trademark- The D TECH-Registered Trademark- tests are
a latex filtration immunoassy format and provide for rapid, easy to use,
on-site, field screening analysis of soil and water samples containing EPA
Priority Pollutants like PCBs, PAHs, trinitrotoluene ("TNT"), benzene,
toluene, ethylbenzene and xylene (collectively, "BTEX") and others. D
TECH-Registered Trademark- is very simple to use, requires little or no user
training, yields a semi-quantitative result and is ideally suited for true
field applications where limited numbers of samples are to be analyzed at one
time.
RaPID Assay-Registered Trademark-. The RaPID Assay-Registered
Trademark-magnetic particle immunoassay product line currently contains kits
and accessories for detection of 21 different pesticides (herbicides,
insecticides and fungicides), and 6 toxic organic compounds. The magnetic
particle test format is ideally suited for applications requiring highly
precise determination of contaminant concentrations. Like the Company's
other immunoassay tests, RaPID Assay-Registered Trademark- is fast and easy
to perform, but not as field-portable. RaPID Assay-Registered Trademark-
pesticide test kits are used for quantitation of pesticides in water, soil
and food. RaPID Assay-Registered Trademark- test kits for toxic organic
chemicals are used for measuring contaminant concentrations in both water and
soil.
EnviroGardTM and EnSys RIScTM. Like D TECH-Registered Trademark- and
RaPID Assay-Registered Trademark- these coated-tube and microtiter plate
format testing products detect some of the most commonly encountered toxic
chemicals found in soil, water and on surfaces at contaminated sites,
including PCBs, fuel products, PCP, TNT, benzene, PAHs, crude oil, and
pesticides. Additionally, the EnviroGardTM products detect pesticides in
drinking water and foodstuffs. The coated-tube format tests are used
extensively to analyze relatively large numbers of samples in the field and
yield a semi-quantitative result. The EnviroGardTM microtiter plate kits are
designed for use in the laboratory and are ideally suited for analysis of
large numbers of samples where determination of exact concentrations of
contaminants are required.
Agricultural
The agricultural market segment includes tests for genetically engineered
crops and two plant fungi, Rice Blast and Botrytis.
9
<PAGE>
Genetically Engineered Crops. Agricultural companies are developing
varieties of commercially important crops like corn, cotton and soybean that
have new additional genes which confer some commercial advantage to the
plant, such as insect or pesticide resistance or enhanced growth or
nutritional characteristics. Industry experts predict that roughly one
quarter of the acreage used to grow corn in the U.S. will be planted with
genetically engineered seed by the year 2000, in comparison to only 0.5% in
1996.
The Company's first test in this market was commissioned by a large
agricultural chemical company which developed proprietary varieties of
insect-resistant corn and cotton using genetic engineering technology. Not
all the seed produced by a genetically engineered plant contains the gene for
the desired trait, and therefore not all the plants arising from a batch of
seed will express the desired characteristic. The Company markets a simple
one-step strip test (GeneCheck-TM- B.t.k ) which is used in the field to
determine if an individual plant contains the new genetic trait. The product
is used by commercial seed producers to insure that each plant harvested for
seed contains the resistance gene. This type of test can also be used for
enforcement purposes in crops where unscrupulous individuals could harvest
and sell or plant the seed instead of purchasing it from authorized dealers.
Sales of the GeneCheck-TM- B.t.k. product have been increasing since its
introduction in the third quarter of 1995 and the Company believes sales will
continue to grow in 1997. Additional tests for genetically engineered plants
are currently under development.
Rice Blast. Rice blast is a fungus that can devastate a rice crop.
Worldwide, over 360 million acres of land are planted with rice. Countries
such as Thailand, China, Japan and Indonesia are dependent on rice both as a
food source and for export revenues. The RapidChek-Registered Trademark-
Blast Finder is a very simple, field-portable test kit (in the latex
filtration format), which allows early detection of the fungus on growing
rice plants. Early detection allows treatment of the rice with fungicides
before the crop is severely damaged. The Company and its marketing affiliate
have worked with the International Rice Research Institute to demonstrate the
test kit internationally and the government of Thailand has taken an
aggressive role in evaluating the test kit. To date, the Company has only
derived modest revenues from this product line.
Botrytis. Botrytis, or gray mold, affects a wide variety of food crops
including grapes, strawberries, cucumbers, lettuce and others. The Company's
RapidChek-Registered Trademark- Botrytis test was originally developed to
serve the wine industry and has been field tested in California. The
California Department of Food and Agriculture ("CDFA") acts as a liaison
between the grape growers and the wineries and oversees testing of the
harvested grapes in the field. Truckloads of harvested grapes are sampled as
they leave the field and the grapes are visually inspected for botyytis
infection. Botrytis levels are used to establish pricing and the growers,
vintners and the CDFA all have a vested interest in methods for more
accurately determining levels of infection in harvested grapes. As a result
of this and other work, the use of immunoassays for grape inspection has been
promulgated in the California Code of Regulations. While the
RapidChek-Registered Trademark- Botrytis test was originally developed for
grape testing, the Company believes that the larger opportunity
10
<PAGE>
for this product is the testing of fresh fruits and vegetables during
import/export and is seeking to expand the application of this product to
that market.
Other Products
Macra-Registered Trademark- Lp(a). Macra-Registered Trademark- Lp(a) is
a microtiter plate assay that measures a lipoprotein found in human serum.
This lipoprotein has been shown to be an indicator of risk for myocardial
infarction, heart disease and stroke. The product is currently for research
use only, however, a 510(k) application has been submitted to the FDA. A
great deal of clinical data has been generated with the Macra-Registered
Trademark- Lp(a) kit because of its leading market position, and its use in
benchmark projects such as the Framingham Study, a multi-generational
analysis of coronary risk factors.
RapidChek-Registered Trademark- SRB. Sulfate Reducing Bacteria ("SRB"s)
are environmentally significant because they generate hydrogen sulfide gas
and cause corrosion of stainless steel pumps, pipelines, and drilling rigs
and result in the souring of oil reserves. SRBs can be controlled by the
addition of treatment chemicals. Historically, the majority of testing in
this market was performed using a culture method called the American
Petroleum Institute Recommended Procedure No. 38. This method requires that
samples be incubated from 14-28 days before a result is obtained. RapidChek
SRB test is a simple to use, field portable test that provides the user with
accurate results in 20 minutes and allows for an immediate, more cost
effective application of treatment chemicals.
BiMelyze. In 1994, EnSys entered into a three year sales and marketing
agreement for the distribution of the BiMelyze test, an immunoassay-based
test for detecting mercury in soil and water. Sales of the BiMelyze test have
not been significant to date, and there can be no assurance that significant
sales will be realized under this agreement in the future.
Sales and Marketing Strategy
As a result of the recent consolidation of the SDI, EnSys, Ohmicron and
EnviroGardTM businesses, the Company has formed an experienced sales and
marketing organization of 25 individuals. In addition to its direct sales
force, the Company sells product through an extensive network of
distributors, and through its corporate partners.
The Company uses a number of strategies for the sale of its products
worldwide. In the U.S., the major route of sale of its industrial testing
products is through a national field sales force in defined sales
territories. The field sales force is augmented by an in-house sales force,
which in addition to selling product directly to customers, provides
marketing and logistical support to the field sales personnel and an
interface between customers and technical support.
11
<PAGE>
In September 1993, EnSys opened a European headquarters and sales
operation in London, England, and the sale of the EnSys RIScTM and
EnviroGardTM products in Europe were principally directed through that
office. Ohmicron sold the RaPID Assay-Registered Trademark- product line
through over 40 distributors in North and South America, Europe, the Far
East, Australia/New Zealand and South Africa. More recently, the Company has
restructured the organization to coordinate selling of the RaPID
Assay-Registered Trademark- abroad through its London office. Sales and
distribution of the D TECH-Registered Trademark- product line outside of the
U.S. is handled exclusively by Merck KGaA, Darmstadt, Germany.
During 1994, EnSys signed a distribution and supply agreement with a
catalog distribution company to distribute the EnSys products to
environmental laboratories. The Company's agreement grants certain
exclusive catalog distribution rights subject to a minimum annual purchase
commitment. To date, sales through this catalog distribution channel have
not been significant and have not met the minimum annual purchase commitment
specified in the agreement. Either party can cancel the existing agreement
with 90 days written notice.
Sales of the Company's products for detecting water treatment polymers,
proprietary chemicals, industrial markers, genetically engineered crops and
Rice Blast are through the Company's corporate partners. The
RapidChek-Registered Trademark- SRB test kit is sold directly by the Company
and through five international distributors. The Company has arrangements
with three international distributors for sale of the Macra-Registered
Trademark- Lp(a) test kit.
Regulatory Approvals
The environmental legislation and regulations that the Company believes
are most applicable to its current business are RCRA, CERCLA, TSCA, FIFRA and
the Pure Food and Drug Act. As the Company expands its product line to meet
the environmental monitoring needs of municipalities and industrial
facilities, the SDWA, the Clean Water Act and the NPDES permitting program
under the Clean Water Act also will be significant to the Company's business.
These laws regulate the management, disposal and clean-up of hazardous
substances and protect the nation's ground and surface water and drinking
water supplies. In addition, regulatory responsibilities in a number of
areas have been delegated to state agencies and state and local laws and
regulations impose additional restrictions and requirements. While
environmental regulations overseas vary, many countries, particularly in
Europe, have counterparts to the U.S. legislation.
The Company believes that regulatory acceptance, though not required for
the use of its products in most cases, is a significant factor in gaining
market acceptance. There are three main areas in which the Company is
seeking regulatory acceptance for its products: hazardous waste testing
methods, water testing methods and FDA 510(k) approval for Macra-Registered
Trademark- Lp(a).
12
<PAGE>
Hazardous Waste Testing Methods. EPA SW-846 ("SW-846") is the compendium
of analytical and test methods published by the EPA's Office of Solid Waste
(the "OSW"). A number of provisions of the EPA's hazardous waste regulations
under RCRA mandate the use of SW-846 methods. In other contexts, SW-846 is a
guidance document setting forth acceptable, although not required, methods to
be implemented by the user in response to sampling and analysis requirements.
Some states also require the use of SW-846 methods under their hazardous
waste programs. While SW-846 methods are technically only applicable to
regulatory programs under RCRA, other federal, state and local environmental
programs, including CERCLA and TSCA, often refer to and rely on SW-846
methods for purposes of remediation and monitoring.
The process for a method to be incorporated into EPA SW-846 generally
takes approximately 24 to 36 months. The OSW evaluates the applicant's test
results and obtains additional information or conducts its own tests if
necessary. After a method is deemed acceptable, it is published by the EPA in
draft form ("EPA Draft Method"). Periodically, the EPA updates SW-846
through a notice in the Federal Register referencing the EPA Draft Methods
published since the last update. Following a comment period, the EPA Draft
Methods are referenced in the Federal Register as a Final Rule and
incorporated into SW-846. The new test methods for the third update of the
third edition of SW-846 were proposed in the Federal Register in July 1995.
The comment period closed in December 1995 and the comments are currently
being evaluated. The final methods are expected to be promulgated in 1997.
The following table summarizes the EPA approval status of the Company
products:
<TABLE>
<CAPTION>
EPA SW-846
Method
Validations D TECH-Registered Trademark- EnSys RISc-TM- EnviroGard-TM- RaPIDA ssay-Registered Trademark-
<S> <C> <C> <C> <C>
4010 PCP Soil & Water Soil & Water Soil
4015 2,4-D Soil & Water Soil Soil
4020 PCB Soil Soil & Oil Soil Soil
4030 TPH Soil Soil per CalEPA
4035 PAH Soil (APAH) Soil (APAH) Soil (APAH)
Soil (CPAH
4040 Soil
Toxaphene Soil
4041 Soil
Chlordane
4042 DDT
4050 TNT Soil & Water Soil & Water Soil & Water
4051 RDX Soil & Water
4670 Triazines Water
8510 RDX Soil
8515 TNT Soil
</TABLE>
Water Testing Methods. Water testing methods approved for use in
compliance with the SDWA are published periodically in the Federal Register.
Newly developed methods are reviewed by the EPA's Environmental Monitoring
and Systems Laboratory in Cincinnati to determine whether they are (i) an
acceptable version of a previously approved method or (ii) a new method in
need of a comparability study and proceed through a comment and approval
procedure. The EPA has recently begun a program aimed
13
<PAGE>
at expediting the approval of new methods that involves the cooperation of
the Solid Waste, Drinking Water, and Waste Water methods groups.
The Company's TTHM water test has been accepted as Draft Method 8530 by
OSW and will receive further consideration by the Drinking Water Methods
Group. In addition, the RaPID Assay-Registered Trademark- Atrazine test was
accepted as a quantitative method through the OSW and by the Association of
Official Analytical Chemists (the "AOAC"), and it is anticipated that the EPA
Office of Drinking Water will adopt this method for compliance in the
enforcement of the Drinking Water Regulations for Triazines under the SDWA.
More recently, the Company's RaPID Assay-Registered Trademark- for Spinosad
has been adopted by the EPA as the official enforcement method for this
pesticide. The Hydrofluor-Combo-TM- test kit is the ASTM standard method for
detection of these pathogenic protozoa and has been designated as the method
for use in complying with the EPA's Information Collection Rule to establish
the extent of contamination in the nation's drinking water.
Tests for water treatment polymers, genetically engineered traits in
plants, and fungal plant pathogens are currently unregulated. However,
agencies such as the EPA, the FDA and the Food Safety and Inspection Service
of the U.S. Department of Agriculture are engaged in testing environmental
samples and, together with AOAC International, maintain compilations of
official methods for use in testing for environmental contaminants in certain
market segments. Some of these organizations also issue procedures and
guidelines for validating new methods.
Manufacturing
The Company currently manufactures over 150 different test kits for the
detection of a wide array of analytes in five immunoassay formats; one-step
strip tests, coated-tubes, latex filtration, magnetic particles and
microtiter plates. In addition to test kits, the Company supplies its
customers with ancillary equipment and supplies including spectrophotometers,
pipettes, balances, timers and the like.
The kit manufacturing process consists mainly of critical reagent
production and in-process testing, filling and dispensing, labeling, kit
assembly, quality control, packaging and shipping. The Company's Technical
Reagents Manufacturing group produces critical reagents from its laboratories
in Newark, Delaware. Sub-assemblies and finished kits are manufactured and
shipped world-wide out of the Company's Newark, Delaware and Newtown,
Pennsylvania facility.
Biological materials are primarily developed and produced in-house,
however, some reagents are licensed from third parties or purchased from
commercial sources. A crucial step in the Company's manufacturing process is
the stabilization of the immunoreagents utilizing proprietary lyophilization
techniques. In general, raw materials used by the Company in its products
are obtainable from multiple sources. The Company purchases instruments and
ancillary equipment from outside vendors. A number of the instruments sold
by the Company were developed to be used exclusively with the Company's
products and are subject to specific supply agreements.
The Company manufactures its products in accordance with the FDA's Good
Manufacturing Practices ("GMP") guidelines and has put in place systems
designed to control all elements of the manufacturing process including raw
materials, inventory, processes, documents, work-in-process, lot
14
<PAGE>
records, equipment and training. The Company is presently integrating its
inventory control, purchasing, manufacturing scheduling, order processing and
shipping system.
The Company's manufacturing organization, including the Technical
Reagents Manufacturing group, consists of approximately 30 individuals. The
Company believes the existing facilities and equipment are sufficient to
support a significantly larger manufacturing base. Manufacturing operations
are currently running a single shift.
Research and Development
The Company engages in substantial research and development activities
involving antibody and immunoassay development. In the three years ended
December 31, 1996, 1995 and 1994, SDI incurred approximately $1,569,000,
$2,272,000 and $2,832,000, respectively in research and development
expenditures, substantially all of which has been customer-sponsored. The
Company's laboratory facilities located in Newark, Delaware, were designed
and built specifically for conducting research and development relating to
antibody and immunoassay technology. These facilities include the
state-of-the art, GMP, American Association for Accreditation of Laboratory
Animal Care ("AAALAC") approved, TSD monoclonal antibody development and
large scale production facility. The Company has assembled a scientific
staff with extensive experience in the development of monoclonal and
polyclonal antibodies, immunogens and assay reagents. The Company's assay
development scientists are experienced in developing tests in a variety of
different immunoassay formats including one-step strips, latex filtration,
magnetic particles, coated tubes and microtiter plates. Research and
development personnel have complementary skills in several advanced research
disciplines, including synthetic organic chemistry, protein chemistry,
biochemistry, immunology, immunochemistry, microbiology and soil science. In
addition to the technical expertise resident within research and development,
TSD provides the Company scientists, as well as its outside clients, with
large scale GMP production, bioprocessing, purification and quality control
of antibodies and reagents.
The Company's research and development activities are focused on
developing products to expand its manufacturing base and leverage its Sales
and Marketing organization. The Company is a recognized leader in the field
of contract antibody and immunoassay research and development in the
industrial, water quality and agricultural sectors, and markets its services
primarily to large chemical and pharmaceutical companies. Product
development is typically performed in collaboration with a corporate partner
that has identified a specific market need and provides funds to the Company
to develop an assay. Research and development contracts are typically
structured such that technology developed within the program is co-owned by
the Company and its partner and the Company maintains exclusive manufacturing
rights.
To the extent the Company believes that improvements to existing products
significantly enhance competitiveness, expand a market or improve market
penetration, the Company has periodically funded such efforts. In the
markets where the Company has chosen to compete, rapid field screening tests
are highly valued and the Company is actively engaged in developing
proprietary technology to better meet those needs and enhance the Company's
overall performance. Prior to the merger with SDI, EnSys was developing
one-step strip test products for the industrial testing market, and the
Company is continuing with that development program.
15
<PAGE>
The Company's technology organization, including research and
development, TSD, Technical Reagents Manufacturing, and Technical Marketing
Support consists of approximately 35 individuals, of whom 15 hold advanced
academic degrees.
Proprietary Technology and Patents
The Company's products are based on the use of proprietary reagents,
technology and test systems developed by its scientists. Accordingly, the
Company has implemented a number of procedures to safeguard the proprietary
nature of its technology. The Company requires its employees and consultants
to execute confidentiality agreements upon the commencement of an employment
or consulting relationship with the Company, and all employees are required
to agree to assign to the Company all rights to any inventions made during
their employment or relating to the Company's activities.
Additionally, the Company seeks to protect its technology and processes
through the patent process. The Company currently holds eight issued U.S.
patents and the claims for another three are in a state of allowance. Two
additional U.S. patents have been licensed for exclusive use by the Company
and eight U.S. patent applications are pending.
- --------------------------------------------------------------------------
U.S. Patent Title
- ----------------------------------------------------------------------------
4,999,286 Sulfate reducing bacteria determination and control
5,200,346 Aldicarb immunoassay by sulfone equivalents
5,411,869 Immunological analogs for captan
5,449,611 PAH immunoassay method, its components and akit for
use in performing the same
5,484,709 Immunoassay method for detecting an immunologically
non-remarkable compound
5,547,877 Methods for the rapid detection of toxic halogenated
hydrocarbons and kits useful in performing the same
5,554,730 Fungus extraction method and kit
5,576,187 Standards for phosphorothioate insecticide immunoassays
Allowed PAH immunoassay method, its components and a kit for use
in performing the same
Allowed Kits and processes for extraction of analytes from solid
materials
Allowed A petroleum immunoassay method, its components and a kit
for performing the same
5,429,952 Marking of products to establish identity and source
(Biocode
License)
- ----------------------------------------------------------------------------
The Company believes that low-cost, easy to use, rapid field screening
tests have the potential to be significant products in its chosen markets.
Therefore, the Company is aggressively developing technology relating to
immunoassay formats with those features. One of the Company's pending U.S.
16
<PAGE>
patent applications has to do with what the Company believes is a novel latex
filtration test format, and two of the Company's pending applications involve
one-step strip test formats. In addition to the assay format patent
applications, the Company has pending applications relating to immunoassays
for trichloroethylene ("TCE") and PCB, standards for immunoassays used to
detect volatile aromatic hydrocarbons, and a non-immunoassay chemical test
for quantitation of crude oil contamination of soil.
There can be no assurance that the Company's patent applications will
result in the issuance of any patent or that any patents issued to the
Company would provide protection that is sufficiently broad to protect the
Company's technology and products. In addition, the Company cannot be
certain that it was the first creator of inventions covered by pending patent
applications or that it was the first to file patent applications for such
inventions.
In addition to seeking patent protection for the Company's proprietary
information, the Company also relies upon trade secrets, know-how and
continuing technical innovation to maintain competitiveness. The Company has
developed a number of proprietary technologies which it has chosen not to
patent including stabilization systems for reagents, chemical syntheses for
conjugates, immunogens and analyte analogs, and strategies relating to
antibody development. Regarding the latter, the Company's extensive expertise
has enabled it to develop antibodies and products that are unique to the
industry including monoclonal antibodies to the explosive RDX, BTEX and TCE.
Library of monoclonal antibodies to clinical analytes. SDI acquired 42
monoclonal antibodies for clinical diagnostic applications in 1993. These
antibodies are being licensed by numerous diagnostic companies for use in
commercial assays. The Company has several outstanding licenses to a variety
of diagnostic companies.
Monoclonal antibody to Lp(a). The Company has licensed the exclusive use
of the monoclonal antibody which confers the specificity in the
Macra-Registered Trademark- Lp(a) test.
Detection of marked polymers. A method of detecting water treatment
polymers is to chemically couple an unrelated "marker" substance to the
polymers and use antibodies and immunoassays to detect the marker. This
technology has been patented by Biocode Incorporated (U.S. Patent 5,429,952).
The Company has licensed the exclusive rights to this technology for the
detection of water treatment polymers.
Magnetic particles. Under two license agreements, the Company has been
granted the right and license throughout the world to use magnetocluster
technology in connection with the Company's RaPID Assay-Registered
Trademark-products for the detection of environmental analytes. This license
carries royalties starting at 4% of net sales of such products each year and
declining to 2% based upon the volume of sales in such year. In addition, it
has been agreed that all of the Company's requirements of uncoupled
magnetocluster particle reagents are to be supplied until September 1997 on
specified terms.
Antibodies to Heavy Metals. The Company has funded research for the
development of an immunoassay-based test for the detection of heavy metals
(e.g., lead and mercury). As part of that agreement, the Company has an
option to license certain patent rights resulting from that research. There
can be no assurance that the Company will exercise the option, or that any
products can be developed as a result of this research.
17
<PAGE>
Competition
Many of the Company's potential competitors are large companies with
substantially greater resources than the Company. To the extent that any
such companies enter one or more of the Company's markets, the Company's
operations could be materially adversely affected. The Company anticipates
increased competition as potential competitors perceive that the Company's
markets have become commercially proven. Other companies may be developing
products for one or more of the Company's markets that could be competitive
with the Company's products. Nevertheless, the Company believes that its
competitiveness has been significantly enhanced as a result of the
consolidation of the SDI, EnSys, Ohmicron and EnviroGardTM businesses.
Currently, there are no similar significant competing immunoassay
products for the Company's RapidChek-Registered Trademark- Rice Blast,
Botrytis and SRB, GeneCheck-TM- B.t.k., industrial marker or water treatment
polymer tests. The Company holds U.S. patents relating to the Rice Blast and
SRB tests and believes they will help to provide a competitive advantage in
the event that competing products enter the market. The Company's water
treatment polymer tests are unique to the industry and the Company has
secured an exclusive license for use of Biocode's patented marker technology
with these products.
A number of companies already have, and are actively pursuing, products
for the detection of Cryptosporidium and Giardia in drinking water and it is
likely that the Company's Hydrofluor products will face increasing
competition in the future. Hydrofluor currently benefits from its
designation as the ASTM standard method for detection of these protozoa and
from its selection by the EPA as the method for use in complying with the
EPA's Information Collection Rule to establish the extent of contamination in
the nation's drinking water.
The Company's Macra-Registered Trademark- Lp(a) product competes with
other existing immunoassay tests in the marketplace, but as a result of its
quality performance and having been first to the research market, it
benefits from the fact that a large quantity of clinical data has been
generated by researchers and clinicians using the test in large prospective
studies. The Company is seeking to use this data to help secure 510(k)
approval from the FDA. The Company believes that FDA approval will further
solidify Macra-Registered Trademark- Lp(a)'s market position.
Employees
As of December 31, 1996, The Company employed 95 full time and 3 part
time individuals including 81 regular and 17 contract employees. All of the
Company's employees have executed agreements with the Company agreeing not to
disclose the Company's proprietary information, assigning to the Company all
rights to inventions, and prohibiting them from competing with the
Company during their employment. None of the Company's employees is covered
by collective bargaining agreements. The Company believes that its relations
with its employees are good.
18
<PAGE>
ITEM 2. PROPERTIES
The Company is headquartered in Newark, Delaware, and occupies
approximately 26,000 square feet of space under three operating leases that
expire in October 2000, October 2001 and November 2003, respectively. The
Company also leases approximately 21,000 square feet of space formerly leased
by Ohmicron in Newtown, Pennsylvania. This lease expires June 30, 1998.
Prior to the merger with SDI, EnSys leased approximately 18,000 square
feet of space in one building in the Research Triangle Park area in North
Carolina under a ten-year lease that expires in 1999 with a renewal option
through 2004. Following the merger, the Company closed the North Carolina
operation and the Company is in the process of locating a tenant to occupy
the facility and terminating its obligation's under the lease. The Company
leases regional sales offices in London, England, Newport Beach, California,
and Chestnut Hill, Massachusetts. The Company also leases warehouse space of
1,600 square feet or less with leases that run one year or less. The Company
believes that its equipment and facilities are adequate for its present
purposes.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 30, 1996, EnSys held a special meeting of its stockholders to
consider and vote upon the following proposals:
1. Approval and adoption of the Agreement and Plan of Merger with SDI
and the transactions contemplated thereby.
2. Approval and adoption of the amendment and restatement of EnSys'
Certificate of Incorporation to (i) change the corporate name of the
surviving corporation, (ii) increase the number of authorized shares of
EnSys capital stock, and (iii) reclassify the board of directors.
3. Approval and adoption of amendments to the EnSys 1995 Stock
Incentive Plan.
All such proposals were approved by the stockholders. The number of
votes cast for, against or withheld, as well as the number of abstentions and
broker non-votes as to each such matter was as follows:
<TABLE>
<CAPTION>
Votes For Votes Against or Withheld Abstentions and Broker Non-votes
--------- ------------------------- --------------------------------
<S> <C> <C> <C>
Proposal 1: 5,375,834 151,244 263,754
Proposal 2(i): 5,363,403 186,429 241,000
Proposal 2(ii): 4,924,903 601,075 264,824
Proposal 2(iii): 5,030,003 489,575 271,254
Proposal 3: 5,302,048 222,130 266,654
</TABLE>
19
<PAGE>
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their positions with the Company and
ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ---------
<S> <C> <C>
Richard C. Birkmeyer 43 President and Chief Executive Officer
Martha C. Reider 42 Vice President- Manufacturing
Anne F. Cavanaugh 37 Vice President- TSD BioServices
Arthur A. Koch, Jr.* 43 Vice President- Finance and Chief Financial Officer
Gregory J. Bell** 37 Vice President- Finance and Chief Financial Officer
James W. Stave, Ph.D. 42 Vice President- Research and Development
_______________________________________________________________________________
</TABLE>
* Beginning on April 14, 1997
** Resigned as of March 31, 1997
Richard C. Birkmeyer, age 43, cofounded SDI in 1990 and has served as its
President and Chief Executive Officer and a director since inception. Prior
to founding SDI, Mr. Birkmeyer was employed by E.I. du Pont de Nemours
("DuPont") from 1983 to 1990, where he most recently served as a product
manager. Mr. Birkmeyer received a Ph.D. in Biochemistry/Immunology from the
State University of New York at Binghamton and his B.S. in Biology from the
State University of New York at Plattsburgh. In addition, Mr. Birkmeyer
completed post-doctoral research in immunogenetics at Iowa State University.
Martha C. Reider, age 42, cofounded SDI in 1990 and has served as Vice
President -- Manufacturing and Secretary since inception. From inception to
December 30, 1996, Ms. Reider was a director of SDI. Prior to founding SDI,
Ms. Reider worked for DuPont from 1976 to 1990 where she most recently served
as supervisor of Quality Control and Quality Assurance. Ms. Reider received
her B.A. in Biological Sciences from Ohio Northern University.
Anne F. Cavanaugh, age 37, cofounded SDI in 1990 and has served as a Vice
President in various capacities since its inception and is presently
responsible for operations of TSD BioServices, Inc.. From inception to
December 30, 1996, Ms. Cavanaugh was a director of SDI. Prior to founding
SDI, Ms. Cavanaugh was employed by Terumo Medical Corporation and the
Rockefeller University. Ms. Cavanaugh received her B.S. in Biochemistry from
East Stroudsburg University and has attended the University of Delaware's MBA
program.
Arthur A. Koch, Jr., age 43, joined the Company in April 1997 as Vice
President -- Finance and Chief Financial Officer. Prior to joining the
Company, Mr. Koch was Vice President and Chief Financial Officer of
Paracelsian, Inc., a publicly held biotechnology company. From 1992 to 1995,
Mr. Koch was Vice President and Chief Financial Officer of IBAH, Inc. a
contract clinical research organization. Mr. Koch received a B.A.in Business
Administration from Temple University and is a Certified Public Accountant.
Gregory J. Bell, age 37, joined SDI in June 1993 as Vice President
- --Finance and Chief Financial Officer. From 1989 to 1993, Mr. Bell served as
Director of Finance and Administration of Enzymatics, Inc., a public company
that developed and manufactured medical diagnostics test kits. Prior to
joining
20
<PAGE>
Enzymatics, Mr. Bell spent more than seven years at Arthur Andersen & Co.,
where he was most recently a manager in Arthur Andersen's emerging business
practice group. Mr. Bell received his B.S. in Accounting from the
Pennsylvania State University and is a Certified Public Accountant.
James W. Stave, age 42, joined SDI in March 1991 as a research group
leader. Subsequently, Dr. Stave was promoted to director of Research and
Development, in October 1993 was promoted to Vice President -- Research and
Development. Prior to joining SDI, Dr. Stave worked for DuPont, Molecular
Genetics, Inc. and the U.S. Department of Agriculture. Dr. Stave received
his Ph.D. in Microbiology from the University of Maryland and his B.S. in
Biology from Michigan Technological University.
Key employees, their positions with the Company, and their ages are as
follows:
Ralph E. Stever, age 51, joined SDI in August 1996 as Director of Sales.
From January 1993 to July 1996, Mr. Stever was employed by Ohmicron where he
most recently served as Vice President of Sales and Marketing. From 1983 to
1993, Mr. Stever was Director of Sales of Becton Dickinson Instrument
Systems. Mr. Stever received his B.S. degree in Marketing from Bradley
University.
Joseph X. Dautlick, age 54, joined SDI in January 1994 as Marketing
Manager and now serves as Director of Marketing. Prior to joining SDI Dr.
Dautlick worked 17 years in DuPont's Medical Diagnostics Division as Product
Manager, Technical Manager, Marketing Manager-Europe and Strategic Planning
Manager. He then joined Ohmicron as Marketing Manager for 3 years. Dr.
Dautlick received his Ph.D. from the University of Pittsburgh School of
Medicine and his B.S. from Lafayette College.
Unless otherwise noted, all executive officers and key employees
identified above joined the Company in December 1996 after the consummation
of the merger between EnSys and SDI.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on Nasdaq National Market System
under the stock symbol "SDIX." Set forth below are the high and low sales
prices for the shares of Common Stock of the Company as reported by Nasdaq.
Common Stock Price Range
Fiscal Year Ended High Low
------------------- -------- --------
December 31, 1997:
First Quarter 2 1/16 1 3/4
December 31, 1996:
First Quarter 2 1/2 1
Second Quarter 2 1/4 1 3/8
Third Quarter 2 1/4 1 3/8
Fourth Quarter 2 3/8 1 3/8
December 31, 1995:
First Quarter 3 3/8 1 5/8
Second Quarter 3 3/8 2 3/8
Third Quarter 4 2 1/4
Fourth Quarter 4 1/4 3 1/4
On March 31, 1997, there were approximately 132 holders of record of the
Common Stock of the Company. The Company has never paid cash dividends on
its Common Stock, and the Company has no intention to pay cash dividends in
the foreseeable future.
In January 1996, SDI conducted a private placement of its Series A
Redeemable Convertible Preferred Stock pursuant to which 685,952 shares were
issued upon conversion of $1,624,000 of aggregate principal and accrued
interest related to previously issued convertible notes and 211,201 shares
were issued to new investors for an aggregate of $500,000. With respect to
the conversion of notes into the Series A Redeemable Convertible Preferred
Stock, SDI relied upon Section 3(a)(9) of the Securities Act of 1933, as
amended (the "Securities Act") as an exemption from registration under the
Securities Act. With respect to the offering to new investors, based on the
limited nature of the offering and the fact that such investors consisted
solely of accredited investors, SDI relied upon Section 4(2) of the
Securites Act as an exemption from registration, including Regulation D
thereunder.
As previously described, in March 1996 Ensys acquired certain assets of
Millipore and in consideration therefor issued shares of EnSys common stock
to Millipore's stockholders in addition to cash consideration. EnSys relied
upon Section 4(2) of the Securities Act as an exemption from registration.
22
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical financial data of SDI as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996 is
derived from the audited financial statements of SDI included elsewhere herein.
The selected historical financial data as of December 31, 1992, 1993 and 1994
and for the years ended December 31, 1992 and 1993 is derived from the
financial statements of SDI not included herein. The following selected
historical financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere
herein.
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996(1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Product-related.................................................. $ 137 $ 551 $ 1,192 $ 1,605 3,402
Contract and other............................................... 1,102 2,064 2,580 2,084 2,435
--------- --------- --------- --------- ---------
Total revenues................................................... 1,239 2,615 3,772 3,689 5,837
OPERATING EXPENSES:
Manufacturing.................................................... 208 791 910 1,288 2,839
Acquired research and development................................ -- -- -- -- 8,266
Research and development......................................... 1,027 1,735 2,832 2,272 1,569
Selling, general and administrative.............................. 348 1,013 1,385 1,190 1,737
--------- --------- --------- --------- ---------
Total operating expenses......................................... 1,583 3,539 5,127 4,750 14,411
--------- --------- --------- --------- ---------
Operating loss..................................................... (344) (924) (1,355) (1,061) (8,574)
OTHER INCOME (EXPENSE):
Interest income.................................................. 10 46 20 8 11
Interest expense................................................. (14) (50) (8) (214) (3)
--------- --------- --------- --------- ---------
Other income (expense), net........................................ (4) (4) 12 (206) 8
Equity in income (loss) of TSD BioServices......................... (150) (60) 42 41 178
--------- --------- --------- --------- ---------
Net loss........................................................... (498) (988) (1,301) (1,226) (8,388)
Accretion of redeemable convertible preferred stock liquidation
value(2).......................................................... -- (192) (367) (367) (635)
Net loss applicable to common stockholders......................... $ (498) $ (1,180) $ 1,668) $ (1,593) $ (9,023)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per share applicable to common stockholders............... $ (.17) $ (.40) $ (.55) $ (.46) $ (2.12)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing net loss per share applicable to
common stockholders............................................... 2,957,000 2,957,000 3,041,000 3,464,000 4,248,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1992 1993 1994 1995 1996(1)
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 93 $ 1,259 $ 67 $ 35 $ 917
Working capital (deficit)......................... (51) 1,288 126 (891) 7,170
Total assets...................................... 611 3,044 2,106 2,076 14,581
Long-term debt, less current portions (including
capital lease obligations)...................... 500 0 0 0 50
Redeemable convertible preferred stock (2)........ 0 3,145 3,512 3,879 --
Accumulated deficit (3)........................... (1,084) (1,094) (2,763) (4,356) (13,379)
Stockholders' equity (deficit).................... (168) (1,050) (2,580) (4,064) 10,673
</TABLE>
- ------------------------------
(1) The unaudited pro forma results for the year ended December 31, 1996,
assuming the Ensys merger, Ohmicron acquisition and the TSD dissolution had
occurred on January 1, 1996 would have resulted in pro forma revenue of
$12,700,000 and a pro forma net loss of $5,973,000 or $0.47 pro forma net
loss per share. See Note 3 to the consolidated financial statements.
(2) The redeemable convertible preferred stock was reclassified into
stockholders' equity in connection with the Ensys Merger. No additional
accretion will be recorded on preferred stock.
(3) There have been no common stock dividends declared or paid since the
inception of SDI.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements
This Form 10-K contains certain forward looking statements reflecting the
Company's current expectations. Investors are cautioned that all forward
looking statements involve risks and uncertainties, which may cause actual
results to differ from those anticipated at this time. Such risks and
uncertainties include, without limitation, changes in demand for products,
delays in product development, failure to obtain necessary regulatory approvals,
modifications to development and sales relationships, the ability of the Company
to integrate acquired businesses and achieve anticipated synergies, and
competition.
Overview
The Company is the entity resulting from the combination of EnSys,
Ohmicron and SDI. On August 30, 1996, Ohmicron was merged with and into SDI,
with certain Ohmicron stockholders and note holders receiving shares of SDI
common stock. On December 30, 1996, SDI was merged with and into EnSys. The
surviving entity was then renamed Strategic Diagnostics Inc. Each of these
transactions was accounted for as a purchase transaction with SDI as the
acquiring company and, therefore, the surviving company for financial
reporting purposes. As a result, the historical financial information
discussed includes the results of SDI for all periods presented and the
actual results of Ohmicron from August 30, 1996 and EnSys from December 30,
1996.
EnSys was formed in 1987 to develop proprietary biotechnology based test
systems designed for the fast and inexpensive detection of various chemicals
in soil and water samples. EnSys raised approximately $30 million in equity
financing, including approximately $16 million from the sale of 1,800,000
shares of EnSys common stock in its initial public offering in October 1993.
Since 1991, EnSys commercialized eleven immunoassay test kits and four other
test kits for the detection of various environmental contaminants. EnSys
marketed and sold these test kits and other associated products and services
to environmental consulting and engineering firms, hazardous waste processing
firms, environmental testing laboratories, and various state and federal
agencies through distributors and a regionally based direct sales force in
the U.S. EnSys also marketed and sold its products in Europe through EnSys
(Europe) Limited, a wholly-owned subsidiary of EnSys. In March 1996, EnSys
acquired from Millipore certain assets, which consisted primarily of
inventory, work-in-process, equipment, intellectual property rights, contract
rights and customer lists related to Millipore's EnviroGard-TM- product line
for $1,000,000 and 1,100,000 shares of EnSys common stock.
23
<PAGE>
Ohmicron was founded in 1984 and began marketing its RAPID
Assay-Registered Trademark- products in 1991 to the same general market and
in the same fashion as previously described for EnSys.
Since its inception in 1990, SDI has focused on using proprietary
technology and know-how to develop, manufacture, and market immunoassay test
kits for applications primarily in the water quality, industrial testing and
agricultural markets. Commercial operations were initiated with a contract
from the Company's first corporate partner to develop an immunoassay test to
detect certain corrosion causing bacteria. This product was introduced in
late 1991 and SDI purchased all rights and technology related to this product
in 1994.
In February 1992, SDI entered into a $3.9 million research and
development partnership with EM Industries for the development and
manufacture of a line of immunoassay test kits capable of identifying and
quantifying targeted priority pollutants. The first products under this
agreement were introduced in 1993. Through August 1996, these products were
manufactured by SDI and marketed by EM Industries. In September 1996, EM
Industries and SDI reached an agreement whereby the February 1992 agreement
was terminated, together with EM Industries' marketing rights thereunder, in
exchange for certain specified royalty payments to EM Industries and shares
of SDI common stock. The marketing activities with respect to such products
are now the responsibility of the Company.
Since 1992, SDI has entered into research and development agreements with
multiple corporate partners that have led to the introduction of various
products to the water quality, industrial testing, agricultural and other
markets. These agreements generally provide that sales and marketing costs
associated with a new product are borne by the corporate partner. In
addition, the Company currently sells directly other products which it has
developed and/or acquired.
Results of Operations
As described above, the historical financial information discussed below
includes the results of operations of SDI for all periods presented and the
actual results of Ohmicron from August 30, 1996 and EnSys from December 30,
1996.
Year ended December 31, 1996 versus year ended December 31, 1995
Revenues. Revenues increased 58% to $5,837,000 in 1996 from $3,689,000 in
1995. This $2,148,000 increase is the result of a $1,797,000 (112%) increase
in product related revenues and a $351,000 (17%) increase in contract and
other revenues. Product related revenues increased to $3,402,000 in 1996
from $1,605,000 in 1995. This was due to overall increased sales for certain
of SDI's new products, especially the first of SDI's strip assays which was
introduced in mid-1995, improved priority pollutant sales over the prior
year, and product related revenues generated by TSD in the fourth quarter of
1996 subsequent to its establishment as a wholly-owned subsidiary of SDI.
The product revenues do not include any revenues from any of SDI's industrial
testing kits in the fourth quarter of 1996, since SDI licensed these products
to EnSys in October 1996. However, they do include approximately $537,000 in
product revenues from the sale of SDI inventory, at cost, to EnSys in
connection with the license agreement. Product related revenues are expected
to significantly increase in 1997 due to the mergers completed in 1996 and
the inclusion of revenues of TSD for a full year. Contract and other
revenues increased to $2,435,000 in 1996 from $2,084,000 in 1995 primarily
due to a $300,000 license fee from EnSys and $367,000 in revenues from one-
24
<PAGE>
time contracting of SDI personnel services by EnSys and Ohmicron prior to and
in connection with the mergers, which was offset by a $200,000 decrease in
contract revenue received from EM Industries in 1996 due to the completion of
the EM Industries contract. While research and development contracts are
anticipated to continue to be integral to the Company's overall business
strategy, the Company anticipates little or no growth in overall contract
revenues over the short-term.
During 1997, a significant portion of the Company's revenues will be
generated from the environmental remediation industry. Historically,
remediation activities have followed seasonal patterns with lower levels of
activity during the period from October to March. Therefore, the Company's
sales in a particular quarter in 1997 may not be indicative of its revenues
for any subsequent quarter during the year.
Manufacturing Expenses. Manufacturing expenses increased 120% to
$2,839,000 in 1996 from $1,288,000 in 1995. This $1,551,000 increase was
primarily a result of the overall increase in product related sales during
the year versus the prior year, and, to a lesser extent, the assumption of
the expenses associated with the former Ohmicron manufacturing facility in
September 1996. Due to the anticipated post-merger increase in product
related sales in 1997, manufacturing expenses are expected to increase
accordingly. The Company's overall gross profit margins on product related
sales are anticipated to improve due to an increase in sales of its products,
efficiencies gained through consolidation and the elimination of product
sales at cost to EM Industries and EnSys that occurred in 1996.
Research and Development Expenses. Research and development expenses
decreased 31% to $1,569,000 in 1996 from $2,272,000 in 1995. This decrease
was primarily the result of a reduction of research and development personnel
and certain salaries and related expenses, beginning in the third quarter of
1995. Due to planned internal research and development activities, in
addition to research and development activities performed under contracts for
third parties, overall research and development expenses are anticipated to
slightly increase in 1997.
Acquired Research and Development Expenses. Acquired research and
development expenses were $8,266,000 in 1996. These expenses were entirely
due to the merger transactions with Ohmicron and EnSys, which resulted in
acquired research and development expenses of $3,913,000 and $4,353,000,
respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 46% to $1,737,000 in 1996 from $1,190,000
in 1995. This increase was primarily due to the salaries and related
expenses associated with the additional hiring of sales and marketing
personnel required in connection with SDI's acquisition of Ohmicron and the
Company's direct selling of its products, as well as additional accounting
and administrative support personnel necessitated by the mergers and the
overall growth of the Company. It is anticipated that selling, general and
administrative expenses will increase from 1996 levels during 1997 due to the
inclusion of a full year of the selling expenses described above in 1997,
as well as increased general and administrative expenses associated with the
Company being a publicly held entity in 1997.
Interest Income and Interest Expense. Interest income increased $3,000
to $11,000 in 1996 from $8,000 in 1995 due to increased cash balances from a
January 2, 1996 preferred stock financing. Due to cash, cash equivalents and
marketable securities received in connection with the EnSys/SDI merger,
overall interest income is expected to significantly increase in 1997.
Interest expense decreased to $3,000 in 1996
25
<PAGE>
from $214,000 in 1995 primarily due to the conversion of $1,500,000 in notes
payable and related interest to preferred stock in connection with a January
1996 financing. Due to interest expense on capital lease obligations assumed
in connection with the 1996 mergers, overall interest expense is expected to
increase nominally in 1997.
Equity in Income of TSD BioServices. Equity in income of the TSD
BioServices partnership increased $137,000 to $178,000 in 1996 from $41,000
in 1995. This increase was primarily due to a significant increase in
revenues for the partnership during 1996 versus the prior year. In October
1996, the TSD BioServices partnership was dissolved and its assets were
liquidated, in connection with which certain of the rights and assets of the
TSD BioServices partnership were distributed to TSD BioServices, Inc., a
newly-formed, wholly-owned subsidiary of SDI. As a result of the dissolution
and the related distribution of certain of the partnership's rights and
assets, revenues earned and expenses incurred after September 30, 1996
associated with the rights and assets so distributed were included in the
revenues and expenses of SDI through TSD BioServices, Inc.
Provision for Income Taxes. Due to net operating loss carry forwards, the
Company has made no provision for income taxes for 1996. Although net
operating loss carry forwards were obtained in connection with the mergers
discussed above, the use of these carry forwards, if any, will be limited in
future years pursuant to the "change in ownership" rules under Section 382 of
the Internal Revenue Code.
Year ended December 31, 1995 versus year ended December 31, 1994
Revenues. Products related revenues increased $413,000 (35%) to
$1,605,000 in 1995 from $1,192,000 in 1994. This increase was primarily due
to the introduction of four new products during the year, increased sales of
commercial cell lines to third parties and increased royalties from EM
Industries. Contract and other revenues decreased $496,000 (19%) to
$2,084,000 in 1995 from $2,580,000 in 1994 due to a reduction of contract
funding by EM Industries to $600,000 in 1995 from $1,709,000 in 1994.
Despite the reduction in funding from EM Industries during the year, overall
revenues decreased by only $83,000 (2%) to $3,689,000 in 1995 from $3,772,000
in 1994 due to an overall increase in product related revenues and existing
or new research contract programs outside of the EM Industries agreement.
Manufacturing Expenses. Manufacturing expenses increased 42%, to
$1,288,000 in 1995 from $910,000 in 1994. This increase was primarily the
result of an increase in overall product sales, especially the EM Industries
product line, and the cost associated with new product introductions. Under
SDI's agreement with EM Industries, SDI's sales of product to EM Industries
generally provided no profit margin in 1995, except for royalties.
Research and Development Expenses. Research and development expenses
decreased 20%, to $2,272,000 in 1995 from $2,832,000 in 1994. This decrease
was primarily the result of a reduction of research and development personnel
and certain salaries in the third quarter of 1995, coupled with decreased
field trial, consulting and other research and development expenses as
products previously under development were completed and transferred to
manufacturing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 14%, to $1,190,000 in 1995 from $1,385,000
in 1994 primarily due to a reduction in selling, general and administrative
personnel and certain salaries in the third quarter of 1995.
26
<PAGE>
Interest Income and Interest Expense. Interest income decreased 60% to
$8,000 in 1995 from $20,000 in 1994. This decrease was primarily the result
of less funds available during the year due to utilization of available cash
and cash equivalents for operating needs. Interest expense increased to
$214,000 in 1995 from $8,000 in 1994 primarily due to interest on bridge
loans from stockholders and interest expense imputed on certain warrants
issued in connection with the bridge loans.
Liquidity and Capital Resources
The Company's working capital, which consists principally of cash, cash
equivalents and marketable debt investments was $7,170,000 at December 31,
1996 versus a working capital deficit $891,000 at December 31, 1995. This
increase was due to the SDI/EnSys merger on December 30, 1996 and the
conversion of notes payable held by SDI stockholders to SDI preferred stock
on January 2, 1996. Cash, cash equivalents and marketable debt investments,
which consist primarily of money market instruments, U.S. corporate
obligations and other securities of agencies of the U.S. government were
$6,627,000 at December 31, 1996 versus $35,000 at December 31, 1995 due to
the SDI/EnSys merger. The Company considers all of its investments to be
available-for-sale and plans to use the proceeds from sales or maturities of
these investments to finance future operating needs. The Company's investment
policy is to limit exposure at any one institution.
Accounts receivable and inventory balances increased in 1996 over 1995
due to the mergers occurring in 1996. The Company incurred a net loss in
1996 of $122,000 (after exclusion of $8,266,000 in charges for acquired
research and development incurred in connection with the mergers) versus a
net loss of $1,226,000 during 1995. This large decrease in the net loss is
attributable to additional product related revenues generated in 1996 over
1995 and to cost reduction efforts begun in late 1995. The Company used
$370,000 in cash to fund operations in 1996 versus $1,017,000 in 1995 and
purchased $67,000 in property and equipment during 1996.
The Company believes that its current cash, cash equivalents and
marketable debt investments will be sufficient to meet its funding needs for
at least the next 18 months. However, the Company's ability to meet its
long-term working capital and capital expenditure requirements will depend on
a number of factors, including the success of the Company's current and
future products, the focus and direction of the Company's research and
development programs, competitive and technological advances, future
relationships with corporate partners, government regulation and the
Company's marketing and distribution strategy. Accordingly, there can be no
assurance that the Company will be able to meet these long-term requirements.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries are included as part of this Form 10-K:
Page
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for each of the years
in the three year period ended December 31, 1996 F-3
Consolidated Statements of Stockholders' Equity (Deficit) for each
of the years in the three year period ended December 31, 1996 F-4
Consolidated Statements of Cash Flows for each of the years
in the three year period ended December 31, 1996 F-5
Notes to Consolidated Financial Statements F-6
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Strategic Diagnostics Inc.:
We have audited the accompanying consolidated balance sheets of Strategic
Diagnostics Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1996. 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 Strategic Diagnostics Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
March 31, 1997
F-1
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 917 $ 35
Short-term investments 5,710 --
Receivables 2,334 560
Inventories 1,557 447
Other current assets 510 328
--------- ---------
Total current assets 11,028 1,370
--------- ---------
PROPERTY AND EQUIPMENT:
Equipment 1,002 530
Furniture and fixtures 66 24
Leasehold improvements 198 29
--------- ---------
1,266 583
Less- Accumulated depreciation and amortization (538) (334)
--------- ---------
Net property and equipment 728 249
--------- ---------
OTHER ASSETS:
Restricted cash 119 49
Prepaid rent 171 68
Note receivable 341 --
Deposits and other 84 180
Investment in TSD BioServices -- 160
Intangible assets 2,110 --
--------- ---------
Total other assets 2,825 457
--------- ---------
$ 14,581 $ 2,076
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,566 $ 222
Accrued expenses 2,066 328
Deferred revenue 141 211
Current portion of capital lease obligations 85 --
Notes payable -- 1,500
--------- ---------
Total current liabilities 3,858 2,261
--------- ---------
CAPITAL LEASE OBLIGATIONS 50 --
--------- ---------
REDEEMABLE CONVERTIBLE PREFERRED STOCK -- 3,879
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 17,500,000 shares authorized, no shares issued and
outstanding -- --
Series A preferred stock, $.01 par value, 2,164,362 shares authorized, issued and outstanding 22 --
Common stock, $.01 par value, 35,000,000 and 5,913,638 shares authorized, 13,055,170 and
3,463,702 issued and outstanding in 1996 and 1995, respectively 131 47
Additional paid-in capital 23,905 294
Accumulated deficit (13,379) (4,356)
Deferred compensation (6) (49)
--------- ---------
Total stockholders' equity (deficit) 10,673 (4,064)
--------- ---------
$ 14,581 $ 2,076
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
STRATEGIC DIAGNOSTICS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUES:
Product related $ 3,402 $ 1,605 $ 1,192
Contract and other 2,435 2,084 2,580
------------ ------------ ------------
Total net revenues 5,837 3,689 3,772
------------ ------------ ------------
OPERATING EXPENSES:
Manufacturing 2,839 1,288 910
Research and development 1,569 2,272 2,832
Acquired research and development 8,266 -- --
Selling, general and administrative 1,737 1,190 1,385
------------ ------------ ------------
Total operating expenses 14,411 4,750 5,127
------------ ------------ ------------
Operating loss (8,574) (1,061) (1,355)
INTEREST (EXPENSE) INCOME, net 8 (206) 12
EQUITY IN INCOME OF TSD BIOSERVICES 178 41 42
------------ ------------ ------------
NET LOSS (8,388) (1,226) (1,301)
ACCRETION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK LIQUIDATION VALUE (635) (367) (367)
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (9,023) $ (1,593) $ (1,668)
------------ ------------ ------------
------------ ------------ ------------
NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS $ (2.12) $ (0.46) $ (0.55)
------------ ------------ ------------
------------ ------------ ------------
SHARES USED IN COMPUTING NET LOSS PER SHARE APPLICABLE TO COMMON
STOCKHOLDERS 4,248,000 3,464,000 3,041,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
SERIES A ADDITIONAL
PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED DEFERRED
STOCK STOCK STOCK CAPITAL DEFICIT COMPENSATION
--------- --------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ -- $ -- $ 40 $ 43 $ (1,095) $ (38)
Exercise of warrants -- -- 7 (7) -- --
Issuance of warrants in connection with debt -- -- -- 23 -- --
Amortization of deferred compensation -- -- -- -- -- 10
Issuance of warrant to Conoco -- -- -- 105 -- --
Accretion of redeemable convertible preferred stock --
liquidation value -- -- -- (367) --
Net loss -- -- -- -- (1,301) --
--------- --------- ----- ----------- ------------ ---
BALANCE, DECEMBER 31, 1994 -- -- 47 164 (2,763) (28)
Issuance of warrants in connection with debt -- -- -- 75 -- --
Amortization of deferred compensation -- -- -- -- -- 34
Issuance of common stock options -- -- -- 55 -- (55)
Accretion of redeemable convertible preferred stock --
liquidation value -- -- -- (367) --
Net loss -- -- -- -- (1,226) --
--------- --------- ----- ----------- ------------ ---
BALANCE, DECEMBER 31, 1995 -- -- 47 294 (4,356) (49)
Amortization of deferred compensation -- -- -- -- -- 43
Accretion of redeemable convertible preferred stock --
liquidation value -- -- -- (635) --
Acquisition of Ohmicron Corporation -- -- 31 4,017 -- --
Acquisition of EnSys Environmental Products, Inc. -- -- 53 13,006 -- --
Conversion of redeemable convertible preferred to --
Series A preferred stock 22 -- 6,588 -- --
Net loss -- -- -- -- (8,388) --
--------- --------- ----- ----------- ------------ ---
BALANCE, DECEMBER 31, 1996 $ -- $ 22 $ 131 $ 23,905 $ (13,379) $ (6)
<CAPTION>
TOTAL
---------
<S> <C>
BALANCE, JANUARY 1, 1994 $ (1,050)
Exercise of warrants --
Issuance of warrants in connection with debt 23
Amortization of deferred compensation 10
Issuance of warrant to Conoco 105
Accretion of redeemable convertible preferred stock
liquidation value (367)
Net loss (1,301)
---------
BALANCE, DECEMBER 31, 1994 (2,580)
Issuance of warrants in connection with debt 75
Amortization of deferred compensation 34
Issuance of common stock options --
Accretion of redeemable convertible preferred stock
liquidation value (367)
Net loss (1,226)
---------
BALANCE, DECEMBER 31, 1995 (4,064)
Amortization of deferred compensation 43
Accretion of redeemable convertible preferred stock
liquidation value (635)
Acquisition of Ohmicron Corporation 4,048
Acquisition of EnSys Environmental Products, Inc. 13,059
Conversion of redeemable convertible preferred to
Series A preferred stock 6,610
Net loss (8,388)
---------
BALANCE, DECEMBER 31, 1996 $ 10,673
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
STRATEGIC DIAGNOSTICS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,388) $ (1,226) $ (1,301)
Adjustments to reconcile net loss to cash used in operating activities-
Acquired research and development write off 8,266 -- --
Issuance of warrant to Conoco -- -- 105
Depreciation and amortization 181 135 100
Equity in income of investment in TSD BioServices (178) (41) (42)
Amortization of deferred compensation 43 34 10
Imputed interest on note payable -- 75 23
(Increase) decrease in-
Receivables (753) 1 40
Inventories 208 (70) (87)
Other current assets (696) 33 (104)
Prepaid rent (103) 21 23
Other assets 159 (66) (81)
Increase (decrease) in-
Accounts payable 472 (262) 253
Accrued expenses 589 138 (28)
Deferred revenue (170) 211 --
--------- --------- ---------
Net cash used in operating activities (370) (1,017) (1,089)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash 56 26 --
Investment in TSD BioServices -- -- (30)
Proceeds from Ohmicron and EnSys acquisitions 807 -- --
Purchases of property and equipment (67) (41) (73)
--------- --------- ---------
Net cash provided by (used in) investing activities 796 (15) (103)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable -- 1,000 500
Payment on note payable -- -- (500)
Repayments on capital lease obligations (17) -- --
Proceeds from sale of redeemable convertible preferred stock, net 473 -- --
Net cash provided by financing activities 456 1,000 --
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 882 (32) (1,192)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 35 67 1,259
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 917 $ 35 $ 67
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 3 $ -- $ 53
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
1. BACKGROUND:
-----------
Business
- --------
Strategic Diagnostics Inc. (the "Company") develops, manufactures and
markets immunoassay based test kits for rapid and inexpensive detection of a
wide variety of substances in the water quality, industrial and agricultural
market segments.
Business Risks
- --------------
The Company is subject to risks of entities in similar stages of
development. These risks include the Company's ability to successfully develop,
produce and market its products and its dependence on its key collaborative
partners and management personnel. Management believes that its current cash
resources are sufficient to fund operations into 1998.
Basis of Presentation
- ---------------------
The historical financial statements presented herein include the
consolidated financial statements of Strategic Diagnostics Inc. ("SDI") for all
periods and the actual results of Ohmicron Corporation ("Ohmicron") from August
30, 1996 (Note 3) and EnSys Environmental Products, Inc. ("EnSys") from
December 30, 1996 (Note 3). As used herein, unless the context requires
otherwise, the Company collectively refers to SDI and its subsidiaries for
the periods indicated. All intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Net Loss Applicable to Common Stockholders
- ------------------------------------------
Net loss per share applicable to common stockholders for all periods
presented is calculated by dividing net loss applicable to common
stockholders by the weighted average number of shares outstanding. All shares
and per share amounts have been adjusted retroactively to give effect to the
equivalent number of shares received by the SDI stockholders in the Easys
Merger discussed in Note 3. This retroactive adjustment is reflected in the
net loss per share calculations and the Notes to the Consolidated Financial
Statements.
F-6
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
Net loss applicable to common stockholders is the sum of the net loss plus
the accretion of the redeemable convertible preferred stock liquidation value.
Effective December 30, 1996, the redeemable convertible preferred stock was
converted into shares of a newly issued class of Series A Preferred Stock
(Note 9). No additional accretion will be recorded.
Statement of Cash Flows
- -----------------------
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable
- -------------------
The Company classifies both its billed and unbilled receivables as accounts
receivable. As of December 31, 1996 and 1995, the allowance for doubtful
accounts was $180 and $11, respectively. In 1996, 1995 and 1994, approximately
$2, $10 and $3 of write-offs were charged to this allowance which was offset by
approximately $81, $9 and $4 charged to earnings in each of the respective
years. At December 31, accounts receivable consisted of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Accounts receivable $ 1,739 $ 560
Unbilled accounts receivable 595 --
--------- ---------
$ 2,334 $ 560
--------- ---------
--------- ---------
</TABLE>
If receivables become uncollectible or unbillable, the Company's policy is
to charge these write-offs against the allowance. The Company continually
reviews the realizability of its receivables and charges current period
earnings for the amount deemed unrealizable.
Inventories
- -----------
The Company's inventories, which consist primarily of test kit components
and accessories, are valued at the lower of cost or market. Cost is determined
using standard costs which approximate average cost. Realization of the
Company's inventories is dependent upon the successful marketing of its
products. At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Raw materials $ 626 $ 383
Work in progress 356 46
Finished goods 575 18
--------- ---------
$ 1,557 $ 447
--------- ---------
--------- ---------
</TABLE>
F-7
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
LONG-LIVED ASSETS
- -----------------
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present.
SFAS No. 121 also addresses accounting for long-lived assets where disposal is
expected. Management continually evaluates whether events or circumstances have
occurred that indicate that the remaining useful lives of the fixed assets and
other assets should be revised or that the remaining balance of such assets may
not be recoverable based upon expectations of future undiscounted cash flows in
accordance with SFAS No. 121. The Company adopted SFAS No. 121 effective
January 1, 1996. As of December 31, 1996, management believes no write-downs or
reserves are required.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives
(generally three to five years) of the assets.
Revenue Recognition
- -------------------
Product related revenues are recognized upon product shipment or based upon
management's estimate of the percentage of the project completed (Note 12).
Revenue recognized under the Company's collaborative agreements is recorded
upon completion of certain performance requirements of the contracts. License
revenue is recognized upon transfer of such licenses.
Research and Development
- ------------------------
Research and development costs are charged to expense as incurred.
Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist primarily of cash and cash
equivalents, short-term investments, accounts payable, accrued expenses and
capital lease obligations. The book values of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and accrued
expenses are considered to approximate their respective fair values. None of
the Company's capital lease obligations that are outstanding as of December
31, 1996 have readily ascertainable market values; however, the carrying values
are considered to approximate their respective fair values.
F-8
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
Income Taxes
- ------------
As of December 31, 1996, the Company had a federal net operating loss
carryforward of approximately $2,722, which will begin to expire in the year
2009 if not previously used. The net operating loss carryforwards differ from
the accumulated deficit principally due to differences in the recognition of
certain research and development expenses, depreciation and amortization, other
non-deductible reserves and the accretion of preferred stock for financial and
federal income tax reporting.
Significant components of SDI's deferred tax assets for federal and state
tax purposes as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net operating loss carryforwards $ 925 $ 969
Other non-deductible reserves 95 --
Depreciation and amortization (46) (36)
--------- ---------
Total deferred tax assets 974 933
Valuation allowance for deferred tax assets (974) (933)
--------- ---------
Net deferred tax assets $ -- $ --
--------- ---------
--------- ---------
</TABLE>
In connection with the merger with EnSys and the Ohmicron acquisition (Note
3), the Company acquired certain net operating losses. The amounts of such
losses were approximately $22,180 at September 30, 1995 and $15,155 as of
December 31, 1995, respectively. The amount of net operating loss carryforwards
(including those of SDI) which can be utilized in any one period, if any, will
be limited by federal income tax regulations since a cumulative change in
ownership of more than 50% has occurred within a three year period. The
Company has recorded a 100% valuation allowance on such items, as determined.
Reclassification
- ----------------
Certain reclassifications have been made to the prior year financial
statements to conform to current year financial statement presentation.
F-9
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
3. MERGERS AND ACQUISITIONS
------------------------
Merger with EnSys Environmental Products, Inc.
- ----------------------------------------------
On December 30, 1996, the Company merged with and into EnSys Environmental
Products, Inc. (the "Merger"). The Merger agreement provided that SDI common
and preferred stockholders receive .7392048 shares of EnSys stock for each
share of SDI Common or Preferred Stock. This resulted in the former SDI
stockholders owning 5,780,136 shares of EnSys Common Stock and 2,164,362
shares of EnSys Series A Convertible Preferred Stock or approximately 52%
of the 15,219,532 voting shares outstanding after the Merger. In addition
to the common and preferred stock noted above, current SDI option and warrant
holders received options and warrants to purchase .7818026 shares of EnSys
Common Stock for each option or warrant held. Upon consummation of the Merger,
SDI option and warrant holders received options and warrants for the purchase
of 383,216 and 599,644 shares, respectively, of EnSys Common Stock. The
difference in exchange ratios between stockholders and option and warrant
holders is due to the stock preferences received by SDI's preferred
stockholders upon exchange of their shares. The cost of receiving these
preferences was shared by all SDI stockholders upon exchange of their shares,
but was not borne by the SDI option and warrant holders.
The Merger was accounted for as a purchase transaction with SDI as the
acquiring company. Based on the $1.75 per share closing price of EnSys Common
Stock on October 14, 1996, (date of transaction public announcement) the
estimated total purchase price of EnSys was $16,133, which consists of the
following: (i) the $12,731 market value of the outstanding shares of EnSys
Common Stock (7,275,034 shares multiplied by $1.75 per share), (ii) the $328
fair value of the outstanding options and warrants to purchase EnSys Common
Stock and (iii) estimated transaction costs of approximately $3,074. Since SDI
is the acquirer for accounting purposes, the EnSys options and warrants are
required to be valued for purchase accounting purposes as if they are
additional consideration in the transaction. The valuation for EnSys options
and warrants was provided by an investment banking firm using a traditional
valuation approach. Of the approximately $3,074 of estimated transaction costs,
approximately $457 relates to severance payments to former EnSys employees,
$362 to facility termination and moving and $36 to employee relocation. In
connection with the Merger, approximately 35 EnSys employees were terminated in
December 1996.
In connection with the Merger, all identifiable assets acquired by SDI
including intangible assets were assigned a portion of the cost of the acquired
company based on an independent valuation of EnSys' assets. Such allocation
included the identification and evaluation of each development project to
determine if technological feasibility had been achieved and if there were any
alternative future uses. EnSys' primary research and development focus, the
F-10
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
"One Step" assay, is currently under development. If such technology is not
fully developed on a timely basis, the existing products may not be
competitive enough to satisfy the technical requirements of a changing market
or be cost effective despite demonstration of research prototypes by EnSys.
The costs of developing the remaining technology for the "One Step" assay is
significant. As a result of the substantial time and effort to produce the
product in accordance with all functions and specification, it has been
determined that technological feasibility has not been achieved. In
addition,since alternative uses of this developmental technology do not
exist, the costs of such technology has been charged to expense in accordance
with SFAS No. 2. Based on the foregoing purchase price, the amount allocated
to acquired research and development of $4,353 was charged to the statement
of operations at the effective date of the Merger. The remaining amount of
intangible assets of approximately $1,167 includes approximately $472 for
developed technology, $55 for assembled workforce and $640 for goodwill. The
intangible assets purchased will be amortized on a straight-line basis over
7-10 years.
Acquisition of Ohmicron Corporation
- -----------------------------------
On August 30, 1996, SDI acquired Ohmicron and certain of its wholly owned
subsidiaries for 2,268,456 shares of common stock. Prior to the acquisition,
Ohmicron spun-off certain assets and liabilities of another of its
wholly-owned subsidiaries, Ohmicron Medical Diagnostics, Inc. The acquisition
of Ohmicron was recorded as a purchase transaction accounting using the fair
market value of the SDI common stock issued to Ohmicron. The total purchase
price of approximately $4,503, including transaction and other costs of $533,
has been allocated to the fair market value of the assets acquired and
liabilities assumed. Based on the foregoing estimated purchase price, the
amount allocated to acquired research and development of $3,913 was charged
to the statement of operations at the time of the acquisition. In connection
with the Ohmicron transaction, all identifiable assets acquired including
intangible assets were assigned a portion of the cost of the acquired company
based on an independent valuation of Ohmicron's assets. Such allocation
included the evaluation of each development project identified to determine
if technological feasibility had been achieved and if there were any
alternative future uses. Based on this analysis, it has been determined that
technological feasibility has not been achieved, and that alternative uses of
this developmental technology do not exist. The cost of such technology has
therefore been charged to expense in accordance with SFAS No. 2, "Accounting
for Research and Development Costs." The remaining amount of intangible
assets of approximately $590 included approximately $384 for developed
technology, $103 for assembled workforce and $103 for goodwill. The
intangible assets purchased will be amortized on a straight-line basis over
7-10 years. The fair market value of the common stock issued to Ohmicron was
based on several factors including recent equity transactions, as well as the
subsequently negotiated merger with EnSys. Recent equity transactions
included the January 2, 1996 sale of 897,154 shares of redeemable convertible
preferred stock at $2.37 per share.
F-11
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
The redeemable convertible preferred stock was mandatorily redeemable and
received dividends, registration rights and senior liquidation rights to the
common stock. The common stock was valued at $1.75 per share reflecting a
discount from the redeemable convertible preferred stock due to the difference
in preferences between the two classes of stock.
TSD BioServices Dissolution
- ---------------------------
In October 1996, SDI entered into an agreement with Taconic Farms, Inc.
("Taconic") to dissolve TSD BioServices, a partnership between Taconic and
SDI and to liquidate its assets, in connection with which certain of the
rights and assets were distributed to SDI. Upon dissolution, certain rights
and assets formerly owned by the joint venture were placed in a wholly-owned
subsidiary of SDI. The agreement to dissolve TSD BioServices provides that
each of the former partners receive rights to perform services that were
considered to be either a core part of that partner's expertise, or an area
in which the partner wanted to increase its market presence or technical
competency. The dissolution agreement also provided that certain services
previously provided by TSD BioServices, such as ascites production and sales
and marketing, would be subcontracted to Taconic by SDI in the future based
on established fees set annually. For accounting purposes, this transaction
will be treated as a purchase, with the consideration provided being SDI's
investment of $338 which approximates the fair market value of the assets
received.
F-12
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(in thousands, except share and per share data)
Unaudited ProForma Combined Results of Operations
- -------------------------------------------------
The following table summarizes the unaudited pro forma combined results of
operations for the years ended December 31, 1996 and 1995, assuming that the
Merger, the Ohmicron acquisition and the TSD dissolution had occurred on
January 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<C> <C>
1996 1995
--------- ---------
(unaudited)
<S> <C> <C>
Revenues $ 12,700 $ 11,184
--------- ---------
--------- ---------
Net loss $ (5,973) $ (7,721)
--------- ---------
--------- ---------
Net loss per share $ (0.47) $ (0.66)
--------- ---------
--------- ---------
</TABLE>
The above pro forma information excludes the $8,266 one-time charge to
earnings for acquired research and development. The shares used in computing
pro forma net loss per common share assumes that the Merger with EnSys, the
acquisition of Ohmicron and the TSD BioServices dissolution had occurred on
January 1, 1996. In addition the pro forma information excludes accretion of
preferred stock (Note 2).
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
The following table displays the net non cash assets that were acquired
during 1996 as a result of the Merger and the Ohmicron acquisition:
<TABLE>
<S> <C>
Non cash (assets) liabilities:
Short term investments $ (5,710)
Receivables (808)
Inventories (1,318)
Property and equipment (443)
Restricted cash (126)
Note receivable (357)
Intangibles (2,135)
Accounts payable 1,483
Accrued expenses including acquisition costs 1,128
Deferred revenue 100
Capital lease obligations 152
---------
( (8,034)
Issuance of common stock 17,107
Acquired research and development (8,266)
---------
Net cash acquired in business acquisitions $ 807
---------
---------
</TABLE>
F-13
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(in thousands, except share and per share data)
4. SHORT-TERM INVESTMENTS:
-----------------------
At December 31, 1996, short-term investments consisted of the following:
<TABLE>
<CAPTION>
Unrealized Carrying
Principal Cost Gain/(Loss) Value
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cash equivalents $ 3,502 $ 3,502 $ -- $ 3,502
Securities of agencies of the U.S. government 689 686 -- 686
Commercial paper 1,525 1,522 -- 1,522
--------- ----------- --------- ---------
$ 5,716 $ 5,710 $ -- $ 5,710
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
The Company considers its investments as being available for sale in
accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." The Company classifies these investments as short term and
records them at fair market value. Contractual maturities of the Company's
investments in debt securities as of December 31, 1996 are $5,287 in 1997, $284
in 1999 and $139 in 2002.
5. OTHER ASSETS:
-------------
In December 1993, the Company purchased all product rights, technology,
patents, trademarks and other rights for its RapidChek-Registered Trademark-
Sulfate Reducing Bacteria product from Conoco Specialty Products Inc.
("Conoco") for $225. This acquisition was being amortized over 10 years. In
1996, the unamortized cost of this asset of $159 was charged to expense as
management believed that such asset was not realizable.
Note Receivable
- ---------------
The company maintains a note receivable from a former executive of EnSys.
The original loan amount was $350 and is secured by the individual's
personal residence. The loan bears interest at 5.8% per annum. At December 31,
1996, the outstanding loan balance was approximately $346 of which
approximately $6 in principal is payable annually through the year 2000 with
the balance payable in January 2001.
Investment in TSD BioServices
- -----------------------------
Included in the 1995 financial statements is $160 representing the Company's
50% interest in TSD BioServices under the equity method of accounting.
Summarized financial information of TSD BioServices is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Total assets $ 656 $ 502
--------- ---------
--------- ---------
Partners' capital $ 320 $ 238
--------- ---------
--------- ---------
Revenues $ 1,641 $ 1,351
--------- ---------
--------- ---------
Net income $ 82 $ 84
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
In October 1996, the Company entered into an agreement to dissolve TSD
BioServices (Note 3) and certain rights and assets formerly owned by the
joint venture were placed into a wholly-owned subsidiary of the Company.
Prior to the dissolution in 1996, the partnership generated $1,737 of
revenues and equity in income of TSD BioServices to the Company of $178.
6. ACCRUED EXPENSES:
-----------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Legal and professional $ 260 $ 99
Interest -- 124
Merger costs 1,069 --
Other 737 105
--------- ---------
$ 2,066 $ 328
--------- ---------
--------- ---------
</TABLE>
7. NOTES PAYABLE:
--------------
In August 1992, EM Industries, Inc. ("EM"), an affiliate of E Merk (Note 11)
loaned the Company $500 at an annual interest rate of 8%. This loan, along with
$53 in accumulated interest, was repaid in March 1994.
In October 1994 and April 1995, the holders of the redeemable convertible
preferred stock provided $500 and $1,000, in working capital loans to the
Company. These notes bore interest at 9% and 10% per annum, respectively, and
each became due during 1995. In addition, 89,349 and 223,372 warrants were
issued, respectively, for the purchase of common stock of the Company at an
exercise price of $2.37 per share. The warrant values deemed for accounting
purposes were $23 and $75, respectively, which were recorded as an asset and
amortized over the term of the loans. The warrants have an exercise period of
five years.
In January 1996, the Company converted the $1,500 of Notes Payable and $124
of accrued interest into 685,952 shares of redeemable convertible preferred
stock (Note 9).
F-15
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands, except share and per share data)
8. CAPITAL LEASES
--------------
The Company leases equipment under capital lease agreements which expire at
various dates through 2001. Certain of the leases contain options to purchase
the equipment at the end of the respective lease terms. As of December 31, 1996,
future minimum capital lease payments are as follows:
<TABLE>
<S> <C>
1997 $ 98
1998 33
1999 16
2000 12
2001 8
---------
167
Less--amount representing
interest (32)
---------
Present value of minimum
lease payments 135
Less--current portion of capital
lease obligations (85)
---------
$ 50
=========
</TABLE>
9. SERIES A PREFERRED STOCK:
-------------------------
In June 1993, the Company sold 1,267,208 shares of redeemable convertible
preferred stock and received proceeds of $3,000 less $47 of transaction costs.
In connection with the 1996 financing, the Company converted the $1,500 of
notes payable and $124 of accrued interest into 685,952 shares of redeemable
convertible preferred stock at $2.37 per share (Note 7) and received an
additional investment of $500 for the purchase of 211,202 shares less
transaction costs of $27. All such shares were redeemable with cumulative
dividends, at the option of the holders, as defined, beginning in 1998.
Dividends have been accreted through the Merger (Note 3).
In connection with the Merger, the redeemable convertible preferred stock
plus cumulative dividends were converted into 2,164,362 shares of a newly
issued class of Series A Preferred Stock ("Series A"). The Series A has no
redemption provisions outside the control of the Company. As a result, the
Series A is now classified as a component of stockholders' equity.
F-16
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(in thousands, except share and per share data)
The Series A is convertible into one share of common stock at the option of
the holder at any time, or at the option of the Company if the closing share
price of the Company's common stock exceeds $4.50 per share for a period of 45
business days. The Series A carries an aggregate liquidation preference of
$6,378. The Series A contains no annual dividend provisions and is only
redeemable in the event the Company converts the Series A into securities of a
lesser value, as defined.
10. STOCK OPTIONS AND WARRANTS:
---------------------------
Stock Options
- -------------
EnSys had two stock option plans (the "1993 Plan" and the "1995 Plan") which
authorized the granting of incentive and nonqualified stock options to
officers, key employees, directors and consultants. Incentive stock options
are granted at not less than 100% of fair market value at the date of grant
(110% for stockholders owning more than 10% of the Company's common stock).
Non qualified stock options are granted at not less than 85% of fair market
value at the date of grant. All previously issued SDI options were converted
into the 1995 Plan. A maximum of 1,700,000 shares of common stock are issuable
under the 1995 Plan and Options to purchase up to 300,000 shares of common
stock had been authorized under the 1993 Plan.
Certain additional options have been granted outside the plans. These
options generally follow the provisions of the 1995 Plan.
Information with respect to the stock options granted under the plans and
options granted separately from the plans is summarized as follows:
<TABLE>
<CAPTION>
PRICE AGGREGATE
NUMBER RANGE PRICE
--------- ------- ---------
<S> <C> <C> <C>
Balance, January 1, 1994 169,353 $ .19 $ 32
Granted 116,098 .64 74
Canceled (7,036) .64 (5)
--------- -------- ---------
Balance, December 31, 1994 278,415 .19-.64 101
Granted 146,275 .19-.64 39
Canceled (27,402) .64 (18)
--------- --------- ----------
Balance, December 31, 1995 397,288 .19-.64 122
Options acquired in conjunction with
the Merger 461,023 .25-7.50 1,226
Granted 200,000 2.00-2.20 420
Canceled (14,072) .64 (9)
--------- --------- ----------
Balance, December 31, 1996.............. 1,044,239 $ .19-7.50 $ 1,759
--------- --------- ----------
--------- --------- ----------
</TABLE>
F-17
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(in thousands, except share and per share data)
As of December 31, 1996, 818,829 options were exercisable with an aggregate
exercise price of $1,411 and 955,761 options were available for future grant
under the Plans.
For options granted, the Company recognizes as deferred compensation the
excess of the deemed value for accounting purposes of the common stock issuable
upon the exercise of options over the aggregate exercise price of such options.
The deferred compensation is amortized over the vesting period of the shares and
options.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Effective January 1, 1995, the Company has elected to adopt the
disclosure requirement 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 applicable to
common stockholders for 1996 and 1995 would have been $9,113 and $1,610 and net
loss per share applicable to common stockholders would have been $2.15 and
$0.46, respectively. Because the SFAS 123 method of accounting has not been
applied to options granted prior to January 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 value at the date of grant for options granted
during 1995 and 1996 is estimated at $.47 and $1.46 per 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
80%, risk-free interest rate of 6.51% in 1995 and 6.37% in 1996, and an expected
option life of 6 years.
Warrants
- --------
In December 1994, in connection with a prior collaboration agreement, the
Company issued to Conoco a warrant that enables Conoco to purchase 164,179
shares of the Company's common stock for an exercise price of one dollar. In
connection with this exchange, the Company recorded a charge of $105 in 1994 in
the statement of operations reflecting the fair value of the warrant. If Conoco
exercises this warrant, and the Company completes an equity financing with
aggregate proceeds of $7 million or greater, then Conoco has the right to
require the Company to repurchase the warrant at a price equal to 164,179 shares
multiplied by the price per share received in the equity financing. The warrant
expires in November 1999.
F-18
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(in thousands, except share and per share data)
In 1993, the Company issued warrants for the purchase of 5,473 shares of
common stock at $.19 per share. These warrants expire in 1998.
In connection with the original issuance of the redeemable convertible
preferred stock and the notes payable issued in October 1995 and April 1995
which were subsequently converted to redeemable convertible stock in January
1996, the Company granted warrants to purchase a total of 429,992 shares of
common stock at an exercise price of $2.37. The warrants have an exercise price
of five years from the dates of grant.
At December 31, 1996, the Company maintains 3,530 of outstanding warrants
granted by EnSys. These warrants contain an exercise price of $4.96 per share
and expire in 2001.
11. EM COLLABORATIVE AGREEMENT:
---------------------------
In February 1992, SDI entered into an agreement with EM for the development
and manufacture of a product line of immunoassays capable of identifying and
quantifying certain substances found on the priority pollutant list published
by the Environmental Protection Agency. In connection with this agreement, the
Company received $400, $600 and $1,709 in 1996, 1995 and 1994, respectively,
for the achievement of certain defined development milestones. In September
1996, the Company acquired the product rights to the D TECH-Registered
Trademark- product line from EM in exchange for a royalty payment based on
sales of specified products into selected markets and 48,048 shares of common
stock.
The Company made this acquisition in connection with the Ohmicron
Acquisition and charged the related cost to acquired research and development.
12. REVENUES:
---------
The Company earns revenue in two major areas: product related revenues and
contract and other revenues.
F-19
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(in thousands, except share and per share data)
Product Related Revenues
- ------------------------
The Company generates product revenue through: (i) the sale of products it
has developed or acquired and (ii) through its TSD subsidiary on a percentage of
completion basis. Under percentage of completion, revenues earned and related
costs incurred are recorded based on management's estimates of the percentage of
completion of each project. Product sales are made to collaborative partners,
distributors or directly to the end users of the products. Included in product
related revenues are royalties earned through the sale of antibodies to a
distributor, who pays a royalty based on sales. In addition, from 1994 through
August 1996, the Company began receiving royalties based on EM sales of products
developed by SDI for EM (Note 11). Royalties earned from EM were $23, $35 and $7
in 1996, 1995 and 1994, respectively.
Contract and Other Revenues
- ---------------------------
The Company has entered into various assay development and other
collaborative arrangements. Revenue recognized under such collaborative
agreements is recorded upon completion of certain performance requirement of the
contracts. Other revenues consist primarily of license revenue which is
recognized upon the transfer of such license.
Major Customers
- ---------------
During 1994, EM (Note 11) was the Company's only major customer, providing
revenues of $1,900. During 1995, EM and two customers accounted for 26%, 17% and
14% of the Company's revenue, respectively. During 1996, EM and EnSys (Note 3)
accounted for 11% and 19% of the Company's revenues, respectively.
13. TSD BIOSERVICES TRANSACTIONS:
-----------------------------
TSD BioServices purchased certain supplies, raw materials and services
from Taconic and the Company. In 1996, 1995 and 1994, the Company included in
revenues $53, $275 and $208 of contract and other revenues resulting from
transactions with TSD BioServices. In October 1996, TSD BioServices was
dissolved (see Note 3).
In 1991, TSD BioServices entered into a five-year management agreement
with each of its partners. The agreements provided that the partners could
charge TSD BioServices for work performed on behalf of the partnership by any
of the partners' principals. TSD BioServices partners elected not to charge
TSD BioServices for these and certain other expenses related to the
partnership, but rather elected to absorb such costs in the parent
organizations. Such costs were immaterial and the management agreement was
terminated in 1996.
F-20
<PAGE>
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(in thousands, except share and per share data)
14. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company leases its office and manufacturing facilities and other
equipment under operating leases. Rent expense for the years ended December 31,
1996, 1995 and 1994, was $250, $226 and $226, respectively. Future commitments
under these noncancelable leases at December 31, 1996, are as follows:
1997 $ 577
1998 499
1999 349
2000 152
2001 93
2002 and thereafter 115
---------
$ 1,785
---------
---------
In July 1993, the Company purchased certain equipment, inventory, cell
lines and product rights and other assets for Macra-Registered Trademark-
Lp(a) from Terumo Medical Corporation ("Terumo") for $128. In connection with
this agreement, the Company agreed to pay Terumo a royalty on net sales of
the Macra-Registered Trademark- Lp(a) product. The royalty is based on a
specified formula, but generally requires the Company to pay a 6% royalty on
the net sales of Macra-Registered Trademark- products, with a minimum royalty
payment each year of $10. The Company paid Terumo $15, $25 and $43 in
royalties under this agreement in 1996, 1995 and 1994, respectively.
The Company is also party to various claims arising in the ordinary course
of business. Although the ultimate outcome of these matters is presently not
determinable, management, after consultation with legal counsel, does not
believe that the outcome of these matters will have a material adverse effect on
the Company's financial position or results of operations.
15. RETIREMENT SAVINGS PLAN:
------------------------
In 1992, the Company instituted a retirement savings plan qualified under
Section 401(k) of the Internal Revenue Code. The plan allows for eligible
employees to contribute a portion of their gross wages to the plan. The Company
matches employees' contributions on a 50% basis up to 6% of gross wages. In
1996, 1995 and 1994, the Company recognized expense of $51, $51 and $30,
respectively, associated with this plan.
F-21
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information contained under the caption "Election of a Class of Directors"
and the information contained under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Definitive Proxy Statement is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation" in the
Company's Definitive Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Stock Ownership of Principal
Stockholders and Management" in the Company's Definitive Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Relationships and Related
Transactions" in the Company's Definitive Proxy Statement is incorporated herein
by reference.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See the Consolidated Financial Statements which begin on
page F-1 of this Report.
2. Financial Statement Schedules
Financial statement schedules are omitted because they are
either not required or not applicable or the required
information is reflected in the financial statements or
notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
Previous
Exhibit Exhibit
Number Number
- ------- --------
<S> <C> <C> <C>
3.1 Fourth Amended and Restated Certificate of Incorporation of the
Company (1) 4.1
3.2 Amended and Restated Bylaws of the Company (1) 4.2
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Forms of Warrants to Purchase Common Stock of the Company (1) 4.4
10.1 Warrant Agreement dated June 1, 1991 between John Hancock (2) 10.5
Leasing Corporation and the Company, as amended December 19,
1991
10.2* EnSys Environmental Products, Inc. 1990 Stock Option Plan (2) 10.16
10.3* EnSys Environmental Products, Inc. 1993 Stock Incentive Plan (2) 10.17
10.4* Amended and Restated EnSys Environmental Products, Inc. 1995
Stock Incentive Plan (3)
10.5 EnSys Environmental Products, Inc. 401(k) Plan Adoption
Agreement (2) 10.18
10.6 Lease Agreement dated June 1, 1989, between the Company and (2) 10.20
Imperial Center Partnership and Petula Associates, Ltd. for premises
at 4222 Emperor Boulevard, Morrisville, North Carolina, as
amended December 22, 1991 and April 7, 1993
10.7 Master Lease Agreement by and between the Company and John (2) 10.22
Hancock Leasing Corporation dated April 8, 1991
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10.8 Master Equipment Lease Agreement by and between the Company (2) 10.23
and Ally Capital Corporation dated October 20, 1992
10.9 License Agreement by and between the Company and Meridian (4) 10.22
Diagnostics, Inc. dated July 24, 1994
10.10 Asset Purchase Agreement among EnSys, Millipore Corporation, (5) 2.1
and ImmunoSystems, Inc.
10.11 Agreement and Plan of Merger by and between EnSys and Strategic (1) 2.1
Diagnostics Inc. dated as of October 11, 1996
10.12 Form of Lock-Up Letter Agreement dated December 30, 1996 (1) 10.29
between the Company and each of Richard Birkmeyer; Anne
Cavanaugh; Martha Reider; DSV Partners IV; Edison Venture Fund
II, L.P.; Edison Venture Fund, II-P.A., L.P.; The Perkin-Elmer
Corporation; EM Industries, Incorporated and CIP Capital L.P.
10.13 Form of Stockholder Voting Agreement (1) 10.30
10.14* Employment Agreement dated December 30, 1996 by and between
Richard C. Birkmeyer and the Company
10.15* Employment Agreement dated December 30, 1996 by and between
Grover C.Wrenn and the Company
10.16 Registration Rights Agreement dated December 30, 1996 between
the Company and the stockholders listed therein
10.17 Lease Agreement dated June 24, 1996 by and between Lang
Associates and Strategic Diagnostics Inc.
10.18 Industrial Lease dated October 26, 1993, by and between Tober &
Agnew Properties, Inc. and Strategic Diagnostics Incorporated
10.19 Industrial Lease dated August 9, 1990, by and between Tober &
Agnew Properties, Inc. and Strategic Diagnostics Incorporated
10.20 Industrial Lease dated June 7, 1991 by and between Tober &
Agnew Properties, Inc. and TSD BioServices
21.1 Subsidiaries of the Company
24 Consent of Arthur Andersen LLP
27 Financial Date Schedule
</TABLE>
_____________________________________________
(1) Incorporated by reference to the designated exhibit of the EnSys
Registration Statement on Form S-4 ( No. 333-17505) filed on December 9, 1996.
(2) Incorporated by reference to the designated exhibit of the EnSys
Registration Statement on Form S-1 ( No. 33-68440) filed on September 3, 1993.
(3) Incorporated by reference to Appendix F to the Joint Proxy
Statement/Prospectus contained in the EnSys Registration Statement on Form S-4
(No. 333-17505) filed on December 9, 1996.
(4) Incorporated by reference to the designated exhibit of the EnSys Form 10-K
for the fiscal year ended December 31, 1994.
(5) Incorporated by reference to the designated exhibit of the EnSys Form 10-Q
for the fiscal quarter ended March 31, 1996.
*Management contract or compensatory plan.
(b) Reports on Form 8-K
None.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
STRATEGIC DIAGNOSTICS INC.
Dated: April 11, 1997 By: /s/ Richard C. Birkmeyer
-------------------------------
Richard C. Birkmeyer
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date Signed
- ---------- ----- -----------
<S> <C> <C>
/s/ Richard C. Birkmeyer
- ---------------------------- President, Chief Executive April 11, 1997
Richard C. Birkmeyer Officer and Director
(Principal Executive Officer)
/s/ Gregory J. Bell
- ---------------------------- Chief Financial Officer April 11, 1997
Gregory J. Bell (Principal Financial and
Accounting Officer)
/s/ Richard J. Defieux
- ---------------------------- Director April 11, 1997
Richard J. Defieux
/s/ Robert E. Finnigan, Ph.D
- ---------------------------- Director April 11, 1997
Robert E. Finnigan, Ph.D
/s/ Kathleen E. Lamb
- ---------------------------- Director April 11, 1997
Kathleen E. Lamb
/s/ Stephen O. Jaeger
- ---------------------------- Director April 11, 1997
Stephen O. Jaeger
/s/ Curtis Lee Smith, Jr.
- ---------------------------- Director April 11, 1997
Curtis Lee Smith, Jr.
/s/ Grover C. Wrenn
- ---------------------------- Director April 11, 1997
Grover C. Wrenn
</TABLE>
33
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of the 30th day of December 1996, by and
between ENSYS ENVIRONMENTAL PRODUCTS, INC., a Delaware corporation whose name
is being changed to STRATEGIC DIAGNOSTICS INC. as of the date hereof (the
"Company," which is also hereinafter referred to as the "Employer"), and
RICHARD C. BIRKMEYER (the "Executive").
WITNESSETH:
WHEREAS, Employer agrees to retain the services of Executive, and
Executive agrees to work for Employer, all pursuant to the terms and
conditions hereinafter set forth;
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premise, the mutual
promise, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions
hereinafter set forth.
2. Capacity. The Executive shall serve as the Chief Executive Officer of
Employer. The Executive shall render such services to the Company as are
customary for such position and perform all other services incident thereto.
3. Effective Date and Term. Subject to the provisions of Section 6, the
Executive's employment under this Agreement shall remain in effect for the
period commencing on the date hereof and terminating on December 31, 1997
("Initial Term") and shall be automatically extended for periods of one year
commencing on December 31, 1997 and on each December 31 thereafter, unless
either the Executive or the Employer gives written notice to the other not
less than sixty (60) days prior to the date of any such anniversary, of such
party's election not to extend the term of the Executive's employment
hereunder.
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive a salary at the rate, of
$164,000 per year, subject to an annual increase of not less than five
percent (5%) of the then current annual salary, as determined by the Board of
Directors or the Compensation Committee in accordance with the usual practice
<PAGE>
of the Employer with respect to review of compensation for its senior
executives. The Executive's salary shall be payable in periodic installments
in accordance with the Employer's usual practice for its senior executives.
(b) Bonus. In addition to salary under Section 4(a), the Executive
shall be entitled to participate in a bonus plan under which he may be
entitled to receive an annual bonus in an amount, up to 75 % of such salary,
as shall be determined by the Compensation Committee of the Employer's Board
of Directors in the beginning of each of the Employer's fiscal years under
this Agreement commencing with fiscal 1997. The Compensation Committee and
the Executive shall establish reasonable performance goals and targets for
such bonus- Upon completion of each year, the Compensation Committee shall
review the actual performance against such performance targets and goals and
notify the Executive of the amount of the award. Initially, the target
annual bonus will be 30% of Executive's salary. The Executive's bonus shall
be paid to him within ninety (90) days after the end of the fiscal year to
which it relates, whether he remains an employee of the Employer at the date
of payment or not.
(c) Regular Benefits. The Executive shall also be entitled to
participate in any and all employee benefit plans, medical insurance plans,
life insurance plans, disability income plans, retirement plans and other
benefit plans from time to time in effect for senior executives of the
Employer. Such participation shall be subject to (i) the terms of the
applicable plan documents, (ii) generally applicable policies of the Employer
and (iii) the discretion of the Board of Directors of the Employer or any
administrative or other committee provided for in or contemplated by such
plan, except that all waiting periods for eligibility to participate in
employee benefit plans shall be waived by the Employer to the extent
permissible. The Employer shall also pay the premiums that come due under
Paul Revere Life insurance Company Disability Income Policies 01024761080 and
01026933250.
(d) Perquisites. The Executive shall be entitled to receive fringe
benefits ordinarily and customarily provided by the Employer to its senior
officers during the term of his employment hereunder. In any event, the
Employer shall provide the Executive with fringe benefits no less favorable
to the Executive than those provided by the Employer to any other employee.
(e) Business Expenses. The Employer shall promptly reimburse the
Executive for all travel and other business expenses, including, without
limitation, cellular phone expenses, incurred by him in the performance of
his duties and responsibilities, subject to such reasonable requirements with
respect to substantiation and documentation as may be specified by the
Employer.
(f) Equity Award. The Executive is hereby granted options to purchase
100,000 shares of the Employer's common stock under the Employer's 1995 Stock
Incentive Plan at an exercise price of $2.00 per share (the "Option"). The
Option will be granted pursuant to an Incentive Stock Option Agreement to be
executed contemporaneously herewith in
2
<PAGE>
substantially the form of Exhibit A attached hereto and incorporated herein
by this reference. The grant of options pursuant to this Section 4(e) shall
be without prejudice to further grants to the Executive in the future under
any plan adopted by the Employer.
5. Extent of Service. During his employment hereunder, the Executive
shall, subject to the direction and supervision of the Board of Directors of
the Employer, devote his full business time, all reasonable efforts and
business judgment, skill and knowledge to the advancement of the Employer's
interests and to the discharge of his duties and responsibilities hereunder,
except for reasonable time spent for service on the boards of directors of
other corporations, vacations, civic and charitable activities, and
management of personal investments.
6. Termination and Termination Benefits. Notwithstanding the provisions
of Section 3, the Executive's employment hereunder shall terminate under the
following circumstances:
(a) Death. In the event of the Executive's death during the
Executive's employment hereunder, the Executive's employment shall terminate
on the date of his death; provided, however, that the Employer shall continue
to pay an amount equal to the Executive's salary to the Executive's
beneficiary designated in writing to the Employer prior to his death (or to
his estate, if he fails to make such designation or such beneficiary
predeceases him) for a period of twelve months after the date of the
Executive's death, at the salary rate in effect on the date of his death,
without an increase for any portion of such twelve (12) month period, said
payments to be made on the same periodic dates as salary payments have been
made to the Executive had he not died.
(b) Termination by the Employer for Cause. The Executive's employment
hereunder may be terminated without further liability on the part of the
Employer effective immediately by a majority vote of all of the members of
the Board of Directors of the Employer (excluding the Executive) for cause by
written notice to the Executive setting forth in reasonable detail the nature
of such cause. Only the following shall constitute "cause" for such
termination:
(i) The Executive commits an act constituting fraud or material
misrepresentation with respect to the Employer;
(ii) The Executive embezzles funds or assets from the Employer;
(iii) Conviction of the Executive of a felony involving moral
turpitude (excluding motor vehicle violations); or
(iv) Gross and willful failure to perform a substantial portion
of his duties and responsibilities hereunder, which failure
continues for more than thirty (30) days after written
notice given to the Executive pursuant to a majority vote of
all of the members of the
3
<PAGE>
Board of Directors of the Employer, such vote to set forth
in reasonable detail the nature of such failure.
(c) Termination by the Executive. The Executive's employment hereunder
may be terminated effective immediately by the Executive by written notice to
the Board of Directors of the Employer, provided that the Executive shall
receive the benefits specified in Section 6(e) if he terminates his
employment in the event of the following (any of which being referred to
herein as "Good Reason"):
(i) Failure of such Board of Directors to elect the Executive
to the office of Chief Executive Officer of the Employer or
to continue the Executive in such office;
(ii) Failure by the Employer to comply with the provisions of
Section 4(a) or 4(c) or any other material breach by the
Employer of any other provision of this Agreement; or
(iii) Election by the Employer not to extend the term of the
Executive's employment hereunder in accordance with the
provisions of Section 3.
(d) Termination by the Employer Without Cause. The Executive's
employment with the Employer may be terminated without cause by a majority of
all of the members of the Board of Directors of the Employer (excluding the
Executive) on written notice to the Executive.
(e) Certain Termination Benefits. Unless otherwise specifically
provided in this Agreement or otherwise required by law or by the terms of
any employee benefit plan and other compensation plans, programs and
structures, or fringe benefit programs in which the Executive is a
participant at the time of the termination of his employment with the
Company, all compensation and benefits payable to the Executive under this
Agreement shall terminate on the date of termination of Executive's
employment hereunder. Notwithstanding the foregoing, in the event of
termination by the Executive for Good Reason pursuant to Section 6(c) or by
the Employer pursuant to Section 6(d), the Executive shall be entitled to the
following benefits:
(i) The Employer shall continue to pay an amount equal to the
Executive's salary to the Executive (or the Executive's
beneficiary designated in writing to the Employer prior
to his death or to his estate, if he fails to make such
designation or such beneficiary predeceases him) during a
period (the "Severance Period") which shall extend for a
period of twelve (12) months after the date of the Executive's
termination, at the salary rate in effect on the date of his
termination, said payments to be made on the same periodic
4
<PAGE>
dates as salary payments would have been made to the Executive
had his employment not been terminated; provided that in the
event that the Employer shall default in the timely payment of
any amount due to the Executive under this Section 6(e) or in
the performance of any of its other obligations under this
Section 6(e), the Executive, at his option, may accelerate the
remaining payments that would become due to him hereunder and
such amounts thereupon shall be due and payable forthwith.
(ii) During the Severance Period, the Executive shall continue to
receive all benefits described in Sections 4(c) existing on
the date of termination (except for any cash bonus plans which
shall be prorated through the date of termination). For
purposes application of such benefits the Executive shall be
treated as if he had remained in the employ of the Employer,
with a total annual salary at the rate in effect on the date
of termination.
(iii) In addition to, but not in limitation of, the rights which
the Executive otherwise may have and except as expressly
provided in any award subsequent to the grant of the stock
options contemplated by Section 4(f), any restrictions
remaining on any restricted shares issued to the Executive
under the Employer's restricted plans shall immediately lapse,
any performance shares issued to the Executive under the
Employer's incentive stock plans shall immediately vest, and
any stock options and stock appreciation rights granted to the
Executive shall become exercisable immediately, and the
Executive may exercise all such options or stock appreciation
rights within the later of the remainder of their term or
one year after the expiration of the Severance Period.
(iv) If, in spite of the provisions of Section 6(e)(ii)
above, benefits or service credits under any benefit plan
shall not be payable or provided under any such plan to
the Executive, or to the Executive's dependents,
5
<PAGE>
beneficiaries or estate, because the Executive is no
longer deemed to be an employee of the Employer, the
Employer shall pay or provide for payment of such
benefits and service credits for such benefits to the
Executive, or to the Executive's dependents,
beneficiaries or estate; provided, however, that the
Employer shall have no obligations with respect to the
federal or state income tax treatment of the exercise of
any stock options or other stock rights held by the
Executive under any of the Employer's stock incentive
plans.
(f) No Set-off. The amounts payable to Executive under Section 6(e)
shall be treated as damages but as severance compensation to which the
Executive is entitled by on of termination of his employment, and the
Employer shall not be entitled to any set-off against, or reduction of, such
amounts for any reason whatsoever. Notwithstanding any other provision of
this Agreement, the Executive shall be under no obligation to seek or accept
any employment after termination of employment with the Employer for any
reason.
7. Disability. If, due to physical or mental illness, the Executive shall
be disabled so as to be unable to perform substantially all of his duties and
responsibilities hereunder, the Employer, acting through its Board of
Directors, may designate another executive to act in his place during the
period of such disability. Notwithstanding any such designation, the
Executive shall continue to receive his full salary and benefits under
Section 4 of this Agreement for a minimum of nine (9) months (net of any
amounts paid to the Executive during such nine (9) month period pursuant to
Employer's disability income plan, if any), and shall continue to participate
in the Employer's benefit plans and to receive other benefits as specified in
Section 4 until the expiration of his term of employment hereunder. If any
questions shall arise as to whether during any period the Executive was
disabled so as to be unable to perform substantially all of his duties and
responsibilities hereunder due to physical or mental illness, the Executive
may, and at the request of the Employer will, submit to the Employer a
certification in reasonable detail by a physician selected by the Executive
or his guardian to whom the Employer has no reasonable objection as to
whether the Executive was so disabled and such certification shall for the
purposes of this Agreement be conclusive of the issue. If such question
shall arise and the Executive shall fail to submit such certification, the
Employer's determination of such issue shall be binding on the Executive.
8. Withholding. All payments made by the Employer under this Agreement
shall be net of any tax or other amounts required to be withheld by the
Employer under applicable law.
9. Non-Disclosure, Non-Competition and Non-Solicitation Covenants.
(a) Definitions. For purposes of this Section 9, the following terms
shall have the following respective meanings:
6
<PAGE>
(i) "Competitive Position" shall mean (i) the direct or indirect
equity ownership or control of all or any portion
of a "Competitor" (as hereinafter defined), or (ii) any
employment, consulting, partnership, advisory, directorship,
agency, promotional or independent contractor arrangement
between Executive and any Competitor whereby Executive is
required to perform services substantially similar to those
that he is to perform for Employer hereunder.
(ii) "Competitor" shall refer to any person or entity engaged,
wholly or partly, in the business of distributing,
manufacturing, marketing, selling,servicing, repairing
environmental testing devices.
(iii) "Confidential Information" shall mean any and all proprietary
and confidential data or information of Employer or any of
its affiliates, other than "Trade Secrets" (as hereinafter
defined), which is of tangible or intangible value to
Employer or any of its affiliates and is not public
information or is not generally known or available to
Employer's competitors but is known only to Employer or its
affiliates and their employees, independent contractors or
agents to whom it must be confided in order to apply it to
the uses intended.
(iv) "Restricted Territory" shall mean the United States of
America.
(v) "Trade Secrets" shall mean all knowledge, data and
information of Employer or any of its affiliates which is
defined as a "trade secret" under applicable law.
(vi) "Work Product shall mean all work product, property, data,
documentation, "know-how", concepts, plans, inventions,
improvements, techniques,processes or information of any kind,
prepared, conceived, discovered, developed or created by
Executive in connection with the performance of his services
hereunder.
(b) Acknowledgments. Executive hereby acknowledges and agrees that
during the term of this Agreement (i) Executive will frequently be exposed to
certain Trade Secrets and Confidential Information; (ii) Executive's
responsibilities on behalf of Employer will extend to all geographical areas
of the Restricted Territory; and (iii) any competitive activity on
Executive's part during the term of this Agreement, or any competitive
activity on Executive's part in the Restricted Territory for a reasonable
period thereafter, would necessarily involve Executive's use of Employer's
Trade Secrets and Confidential Information and would unfairly threaten
Employer's legitimate business interests, including its substantial
investment in the proprietary aspects of its business and the goodwill
associated with its customer base. Moreover, Executive acknowledges that, in
the event of the termination of this Agreement, Executive would have
sufficient skills to find alternative, commensurate work in his field of
expertise that would not involve a violation of any of the provisions of this
Section 9. Therefore, Executive acknowledges and agrees that it is reasonable
for Employer to require Executive to abide by the covenants set forth in this
Section 9. The parties acknowledge and agree that if the nature of
Executive's responsibilities for or on behalf of Employer or the geographical
areas in which Executive must fulfill such responsibilities materially
7
<PAGE>
change, the parties will execute appropriate amendments to the scope of the
covenants in this Section 9.
(c) Nondisclosure: Ownership of Proprietary Property.
(i) In recognition of Employer's need to protect its
legitimate business interests, Executive hereby covenants
and agrees that: (A) with regard to each item
constituting a Trade Secret, at all times during which
such item shall constitute a Trade Secret (before or
after termination of this Agreement); and (B) with regard
to any Confidential information, at all times during the
term of this Agreement and for a period of three (3)
years following the expiration or termination of this
Agreement for any reason, Executive shall regard and
treat each item constituting a Trade Secret and all
Confidential Information as strictly confidential and
wholly owned by Employer and will not, for any reason, in
any fashion, either directly or indirectly, use, sell,
lend, lease, distribute, license, give, transfer, assign,
show, disclose, disseminate, reproduce, copy,
misappropriate or otherwise communicate any such item or
information to any third party for any purpose other than
in accordance with this Agreement or as required by
applicable law.
(ii) Executive shall immediately notify Employer of any
intended or unintended, unauthorized disclosure or use of
any Trade Secrets or Confidential Information by
Executive or any other person or entity of which
Executive becomes aware. Executive shall cooperate fully
with Employer in the procurement of any protection of
Employer's rights to or in any of the Trade Secrets or
Confidential Information.
(iii) Immediately upon expiration or termination of this Agreement
for any reason, or if notice of termination is required
hereunder, upon receipt of such notice, or at any time after
such termination or notice upon the specific request of
Employer, Executive shall return to Employer all written
or descriptive materials of any kind in Executive's
possession or to which Executive has access that
constitute or contain any Confidential information or
Trade Secrets, and the confidentiality obligations
described in this Agreement shall continue until their
expiration under the terms of this Agreement.
(iv) To the greatest extent possible, any Work Product
shall be deemed to be "work made for hire" (as defined in
8
<PAGE>
the Copyright Act, 17 U.S.C.A. Section 101 et seq., as
amended) and owned exclusively by Employer. Executive
hereby unconditionally ad irrevocably transfers and
assigns to Employer all rights, title and interest
Executive currently has or in the future may have, by
operation of law or otherwise, in or to any Work product,
including, without limitation, all patents, copyrights,
trademarks, service marks and other intellectual property
rights. Executive agrees to execute and deliver to
Employer any transfers, assignments, documents or other
instruments which Employer may deem necessary or
appropriate to vest complete title and ownership of any
Work Product, and all rights therein, exclusively in
Employer.
(d) Non-competition. In recognition of Employer's need to protect its
legitimate business interests, Executive hereby covenants and agrees that
during the term of this Agreement, Executive will not, either directly or
indirectly, alone or in conjunction with any other party, accept, enter into
or take any action in furtherance of a Competitive Position. Executive
further agrees that for three (3) years following expiration or termination
of this Agreement for any reason, Executive will not, either directly or
indirectly, alone or in conjunction with any other party, accept, enter into
or take any action in furtherance of a Competitive Position within the
Restricted Territory (other than action to reject an offer of a Competitive
Position or to notify Employer of the offer pursuant to the requirements of
the next sentence of this Section 9(d)).
(e) Non-solicitation of Customers. Executive hereby covenants and agrees
that (i) during the term of this Agreement, Executive will not, either
directly or indirectly, alone or in conjunction with any other party,
solicit, divert or appropriate or attempt to solicit, divert or appropriate
any customer or actively sought prospective customer of Employer for the
purpose of providing such customer or actively sought prospective customer
with services or products competitive with those offered by Employer during
the term of this Agreement; and (ii) for a period of three (3) years
following expiration or termination of the term of this Agreement for any
reason, Executive will not, either directly or indirectly, alone or in
conjunction with any other party, solicit, divert or appropriate, or attempt
to solicit, divert or appropriate any customer or actively sought prospective
customer of Employer for the purpose of providing such customer or actively
sought prospective customer with services or products competitive with those
offered by Employer during the term of this Agreement.
(f) Nonsolicitation of Employer Personnel. Executive hereby agrees that
during the term of this Agreement, except to the extent that he is required
to do so in connection with his responsibilities hereunder, Executive will
not, either directly or indirectly, alone or in conjunction with any other
party, solicit or attempt to solicit any employee, consultant, contractor or
other personnel of Employer to terminate, alter or lessen such party's
affiliation with Employer or to violate the terms of any agreement or
understanding between such party and Employer. Executive further agrees that
9
<PAGE>
during the three (3) year period following expiration or termination of this
Agreement for any reason, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, solicit or attempt to solicit
any "key" (as that term is hereinafter defined) employee, consultant,
contractor or other personnel of Employer to terminate, alter or lessen that
party's affiliation with Employer or to violate the terms of any agreement or
understanding between such party and Employer. For purposes of the preceding
sentence "key" employees, consultants, contractors or other personnel of
Employer are those with knowledge of or access to Employer's Trade Secrets or
Confidential Information.
(g) Remedies. Executive agrees that damages at law for Executive's
violation of any of the covenants in this Section 9 would not be an adequate
or proper remedy and that, should Executive violate or threaten to violate
any of the provisions of such covenants, Employer or its successors or
assigns shall be entitled to seek a temporary or permanent injunction against
Executive in any court having jurisdiction prohibiting any further violation
of any such covenants, in addition to any award or damages (compensatory,
exemplary or otherwise) for such violation. The Executive agrees not to
raise as a defense to such action that Employer has an adequate remedy at law.
(h) Partial Enforcement. Employer has attempted to limit the rights of
Executive to compete only to the extent necessary to protect Employer from
unfair competition. Employer, however, agrees that, if the scope of
enforceability of any of these restrictive covenants is in any way disputed
at any time, a court or other trier of fact may modify and enforce such
covenant to the extent that it believes to be reasonable under the
circumstances existing at the time.
(i) Survival. Notwithstanding any expiration or termination of this
Agreement, the provisions of this Section 9 shall survive and remain in full
force and effect, as shall any other provision hereof that, by its terms or
reasonable interpretation thereof, sets forth obligations that extend beyond
the termination of this Agreement.
10. Assignment; Successors and Assigns, etc. Neither the Employer nor the
Executive may make any assignment of this Agreement or any interest herein,
by operation of law or otherwise, without the prior written consent or the
other party and without such consent any attempted transfer or assignment
shall be null and of no effect; provided, however, that the Employer may
assign its rights under this Agreement without the consent of the Executive
in the event the Employer shall hereafter effect a reorganization,
consolidate with or merge into any other Person, or transfer all or
substantially all of its properties or assets to any other Person. This
Agreement shall inure to the benefit of and be binding upon the Employer and
the Executive, their respective successors, executors, administrators, heirs
and permitted assigns. In the event of the Executive's death prior to the
completion by the Employer of all payments due him under this Agreement, the
Employer shall continue such payments to the Executive's beneficiary
designated in writing to the Employer prior to his death (or to his estate,
if he fails to make such designation or such beneficiary predeceases him).
10
<PAGE>
11. Payments to the Executive. The Employer shall pay the reasonable
attorneys' fees and disbursements incurred by the Executive in connection
with the preparation and negotiation of this Agreement. If litigation shall
be instituted to enforce or interpret any provision hereof and the Executive
shall prevail, the Employer will reimburse the Executive for his reasonable
attorneys' fees and disbursements incurred in such proceeding and will pay
prejudgment interest at the legal rate then in effect on any money judgment
or award obtained by the Executive in such proceeding.
12. Enforceability. The unenforceability or invalidity of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions hereof, but such remaining provisions shall be construed
and interpreted in such a manner as to carry out fully the intent of the
parties hereto; provided, however, that should any judicial body interpreting
this Agreement deem any provision hereof to be unreasonably broad in time,
territory, scope or otherwise, it is the intent and desire of the parties
hereto that such judicial body, to the greatest extent possible, reduce the
breadth of such provision to the maximum legally allowable parameters rather
than deeming such provision totally unenforceable or invalid.
13. Waiver. No waiver, termination or discharge of this Agreement, or any
of the terms or provisions hereof, shall be binding upon either party hereto
unless confirmed in writing. No waiver by either party hereto of any term or
provision of this Agreement or of any default hereunder shall affect such
party's right thereafter to enforce such term or provision or to exercise any
right or remedy in the event of any other default, whether or not similar.
14. Notices.
(a) All notices, consents, requests and other communications hereunder
shall be in writing and shall be sent by hand delivery, by certified or
registered mail (return-receipt requested), by facsimile or by a recognized
national overnight courier service as set forth below.
If to Employer: Strategic Diagnostics Inc.
128 Sandy Drive
Newark, Delaware 19713-1147
Attn: Chairman of the Board
with a copy to: William B. Marianes, Esq.
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
If to Executive: Richard C. Birkmeyer
c/o Strategic Diagnostics Inc.
128 Sandy Drive
Newark, Delaware 19713-1147
11
<PAGE>
(b) Notices delivered pursuant to this Section 14 hereof shall be
deemed given: at the time delivered, if personally delivered, three (3)
business days after being deposited in the mail, if mailed; and one (1)
business day after timely delivery to the courier, if by overnight courier
service.
(c) Either party hereto may change the address to which notice is to be
sent by written notice to the other party hereto in accordance with this
Section 14.
15. Headings. The titles, captions and headings contained in this
Agreement are inserted by convenience of reference only and are not intended
to be part of or to affect in any way the meaning or interpretation of this
Agreement.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
17. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
18. Governing Law. This is a Delaware contract and shall be construed
under and be governed in all respects by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first written above.
"Employer"
ATTEST: ENSYS ENVIRONMENTAL PRODUCTS, INC.
/s/ DAN DAMSTRA By: /s/ GROVER C. WRENN
- ---------------------- -----------------------
Title: PRESIDENT & CEO
-----------------------
"Executive"
WITNESS: RICHARD C. BIRKMEYER
- ---------------------- ---------------------------------
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first written above.
"Employer"
ATTEST: ENSYS ENVIRONMENTAL PRODUCTS, INC.
- ---------------------- By:------------------------------
Title:---------------------------
"Executive"
WITNESS: RICHARD C. BIRKMEYER
/s/ ANNE CAVANAUGH /s/ RICHARD C. BIRKMEYER
- ---------------------- --------------------------------
13
<PAGE>
Exhibit A
Form of Incentive Stock Option Agreement
AMENDED AND RESTATED
ENSYS ENVIRONMENTAL PRODUCTS, INC.
1995 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
100,000 December 30, 1996
No. of Shares Date of Grant
Pursuant to the Amended and Restated EnSys Environmental Products, Inc.
1995 Stock Incentive Plan (the "Plan"), EnSys Environmental Products, Inc.
(the "Company") hereby grants to Richard C. Birkmeyer (the "Optionee") an
option (the "Option") to purchase on or prior to December 30 , 2006 (the
"Expiration Date') all or any part of One Hundred Thousand (100,000) shares
(the "Option Shares") of "Stock" (as defined in Section 2 of the Plan) at a
price of $ per share of Stock in accordance with the schedule set forth in
Section 1 hereof and subject to the terms and conditions set forth
hereinafter and in the Plan. This Option shall be construed in a manner to
qualify it as an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), to the maximum extent
permitted.
1. Vesting of Option. Subject to the provisions of Sections 4 and 5 hereof
and the discretion of the "Board" (as defined in Section 1 of the Plan) to
accelerate the vesting schedule hereunder, this Option shall become vested
and exercisable with respect to the following number of Option Shares
according to the timetable set forth below:
Number of Shares of Stock Cumulative Number of
Vested and Becoming Shares of Stock Available
Date Available for Exercise for Exercise
---- ---------------------- ------------
December 30, 1996 25,000 25,000
December 30, 1996 25,000 50,000
December 30, 1996 25,000 75,000
December 30, 1996 25,000 100,000
2. Manner of -Exercise. The Optionee may exercise this Option only in the
following manner: from time to time on or prior to the Expiration Date of
this Option, the Optionee may give written notice to the Board of his
election to purchase some or all of the vested Option Shares purchasable at
the time of such notice as determined in accordance with the cumulative
number of shares of Stock available for exercise specified in the third
column of the schedule set forth in Section 1 hereof. Said notice shall
specify the number of shares of Stock to be purchased.
(a) Payment of the purchase price for the Option Shares may be made by
14
<PAGE>
one or more of the following methods: (i) in cash, by certified or bank check
or other instrument acceptable to the Board; or (ii) in the form of shares of
Stock that are not then subject to restrictions under any Company plan
(subject to the Board's discretion); or (iii) by the Optionee delivering to
the Company a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the option purchase price;
provided that in the event the Optionee chooses to pay the option purchase
price as so provided, the Optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other agreements
as the Board shall prescribe as a condition of such payment procedure.
Payment instruments will be received subject to collection.
(b) The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment
therefor, as set forth above, and any agreement, statement or other evidence
as the Company may require to satisfy itself that the issuance of Option
Shares to be purchased pursuant to the exercise of Options under this
Agreement and any subsequent resale of the shares of Stock will be in
compliance with applicable laws and regulations.
(c) If requested upon the exercise of this Option, certificates for
shares may be issued in the name of the Optionee jointly with another person
or in the name of the executor or administrator of the Optionee's estate.
(d) Notwithstanding any other provision hereof or of the Plan, no
portion of this Option shall be exercisable after the Expiration Date hereof.
3. Non-transferability of Option. This Option shall not be transferable
by the Optionee otherwise than by will or by the laws of descent and
distribution and this Option shall be exercisable, during the Optionee's
lifetime, only by the Optionee or his legal representative.
4. Termination of Employment. If the Optionee's employment by the Company
or a Subsidiary (as defined in Section 1 of the Plan) is terminated, the
period within which to exercise the Option shall be subject to the provisions
set forth below. For this purpose, an approved leave of absence or a
transfer of employment from the Company to a Subsidiary, from a Subsidiary to
the Company or from a Subsidiary to another Subsidiary shall not be deemed a
"termination of Optionee's employment.'
(a) Termination Due to Death. If the Optionee's employment terminates
by reason of death, any Option held by the Optionee may be exercised, to the
extent exercisable at the date of death, by the Optionee's legal
representative or legatee for a period of 180 days from the date of death or
until the Expiration Date, if earlier.
(b) Termination Due to Disability. If the Optionee's employment
terminates by reason of Disability (as defined in Section 1 of the Plan), any
15
<PAGE>
Option held by the optionee may be exercised, to the extent exercisable on
the date of termination, for a period of twelve months from the date of
termination or until the Expiration Date, if earlier.
(c) Termination for Cause. If the Optionee's employment terminates for
Cause (as defined in Section 1 of the Plan), any Option held by the Optionee
shall terminate immediately and be of no further force and effect.
(d) Other Termination. If the Optionee's employment terminates for any
reason other than death, Disability or Cause, and unless otherwise determined
by the Board, any Option held by the Optionee may be exercised, to the extent
exercisable on the date of termination for a period of one year from the date
of termination or until the Expiration Date, if earlier.
(e) Termination without Cause or for Good Reason. Notwithstanding
anything herein to the contrary, in the event the Company terminates
Optionee's employment without Cause or Optionee terminates his employment for
Good Reason' (as hereinafter defined), all of the Options granted pursuant
to Section 1 hereof shall immediately become vested and exercisable in
accordance with the terms hereof. For purposes of this Agreement, each of
the following events shall constitute Good Reason' for Optionee to terminate
his employment with the Company:
(i) Failure of the Board to elect Optionee to the
office of Chief Executive Officer of the Company or to
continue the Optionee in such office;
(ii) Any material breach by the Company of any provision of
any Employment Agreement then in effect with Optionee; or
(iii) Election by the Company not to extend the term of
Optionee's employment under any Employment Agreement then
in effect with Optionee.
5. Change of Control. In the event of a "Change of Control" (as defined
in Section 12 of the Plan), each Option will automatically become exercisable
to the extent provided in Section 12 of the Plan, as in effect on the date of
grant of this Option.
6. Option Shares. The Option Shares are shares of Stock of the Company as
constituted on the date of this Option, which are subject to adjustment as
provided in Section 3(b) of the Plan.
7. No Special Employment Rights. This Option will not confer upon the
Optionee any right with respect to continuance of employment by the Company
or a Subsidiary, nor will it interfere in any way with right of the
Optionee's employer to terminate the Optionee's employment at any time.
16
<PAGE>
8. Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Stock which may be purchased by
exercise of this Option unless and until a certificate or certificates
representing such shares are duly issued and delivered to the Optionee.
Except as otherwise expressly provided in the Plan, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
9. Qualification under Section 422. It is understood and intended that
the option granted hereunder shall qualify as an "incentive stock option" as
defined in Section 422 of the Code to the maximum extent permitted by law.
Accordingly, the Employee understands that the loss of the benefits of an
incentive stock option under Section 422 of the Code may result from a sale
or other disposition of any shares of Stock acquired upon exercise of the
Option within the one-year period beginning on the day after the day of the
transfer of such shares of Stock to him, nor within the two-year period
beginning on the day after the grant of the Option. If the Employee intends
to dispose or does dispose (whether by sale, gift, transfer or otherwise) of
any such shares of Stock within said periods, he will notify the Company
within thirty (30) days after such disposition. In addition, no more than
$100,000 of the aggregate fair market value (as defined in the Plan) of Stock
Options (as defined in Section 1 of the Plan) granted under the Plan may
become exercisable for the first time by the Optionee during any calendar
year and be treated as incentive stock options under Section 422 of the Code.
10. Tax Withholding. No later than the date as of which part or all of the
value of any of the Option Shares first becomes includable in the Optionee's
gross income for Federal tax purposes, the Optionee shall make arrangements
with the Company in accordance with Section 8 of the Plan regarding the
payment of any federal, state or local taxes required to be withheld with
respect to the income.
11. The Plan. In the event of any discrepancy or inconsistency between
this Agreement and the Plan, the terms and conditions of the Plan shall
control, provided that, it is understood and acknowledged that in the event
of any termination of Optionee's employment other than due to death,
disability or for cause, the provisions of Sections 4(d) and 4(e) of this
Agreement shall control.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together constitute one and the same instrument.
13. Miscellaneous. Notices hereunder shall be mailed or delivered to the
Company at its principal place of business and shall be mailed or delivered
to Optionee at the address set forth below or, in either case, at such other
address as one party may subsequently furnish to the other party in writing.
17
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By: /s/ ROBERT E. FINNIGAN
------------------------------------------
Member of the Compensation Committee of the Board of
Directors of EnSys Environmental Products, Inc.
Receipt of the foregoing Option is acknowledged and its terms and
conditions are hereby agreed to:
------------------------------------------
Richard C. Birkmeyer (Optionee)
Date:------------------ Address:----------------------------------
------------------------------------------
18
<PAGE>
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together constitute one and the same instrument.
13. Miscellaneous. Notices hereunder shall-be mailed or delivered to the
Company at its principal place of business and shall be mailed or delivered
to optioned at the address set forth below or, in either case, at such other
address as one party may subsequently furnish to the other party in writing.
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By: ------------------------------------------
Member of the Compensation Committee of
the Board of Directors of EnSys Environmental
Products, Inc.
Receipt of the foregoing Option is acknowledged and its terms and
conditions are hereby agreed to:
/s/ RICHARD C. BIRKMEYER
------------------------------------------
Richard C. Birkmeyer (Optionee)
Date: December 30, 1996 Address: 10 Stage Rd.
------------------ ----------------------------
Newark, DE 19711
-------------------------------------
19
<PAGE>
Exhibit 10.15
STRATEGIC DIAGNOSTICS INC.
128 Sandy Drive
Newark, Delaware 19173-1147
December 30, 1996
Mr. Grover C. Wrenn
c/o Strategic Diagnostics Inc.
128 Sandy Drive
Newark, Delaware 19173-1147
Dear Mr. Wrenn:
This letter sets forth the. agreement between you and Strategic
Diagnostics Inc. (formerly named EnSys Environmental Products, Inc.
("Company")) regarding your continued role in the Company following today's.
consummation of the Company's merger with Strategic Diagnostics Inc.
We have agreed that, effective today, you will cease serving the company
as President and Chief Executive officer and that, pursuant to action
previously taken by the. Company's Board of Directors, you will become
Chairman of the Company's Board of Directors to serve at the will of the
Board in accordance with the Bylaws. In addition to the duties set forth in
the Bylaws. you will assist the Company in investor relations matters,
including providing counsel as to public statements, relationships with the
investment community and presentations to analysts, and as to such other
matters as you agree to undertake at the request of the Board. While you
will remain an employee of the Company, this position will not require your
full working time and attention, and you will be free to pursue other
employment if you wish.
As compensation for the services described above, you will receive
salary at the rate of $200,000 per year, subject to an annual increase as
determined by the compensation Committee of the Board of Directors. Forty
percent (40%) of your salary shall be payable in periodic installments in
accordance with the Company's usual practice for its senior executives.
Each month, you will provide the Board with a written summary of your
activities as Chairman. To the extent that the services described in your
summary occupied more than eight days during the month (representing an
average of two days out of each of four five-day work weeks), you will be
entitled to an additional pro rata portion of your salary.
As Chairman, you also will be entitled to (i) to continue to participate
in any and all employee benefit plans, medical insurance plans, life
insurance plans, disability income plans, retirement plans and other benefit
plans from time to time in effect for senior executives of the Company, (ii)
to receive fringe benefits ordinarily and customarily provided by the
Company to its senior officers, and (iii) to receive prompt reimbursement
for all travel and other business expenses incurred by you in the
performance of your duties and responsibilities.
As further compensation, you have been granted effective today, an
option in the form attached to purchase 100,000 shares of the Company's
common stock under the Company's 1995 Stock Incentive Plan at an exercise
price equal to today's fair market value. The grant of an option pursuant
to this paragraph shall be without prejudice to further grants to you in the
future under any plan adopted by the Company.
We also have agreed that the Employment Agreement between you and the
Company dated April 11, 1995 will terminate today and that you will be
entitled to receive the benefits described in Section 6(e)(i)-(iv) of that
Agreement in addition to the compensation and benefits described above. The
Company shall not be entitled to any set-off against, or reduction of, such
amounts for any reason whatsoever.
The Company shall reimburse up to $5,000 of documented attorneys' fees
and disbursements incurred by you in connection with the preparation and
negotiation of this Agreement. This paragraph does not extend to
reimbursement of attorneys' fees and disbursement associated with any
amendment or termination of this Agreement or any other matter.
Very truly yours,
STRATEGIC DIAGNOSTICS INC.
(formerly named ENSYS
ENVIRONMENTAL PRODUCTS, INC.)
By: /s/ Robert E. Finnigan
-----------------------------
Title: Director
--------------------------
Agreed and accepted as of
the date first above written:
/s/Grover C. Wrenn
- ---------------------------------
Grover C. Wrenn
<PAGE>
EXHIBIT 10.16
December 30, 1996
To each of the Original Holders
listed on the signature
pages hereto
Dear Sirs:
This agreement is made in connection with the Agreement and Plan of
Merger, dated as of October 11, 1996 (the "Merger Agreement") by and between
Strategic Diagnostics Inc., a Delaware corporation ("SDI") and EnSys
Environmental Products, Inc., a Delaware corporation (the "Company"), pursuant
to which SDI shall be merged with and into the Company in accordance with the
applicable provisions of the Delaware General Corporation Law and the terms of
the Merger Agreement. The merger consideration received by the Original Holders
(as hereinafter defined) includes, common stock, par value $.01, of the Company
(the "Common Stock"), Series A Convertible Preferred Stock (the "Preferred
Stock"), par value $.01, of the Company that is convertible into shares of
Common Stock, and warrants (the "Warrants") to purchase shares of Common Stock.
The Company covenants and agrees with each of you (the "Original Holders") as
follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $0.01 par value, of
the Company, as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued upon
conversion of the Preferred Shares, together with any shares of Common Stock
issued on or with respect to other Conversion Shares by way of a stock split,
stock dividend or the like.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
<PAGE>
"Perkin-Elmer Shares" shall mean 1,308,724 shares of Common Stock
issued pursuant to the Merger Agreement to The Perkin-Elmer Corporation.
"Preferred Shares" shall mean an aggregate of 2,164,362 shares of
Preferred Stock issued pursuant to the Merger Agreement to DSV Partners IV,
Edison Venture Fund II, L.P. and Edison Venture Fund II-Pa, L.P.
"Registration Expenses" shall mean the expenses so described in
Section 8.
"Restricted Stock" shall mean the Conversion Shares, Perkin-Elmer
Shares, and Warrant Shares, excluding Conversion Shares, Perkin-Elmer Shares,
and Warrant Shares which (a) have been registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed of
in accordance with the registration statement covering them or (b) are eligible
for public sale without limitation as to amount pursuant to Rule 144 or Rule 145
under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in
Section 8.
"Transfer" shall include any disposition of any Preferred Shares,
Perkin-Elmer Shares, Conversion Shares and Warrant Shares or of any interest
therein which would constitute a sale thereof within the meaning of the
Securities Act.
"Warrant Shares" shall mean shares of Common Stock issued upon
exercise of the Warrants, together with any shares of Common Stock issued on or
with respect to other Warrant Shares by way of stock split, stock dividend or
the like.
2. Restrictive Legend. The Preferred Shares, Perkin-Elmer Shares,
Conversion Shares and Warrant Shares shall not be transferable, except upon the
conditions specified in Sections 2 and 3 hereof, which conditions are intended
to ensure compliance with the provisions of the Securities Act in respect of the
Transfer thereof. Each certificate representing Preferred Shares, Perkin-Elmer
Shares, Conversion Shares or Warrant Shares shall, except as otherwise provided
in this Section 2 or in Section 3, be stamped or otherwise imprinted with a
legend substantially in the following form:
2
<PAGE>
"THIS SECURITY HAS NOT BEEN REGISTERED FOR SALE UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH THAT CERTAIN REGISTRATION RIGHTS AGREEMENT, DATED
DECEMBER 30, 1996 AMONG THE COMPANY AND THE SIGNATORIES THERETO AND
THE SECURITIES ACT OF 1933, AS AMENDED."
3. Notice of Proposed Transfer. Prior to any proposed Transfer of
any Preferred Shares, Perkin-Elmer Shares, Conversion Shares or Warrant Shares
(other than under the circumstances described in Sections 4 or 5), the holder
thereof shall give written notice to the Company of its intention to effect such
Transfer. Each such notice shall describe the manner of the proposed Transfer
and, if requested by the Company, shall be accompanied by an opinion of counsel
satisfactory to the Company to the effect that the proposed Transfer may be
effected without registration under the Securities Act, whereupon the holder of
such stock shall be entitled to Transfer such stock in accordance with the terms
of its notice; provided, however, that no such opinion of counsel shall be
required for a Transfer to one or more partners of an Original Holder (in the
case of an Original Holder that is a partnership) or to an affiliated
corporation of an Original Holder (in the case of an Original Holder that is a
corporation), if, with respect to such Transfer, the transferee agrees in
writing to be subject to the terms of Sections 2, 3 and 10 hereof, to the same
extent as if such transferee were originally a signatory to this Agreement.
Each certificate for Preferred Shares, Perkin-Elmer Shares, Conversion Shares or
Warrant Shares transferred as above provided shall bear the legend set forth in
Section 2, except that such certificate shall not bear such legend if (i) such
Transfer is in accordance with the provisions of Rule 144 (or any other rule
permitting public sale without registration under the Securities Act) or (ii)
the opinion of counsel referred to above is to the further effect that the
transferee and any subsequent transferee (other than an affiliate of the
Company) would be entitled to Transfer such securities in a public sale without
registration under the Securities Act. The restrictions provided for in this
Section 3 shall not apply to securities which are not required to bear the
legend prescribed by Section 2 in accordance with the provisions of that
Section.
4. Required Registration. (a) At any time after the date which is
six (6) months from the date of this Agreement, any two (2) of the three (3)
holders of Restricted Stock acting together as a group may request on two (2)
separate occasions the Company to register under the Securities Act all or any
portion of the shares of Restricted Stock held by such requesting holders for
sale in the manner specified in such notice, provided that the shares of
Restricted Stock for which registration has been
3
<PAGE>
requested shall constitute at least the lesser of (i) 50% of the total shares
of Restricted Stock originally issued to such holders, or (ii) the remaining
shares of Restricted Stock held by such holders, but in any event not less
than 1,500,000 shares of Restricted Stock. For purposes of this Section 4
and Sections 5, 12(a) and 12(d), the term "Restricted Stock" shall be deemed
to include the number of shares of Restricted Stock which would be issuable
to a holder of Preferred Shares upon conversion of all shares of Preferred
Stock held by such holder at such time and the number of shares of Restricted
Stock which would be issuable to a holder of Warrants upon exercise of all
Warrants held by such holder at such time, provided, however, that the only
securities which the Company shall be required to register pursuant hereto
shall be shares of Common Stock, and provided, further, however, that, in any
underwritten public offering contemplated by this Section 4 or Section 5, the
holders of Preferred Shares and Warrants shall be entitled to sell such
Preferred Shares and Warrants to the underwriters for conversion or exercise,
respectively, and sale of the shares of Common Stock issued upon conversion
thereof. Notwithstanding anything to the contrary contained herein, no
request may be made under this Section 4 within 180 days after the effective
date of a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the holders of Restricted
Stock shall have been entitled to join pursuant to Section 5 and in which
there shall have been effectively registered at least fifty percent (50%) of
the shares of Restricted Stock as to which registration shall have been
requested.
(b) Following receipt of any notice under this Section 4, the
Company shall immediately notify all holders of Restricted Stock from whom
notice has not been received and shall use all reasonable efforts to register
under the Securities Act, for public sale in accordance with the method of
disposition specified in such notice from requesting holders, the number of
shares of Restricted Stock specified in such notice (and in all notices received
by the Company from other holders within 30 days after the giving of such notice
by the Company). If such method of disposition shall be an underwritten public
offering, the Company may designate the managing underwriter of such offering,
subject to the approval of the holders of a majority of the shares of Restricted
Stock to be sold in such offering, which approval shall not be unreasonably
withheld, conditioned or delayed. The Company shall be obligated to register
Restricted Stock pursuant to this Section 4 on two occasions only, provided,
however, that such obligation shall be deemed satisfied only when a registration
statement covering at least the lesser of (i) 50% of the total shares of
Restricted Stock originally issued or (ii) 75% of the shares of Restricted Stock
specified in notices
4
<PAGE>
received as aforesaid, for sale in accordance with the method of disposition
specified by the requesting holders, shall have become effective; provided,
further, however, that any registration proceeding begun pursuant to this
Section 4 which is subsequently withdrawn at the request of the holders of a
majority of the shares of Restricted Stock requested to be registered shall
count toward such two registration statements which the holders of the shares
of Restricted Stock have the right to cause the Company to effect pursuant to
this Section 4.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, or any issued and outstanding shares of
Common Stock to be sold by others except as and to the extent that, in the
opinion of the managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold.
5. Incidental Registration. If the Company at any time (other than
pursuant to Section 4) proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4 or another form not available for registering the
Restricted Stock for sale to the public), each such time it will give written
notice to all holders of outstanding Restricted Stock of its intention so to do.
Upon the written request of any such holder received by the Company within 30
days after the giving of any such notice by the Company, to register any of its
Restricted Stock (which request shall state the intended method of disposition
thereof), the Company will use all commercially reasonable efforts (subject to
the rights of any holders of securities of the Company, other than the Company,
included in such registration) to cause the Restricted Stock as to which
registration shall have been so requested to be included in the securities to be
covered by the registration statement proposed to be filed by the Company, all
to the extent requisite to permit the sale or other disposition by the holder
(in accordance with its written request) of such Restricted Stock so registered.
In the event that any registration pursuant to this Section 5 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Restricted Stock as a group to be included in such an underwriting may
be reduced (pro rata among the holders of Restricted Stock based upon the number
of shares of Restricted Stock owned by such holders) if and to the extent that
the managing underwriter shall be of the opinion that such inclusion would
adversely affect the
5
<PAGE>
marketing of the securities to be sold by the Company or other holder of
securities of the Company. Notwithstanding the foregoing provisions, the
Company may withdraw any registration statement referred to in this Section 5
without thereby incurring any liability to the holders of Restricted Stock.
6. Holdback Agreement. If the Company at any time shall register
shares of Common Stock under the Securities Act (including any registration
pursuant to Sections 4 and 5) for sale to the public, the Original Holders shall
not sell publicly, make any short sale of, grant an option for the purchase of,
or otherwise dispose of, any shares of Restricted Stock (other than those shares
of Common Stock included in such registration pursuant to Sections 4 or 5)
without the prior written consent of the Company for a period designated by the
Company in writing to the holders of shares of Restricted Stock, which period
shall not begin more than 10 days prior to the effectiveness of the registration
statement pursuant to which such public offer will be made and shall not last
more than 180 days after the effective date of such registration statement.
7. Registration Procedures. If and whenever the Company is required
by the provisions of Sections 4 or 5 to use all reasonable efforts or all
commercially reasonable efforts to effect the registration of any shares of
Restricted Stock under the Securities Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a registration
statement on Form S-1 or Form S-3 if available with respect to such securities
and use all reasonable efforts to cause such registration statement to become
and remain effective for the period of the distribution contemplated thereby
(determined as hereinafter provided) (subject, in the case of any Incidental
Registration, to the rights of the Company to abandon any such registration as
set forth in Section 5);
(b) with respect to any registration pursuant to Section 4,
prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period specified
above and comply with the provisions of the Securities Act with respect to the
disposition of all Restricted Stock covered by such registration statement in
accordance with the sellers' intended method of disposition set forth in such
registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration
6
<PAGE>
statement and the prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order to facilitate the
public sale or other disposition of the Restricted Stock covered by such
registration statement;
(d) use all reasonable efforts to register or qualify the
Restricted Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified, to consent to
general service of process in any such jurisdiction or submit to liability for
state or local taxes where it is not otherwise liable for such taxes;
(e) use all reasonable efforts to list the Restricted Stock
covered by such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any
seller of Restricted Stock, use all reasonable efforts to furnish on the date
that Restricted Stock is delivered to the underwriters for sale pursuant to such
registration: (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the seller or sellers making such request;
and (ii) at the request of either the underwriters or sellers of Restricted
Stock, a letter dated such date from the independent public accountants retained
by the Company, addressed to the underwriters and to such seller, stating that
they are independent public accountants within the meaning of the Securities Act
and that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement
7
<PAGE>
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to
the period ending no more than five business days prior to the date of such
letter) with respect to such registration as such underwriters reasonably may
request; and
(h) make reasonably available for inspection by each seller of
Restricted Stock, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and use all
reasonable efforts to cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement, in
each case as and to the extent necessary to permit the sellers to conduct a
reasonable investigation within the meaning of the Securities Act. To minimize
disruption and expense to the Company during the course of the registration
process, the sellers will act through a single law firm and a single accounting
firm and will enter into confidentiality agreements with the Company in form and
substance reasonably satisfactory to the Company and the sellers prior to
receiving any confidential or proprietary information of the Company.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby, or nine (9)
months after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 4 or 5
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
8
<PAGE>
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. Expenses. All expenses (both third party and internal) incurred
by the Company in complying with Sections 4 and 5, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
fees and expenses (including counsel fees) incurred in connection with complying
with state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance, but excluding any Selling Expenses, are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock, and all fees and disbursements of
legal counsel for the sellers of Restricted Stock, are called "Selling
Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4 or 5. All Selling Expenses in connection
with each registration statement under Sections 4 or 5 shall be borne by the
participating sellers in proportion to the number of shares sold by each, or by
such participating sellers other than the Company (except to the extent the
Company shall be a seller) as they may agree.
9. Indemnification and Contribution. (a) In the event of a
registration of any of the Restricted Stock under the Securities Act pursuant to
Sections 4 or 5, the Company will indemnify and hold harmless each seller of
such Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4 or 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
9
<PAGE>
them in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such seller, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Sections 4 or 5, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Sections 4 or 5, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of each seller hereunder shall
not in any event exceed the proceeds received by such seller from the sale of
Restricted Stock covered by such registration statement.
10
<PAGE>
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Restricted Stock exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 9; then, and in
11
<PAGE>
each such case, the Company and such holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) as is appropriate to reflect the relative fault of
the Company and such holder in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as the
relative benefit received by the Company and such holder as a result of the
offering in question, it being understood that the parties acknowledge that
the overriding equitable consideration to be given effect in connection with
this provision is the ability of one party or the other to correct the
statement or omission which resulted in such losses, claims, damages or
liabilities, and that it would not be just and equitable if contribution
pursuant hereto were to be determined by pro rata allocation or by any other
method of allocation which does not take into consideration the foregoing
equitable considerations; provided, however, that, in any such case, (A) no
such holder will be required to contribute any amount in excess of the public
offering price of all such Restricted Stock offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
10. Removal of Legends, Etc. Notwithstanding the foregoing
provisions of Sections 2 through 9 hereof, the restrictions imposed by Sections
2 through 9 on the transferability of any Preferred Shares, Conversion Shares,
Warrant Shares and Perkin-Elmer Shares shall cease and terminate when (a) any
such Preferred Shares, Perkin-Elmer Shares, Conversion Shares or Warrant Shares
are sold or otherwise disposed of in accordance with the intended method of
disposition by the seller or sellers thereof set forth in a registration
statement or such other method contemplated by Section 3 hereof that does not
require that the securities transferred bear the legend set forth in Section 2
hereof, or (b) the holder of such Preferred Shares, Perkin-Elmer Shares,
Conversion Shares or Warrant Shares has met the requirements for transfer
pursuant to subparagraph (k) of Rule 144 (as amended from time to time)
promulgated by the Commission under the Securities Act. Whenever the
restrictions imposed by Sections 2 through 9 hereof have terminated, a holder of
a certificate for such Preferred Shares, Perkin-Elmer Shares, Conversion Shares
or Warrant Shares as to which such restrictions have terminated shall be
entitled to receive from the Company, without expense, a new certificate not
bearing the restrictive legend set forth in Section 2 hereof and not containing
any other reference to the restrictions imposed by this Agreement.
12
<PAGE>
11. Changes in Common Stock or Preferred Stock. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
12. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Stock to the public without registration, at all
times the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use all reasonable efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.
13. Representations and Warranties of the Company. The Company
represents and warrants to each of the Original Holders as follows:
(a) The execution, delivery and performance of this Agreement by
the Company have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or its subsidiaries or any
provision of any indenture, agreement or other instrument to which it or its
subsidiaries or any or their properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or result in the
creation or imposition of any lien, charge or encumbrance of any
13
<PAGE>
nature whatsoever upon any of the properties or assets of the Company or its
subsidiaries.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
14. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including without
limitation transferees of any Preferred Shares or Restricted Stock), whether so
expressed or not, provided, however, that registration rights conferred herein
on the holders of Preferred Shares, Perkin-Elmer Shares, Warrants, or Restricted
Stock, shall only inure to the benefit of a transferee of Preferred Shares,
Perkin-Elmer Shares, Warrants, or Restricted Stock, if (i) there is transferred
to such transferee at least 20% of the total shares of Restricted Stock
originally issued pursuant to the Merger Agreement to the direct or indirect
transferor of such transferee or (ii) such transferee is a partner, shareholder
or affiliate of a party hereto.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by certified or registered
mail, return receipt requested, postage prepaid, or telexed, in the case of
non-U.S. residents, addressed as follows:
if to the Company, at:
Strategic Diagnostics Inc.
128 Sandy Drive
Newark, DE 19713-1147
Attn: President
if to any Original Holder, at the most recent address given
by such party to the Company;
if to any subsequent holder of Preferred Shares,
Perkin-Elmer Shares, Warrants, or Restricted Stock, to it at such address as may
have been furnished to the Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Preferred Shares,
Perkin-Elmer Shares or Restricted Stock) or
14
<PAGE>
to the holders of Preferred Shares, Perkin-Elmer Shares or Restricted Stock
(in the case of the Company) in accordance with the provisions of this
paragraph.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least two-thirds of the outstanding shares of Restricted
Stock. In addition, the Agreement may not be amended in a manner that is
materially adverse to the rights of the parties hereunder without the written
consent of the holders of at least a majority of the outstanding shares of
Restricted Stock.
(e) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) The obligations of the Company to register shares of
Restricted Stock under Sections 4 or 5 shall terminate on the fifth anniversary
of the date of this Agreement.
(g) Notwithstanding the provisions of Section 6(a), the
Company's obligation to file a registration statement, or cause such
registration statement to become and remain effective, shall be suspended for a
period not to exceed 90 days in any 12-month period if there exists at the time
material non-public information relating to the Company which, in the reasonable
opinion of the Company, should not be disclosed.
(h) From the date of this Agreement, the Company shall not grant
to any third party any registration rights more favorable than any of those
contained herein, so long as any of the registration rights under this Agreement
remains in effect.
(i) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
ENSYS ENVIRONMENTAL
PRODUCTS, INC.
By: /s/Grover C. Wrenn
-----------------------------
Title: President and Chief
Executive Officer
AGREED TO AND ACCEPTED as of
the date first above written.
DSV PARTNERS IV
By: DSV Management, Ltd.,
its general partner
By: /s/Mort Collins
----------------------------
General Partner
EDISON VENTURE FUND II, L.P.
By: Edison Partners II, L.P.,
General Partner
By: /s/Richard J. Defieux
----------------------------
General Partner
EDISON VENTURE FUND II-PA, L.P.
By: Edison Partners II, L.P.,
General Partner
By: /s/Richard J. Defieux
----------------------------
General Partner
THE PERKIN-ELMER CORPORATION
By: /s/Stephen O. Jaeger
----------------------------
16
<PAGE>
Exhibit 10.17
LEASE AGREEMENT
1. Parties
This Agreement, MADE THE 24th day of June one thousand nine hundred and
ninety-six (1996), by and between LANG ASSOCIATES (hereinafter called
Lessor), of the one part, and STRATEGIC DIAGNOSTICS, INC. (hereinafter called
Lessee), of the other part.
2. Premises
WITNESSETH THAT: Lessor does hereby demise and let unto Lessee all that
certain premises commonly known as 300 Pheasant Run - Lot #53 - Newtown
Industrial Commons -25,600 square feet - Building #2 - Tax Parcel #29-10-133
- - L.A. Plaza, Unit 2 A, B, C and D in the County of Bucks State of
Pennsylvania, to be used and occupied as Office, Research and Warehouse Space
and for no other purpose.
3. Term
For the term of beginning the 1st day of July one thousand nine hundred
and ninety-six (1996), and ending the 30th day of June one thousand nine
hundred and ninety-eight (1988).
4. Minimum Rent
For the minimum Term rental of Three Hundred Twenty-Five Thousand Thirty
One and 57/100 Dollars ($25,031.57) lawful money of the United States of
America, payable in monthly installments in advance during the said term of
this lease, or any renewal hereof, in sums of Thirteen Thousand Four Hundred
Seven and 17/100 Dollars ($13,307.17) on the 1st day of each month, rent to
begin from the 1st day of August, 1996, the first installment to be paid at
the time of signing this lease. The first rental payment to be made during
the occupancy of the premises shall be adjusted to pro-rate a partial month
of occupancy, if any, at the inception of this lease.
5. (a) Place of Payment
All rents shall be payable without prior notice or demand at the
office of Lessor RE/MAX Properties, Ltd., 210 Penns Trail, Newtown, PA 18940
or at such other place as Lessor may from time to time designate by notice in
writing.
6. (b) Agency
It is hereby expressly agreed and understood that the said RE/MAX
Properties, Ltd. is acting as agent only and shall not in any event be held
liable to the owner or to Lessee for the fulfillment or non-fulfillment of
any of the terms or conditions of this lease, or for any action
<PAGE>
or proceedings that may be taken by the
owner against Lessee, or by Lessee against the owner.
7. Termination of Lease.
[DELETED BY THE PARTIES]
8. Security Deposit.
Lessee shall, upon execution hereof, deposit with Lessor as security for
the performance of all the terms, covenants, and conditions of this lease,
the sum of Thirteen Thousand Four Hundred Seven and 17/100 ($13,407.17)
Dollars, to be held as security for the full and faithful performance by
Lessee of Lessee's obligations under this Lease and for the payment of
damages to the demised premises. If the demised premises is residential
property, said security deposit is to be held by Lessor as an Escrow Fund
pursuant to the terms and provisions of the Penna Act of Assembly approved
December 29, 1972, Act. No. 363. Except for such sum as shall be lawfully
applied by Lessor to satisfy valid claims against Lessee arising from
defaults under this lease or by reason of damages to the demised premises,
the Security Deposit or Escrow Fund shall be returned to Lessee at the
expiration of the term of this lease or any renewal or extension thereof but
in the case of residential property only as provided for in the said Act of
Assembly. It is understood that the said deposit is not to be considered as
the last rental due under the lease.
9. Special Clauses
A. Lessee shall have the option of changing the ending date of this
Lease to June 30, 1997. If Lessee chooses to exercise this option, written
notice of this intent shall be sent Certified Mail to Agent for Lessor by no
later than February 1, 1997. If Lessee chooses this option, a fee of
$46,915.00 shall be due and payable to Lessor and received at the office of
the Agent of Lessor no later than February 28, 1997.
B. As of July 31, 1996, Lessee will vacate 5,000 square feet (Unit 2A)
of the above described space (see attached diagram) and will then have a
total space of 20,600 square feet.
* C. Rental for month of July, 1996 shall be $16,666.66 for 25,600 square
feet.
10. Addendum
The Lessor and Lessee agree for themselves, their respective heirs and
successors and assigns to the herein described term and also to those set
forth in the addendum attached hereto entitled "TERMS AND CONDITIONS," (PART
TWO) all of which are to be regarded as binding and as strict legal
conditions.
LESSEE___ LESSEE___ LESSEE___ LESSOR___ LESSOR___ LESSOR___
-2-
<PAGE>
LEASE AGREEMENT
Terms and Conditions
Part Two of a Two Part Agreement
11. Special Clauses
12. Inability to give Possession
If Lessor is unable to give Lessee possession of the demised premises, as
herein provided, by reason of the holding over of a previous occupant, or by
reason of any cause beyond the control of the Lessor, the Lessor shall not be
liable in damages to the Lessee therefor, and during the period that the
Lessor is unable to give possession, all rights and remedies of both parties
hereunder shall be suspended, and if Lessor is unable for any reason to give
possession of the demised premises within 5 days of Lessee's demand therefor
following commencement of the term hereof Lessee shall have the option, by
notice to Lessor, to cancel this lease agreement and receive return of any
prepaid rents and security deposit in full and final settlement of any and
all claims against Lessor.
13. Additional Rent
(a) Damages for Default
Lessee agrees to pay as rent in addition to the minimum rental
herein reserved any and all sums which may become due by reason of the
failure of Lessee to comply with all the covenants of this lease and pay any
and all damages, costs and expenses which the Lessor may suffer or incur by
reason of any default of the Lessee or failure on his part to comply with the
covenants of this lease, and each of them, and also any and all damages of
the demised premises caused by any act or neglect of the Lessee.
(b) Taxes
Lessee further agrees to pay as rent in addition to the minimum
rental herein reserved all taxes assessed or imposed upon the demised
premises and/or the building of which the demised premises is a part during
the term of this lease, in excess of and over and above those assessed or
imposed at the time of making this lease. The amount due hereunder on
account of such taxes shall be apportioned for that part of the first and
last calendar years covered by the term hereof. The same shall be paid by
Lessee to Lessor on or before the first day of July of each and every year.
(c) Fire Insurance Premiums
Lessee further agrees to pay to Lessor as additional rent all
increase or increases in fire insurance premiums upon the demised premises
and/or the building of which the demised
-3-
<PAGE>
premises is a part, due to an increase in the rate of fire insurance in
excess of the rate on the demised premises at the time of making this lease,
if said increase is caused by any act or neglect of the Lessee or the nature
of the Lessee's business.
(d) Water Rent
Lessee further agrees to pay as additional rent, if there is a
metered water connection to the said premises, all charges for water consumed
upon the demised premises in excess of the yearly minimum meter charge and
all charges for repairs to the said meter or meters on the premises, whether
such repairs are made necessary by ordinary wear and tear, freezing, hot
water, accident or other causes, immediately when the same become due.
14. Affirmative Covenants of Lessee
Lessee covenants and agrees that he will without demand
(a) Payment of Rent
Pay the rent and all other charges herein reserved as rent on the
days and times and at the place that the same are made payable, without fail,
and if Lessor shall at any time or times accept said rent or rent charges
after the same shall have become due and payable, such acceptance shall not
excuse delay upon subsequent occasions, or constitute or be construed as a
waiver of any of Lessor's rights. Lessee agrees that any charge or payment
herein reserved, included or agreed to be treated or collected as rent and/or
any other charges or taxes, expenses, or costs herein agreed to be paid by
the Lessee may be proceeded for and recovered by the Lessor by distraint or
other process in the same manner as rent due and in arrears.
(b) Cleaning, Repairing, etc.
Keep the demised premises clean and free from all ashes, dirt and
other refuse matter; replace all glass windows, doors, etc., broken; keep all
waste and drain pipes open; repair all damage to plumbing and to the premises
in general; keep the same in good order and repair as they now are,
reasonable wear and tear and damage by accidental fire or other casualty not
occurring through negligence of Lessee or those employed by or acting for
Lessee alone excepted. The Lessee agrees to surrender the demised premises
in the same condition in which Lessee has herein agreed to keep the same
during the continuance of this lease.
(c) Requirements of Public Authorities
Comply with any requirements of any of the constituted public
authorities, and with the terms of any State or Federal statute or local
ordinance or regulation applicable to Lessee or his use of the demised
premises, and save Lessor harmless from penalties, fines, costs or damages
resulting from failure to do so.
-4-
<PAGE>
(d) Fire
Use every reasonable precaution against fire.
(e) Rules and Regulations
Comply with rules and regulations of Lessor promulgated as
hereinafter provided.
(f) Surrender of Possession
Peaceably deliver up and surrender possession of the demised
premises to the Lessor at the expiration or sooner termination of this lease,
promptly delivering to Lessor at his office all keys for the demised premises.
(g) Notice of Fire, etc.
Give to Lessor prompt written notice of any accident, fire, or
damage occurring on or to the demised premises.
(h) Condition of Pavement
Lessee shall be responsible for the condition of the pavement, curb,
cellar doors, awnings and other erections in the pavement during the term of
this lease; shall keep the pavement free from snow and ice; and shall be and
hereby agrees that Lessee is solely liable for any accidents, due or alleged
to be due to their defective condition, or to any accumulations of snow and
ice.
(i) Agency on Removal
The Lessee agrees that if, with the permission in writing of Lessor,
Lessee shall vacate or decide at any time during the term of this lease, or
any renewal thereof, to vacate the herein demised premises prior to the
expiration of this lease, or any renewal hereof, Lessee will not cause or
allow any other agent to represent Lessee in any sub-letting or reletting of
the demised premises other than an agent approved by the Lessor and that
should Lessee do so or attempt to do so, the Lessor may remove any signs that
may be placed on or about the demised premises by such other agent without
any liability to Lessor or to said agent, the Lessee assuming all
responsibility for such action.
(j) Indemnification
Indemnify and save Lessor harmless from any and all loss occasioned
by Lessee's breach of any of the covenants, terms and conditions of this
lease, or caused by his family, guest, visitors, agents or employees.
-5-
<PAGE>
15. Negative Covenants of Lessee
Lessee covenants and agrees that he will do none of the following things
without the consent in writing of Lessor, which consent Lessor shall not
unreasonably withhold, and without providing Lessor with reimbursement for
any expense incurred or incidental to Lessee's proposed action:
(a) Use of Premises
Occupy the demised premises in any other manner or for any other
purpose than as above set forth.
(b) Assignment and Subletting
Assign, mortgage or pledge this lease or under-let or sub-lease the
demised premises, or any part thereof, or permit any other person, firm or
corporation to occupy the demised premises, or any part thereof; nor shall
any assignee or sub-lessee assign, mortgage or pledge this lease or such
sub-lease, without an additional written consent by the Lessor, and without
such consent no such assignment, mortgage or pledge shall be valid. If the
Lessee becomes embarrassed or insolvent, or makes an assignment for the
benefit of creditors, or if a petition in bankruptcy is filed by or against
the Lessee or a bill in equity or other proceeding for the appointment of a
receiver for the Lessee is filed, or if the real or personal property of the
Lessee shall be sold or levied upon by any Sheriff, Marshall or Constable,
the same shall be a violation of this covenant.
(c) Signs
Place or allow to be placed any stand, booth, sign or show case upon
the doorsteps, vestibules or outside walls or pavements of said premises, or
paint, place, erect or cause to be painted, placed or erected any sign,
projection or device on or in any part of the premises. Lessee shall remove
any sign, projection or device painted, placed or erected, if permission has
been granted and restore the walls, etc., to their former conditions, at or
prior to the expiration of this lease. In case of the breach of this covenant
(in addition to all other remedies given to Lessor in case of breach of any
conditions or covenants of this lease) Lessor shall have the privilege of
removing said stand, booth, sign, show case, projection or device, and
restoring said walls, etc., to their former condition, and Lessee, at
Lessor's option, shall be liable to Lessor for any and all expenses so
incurred by Lessor.
(d) Alterations, Improvements
Make any alterations, improvements, or additions to the demised
premises. All alterations, improvements, additions or fixtures, whether
installed before or after the execution of this lease, shall remain upon the
premises at the expiration or sooner determination of this lease
-6-
<PAGE>
and become the property of Lessor, unless Lessor shall, prior to the
determination of this lease, have given written notice to Lessee to remove
the same, in which event Lessee will remove such alterations, improvements
and additions and restore the premises to the same good order and condition
in which they now are. Should Lessee fail so to do, Lessor may do so,
collecting, at Lessor's option, the cost and expense thereof from Lessee as
additional rent.
(e) Machinery
Use or operate any machinery that, in Lessor's opinion, is harmful
to the building or disturbing to other tenants occupying other parts thereof.
(f) Weights
Place any weights in any portion of the demised premises beyond the
safe carrying capacity of the structure.
(g) Fire Insurance
Do or suffer to be done, any act, matter or thing objectionable to
the fire insurance companies whereby the fire insurance or any other
insurance now in force or hereafter to be placed on the demised premises, or
any part thereof, or on the building of which the demised premises may be a
part, shall become void or suspended, or whereby the same shall be rated as a
more hazardous risk than at the date of execution of this lease, or employ
any person or persons objectionable to the fire insurance companies or carry
or have any benzine or explosive matter of any kind in and about the demised
premises. In case of a breach of this covenant (in addition to all other
remedies given to Lessor in case of the breach of any of the conditions or
covenants of this lease) Lessee agrees to pay to Lessor as additional rent
any and all increase or increases of premiums on insurance carried by Lessor
on the demised premises, or any part thereof, or on the building of which the
demised premises may be a part, caused in any way by the occupancy of Lessee.
(h) Removal of Goods
Remove, attempt to remove or manifest an intention to remove
Lessee's goods or property from or out of the demised premises otherwise than
in the ordinary and usual course of business, without having first paid and
satisfied Lessor for all rent which may become due during the entire term of
this lease.
(i) Vacate Premises
Vacate or desert said premises during the term of this lease, or
permit the same to be empty and unoccupied.
-7-
<PAGE>
16. Lessor's Rights
Lessee covenants and agrees that Lessor shall have the right to do the
following things and matters in and about the demised premises:
(a) Inspection of Premises
At all reasonable times by himself or his duly authorized agents to
go upon and inspect the demised premises and every part thereof, and/or at
his option to make repairs, alterations and additions to the demised premises
or the building of which the demised premises is a part.
<#>
(b) Rules and Regulations
At any time or times and from time to time to make such rules and
regulations as in his judgment may from time to time be necessary for the
safety, care and cleanliness of the premises, and for the preservation of
good order therein. Such rules and regulations shall, when noticed thereof is
given to Lessee, form a part of this lease.
</#>
(c) Sale or Rent Sign - Prospective Purchasers or Tenants
To display a "For Sale" sign at any time, and also, after notice
from either party of intention to determine this lease, or at any time within
three months prior to the expiration of this lease, a "For Rent" sign, or
both "For Rent" and "For Sale" signs; and all of said signs shall be placed
upon such part of the premises as Lessor may elect and may contain such
matter as Lessor shall require. Persons authorized by Lessor may inspect the
premises at reasonable hours during the said periods.
(d) Discontinue Facilities and Service
The Lessor may discontinue all facilities furnished and services
rendered, or any of them, by Lessor, not expressly covenanted for herein, it
being understood that they constitute no part of the consideration for this
lease.
17. Responsibility of Lessee
(a) Lessee agrees to be responsible for and to relieve and hereby
relieves the Lessor from all liability by reason of any injury or damage to
any person or property in the demised premises, whether belonging to the
Lessee or any other person, caused by any fire, breakage or leakage in any
part or portion of the demised premises, or any part or portion of the
building of which the demised premises is a part, or from water, rain or snow
that may leak into, issue or flow from any part of the said premises, or of
the building of which the demised premises is a part, or from the drains,
pipes, or plumbing work of the same, or from any place or quarter, whether
such
-8-
<PAGE>
breakage, leakage, injury or damage be caused by or result from the
negligence of Lessor or his servants or agents.
(b) Lessee also agrees to be responsible for and to relieve and
hereby relieves Lessor from all liability by reason of any damage or injury
to any person or thing which may arise from or be due to the use, misuse or
abuse of all or any of the elevators, hatches, openings, stairways, hallways,
or any kind whatsoever, which may exist or hereafter be erected or
constructed on the said premises, or from any kind of injury which may arise
from any other cause whatsoever on the said premises or the building of which
the demised premises is a part, whether such damage, injury, use, misuse or
abuse be caused by or result from the negligence of Lessor, his servants or
agents.
18. Responsibility of Lessor
(a) Total Destruction of Premises
In the event that the demised premises is totally destroyed or so
damaged by fire or other casualty not occurring through fault or negligence
of the Lessee or those employed by or acting for him, that the same cannot be
repaired or restored within a reasonable time, this lease shall absolutely
cease and determine, and the rent shall abate for the balance of the term.
(b) Partial Destruction of Premises
If the damage caused as above be only partial and such that the
premises can be restored to their then condition within a reasonable time,
the Lessor may, at his option, restore the same with reasonable promptness,
reserving the right to enter upon the demised premises for that purpose. The
Lessor also reserves the right to enter upon the demised premises whenever
necessary to repair damage caused by fire or other casualty to the building
of which the demised premises is a part, even though the effect of such entry
be to render the demised premises or a part thereof untenantable. In either
event the rent shall be apportioned and suspended during the time the Lessor
is in possession, taking into account the proportion of the demised premises
rendered untenantable and the duration of the Lessor's possession. If a
dispute arises as to the amount of rent due under this clause, Lessee agrees
to pay the full amount claimed by Lessor. Lessee shall, however, have the
right to proceed by law to recover the excess payment, if any.
(c) Repairs by Lessor
Lessor shall make such election to repair the premises or terminate
this lease by giving notice thereof to Lessee at the leased premises within
thirty days from the day Lessor received notice that the demised premises had
been destroyed or damaged by fire or other casualty.
(d) Damage for Interruption of Use
-9-
<PAGE>
Lessor shall not be liable for any damage, compensation or claim by
reason of inconvenience or annoyance arising from the necessity of repairing
any portion of the building, the interruption in the use of the premises, or
the termination of this lease by reason of the destruction of the premises.
(e) Representation of Condition of Premises
The Lessor has let the demised premises in their present "as is"
condition and without any representations on the part of the Lessor is under
no duty to make repairs or alterations, or decorations at the inception of
this lease or at any time thereafter unless such duty of Lessor shall be set
forth in writing endorsed hereon.
(f) Zoning
It is understood and agreed that the Lessor hereof does not warrant
or undertake that the Lessee shall be able to obtain a permit under any
Zoning Ordinance or Regulation for such use as Lessee intends to make of the
said premises, and nothing in this lease contained shall obligate the Lessor
to assist Lessee in obtaining said permits; the Lessee further agrees that in
the event a permit cannot be obtained by Lessee under any Zoning Ordinance or
Regulation, this lease shall not terminate without Lessor's consent, and the
Lessee shall use the premises only in a manner permitted under such Zoning
Ordinance or Regulation.
19. Miscellaneous Agreements and Conditions
(a) Effect of Repairs on Rental
No contract entered into or that may be subsequently entered into by
Lessor with Lessee, relative to any alterations, additions, improvements or
repairs, nor the failure of Lessor to make such alterations, additions,
improvements or repairs as required by any such contract, nor the making by
Lessor or his agent or contractors of such alterations, additions,
improvements or repairs shall in any way affect the payment of the rent or
said other charges at the time specified in this lease, except to the extent
and in the manner hereinbefore provided.
(b) Waiver of Custom
It is hereby covenanted and agreed, any law, usage or custom to the
contrary notwithstanding, that Lessor shall have the right at all times to
enforce the covenants and provisions of this lease in strict accordance with
the terms hereof, notwithstanding any conduct or custom on the part of the
Lessor in refraining from so doing at any time or times; and, further, that
the failure of Lessor at any time or times to enforce his rights under said
covenants and provisions strictly in accordance with the same shall not be
construed as having created a custom in any way or manner contrary to the
specific terms, provisions and covenants of this lease or as having in any
way or manner modified the same.
-10-
<PAGE>
(c) Conduct of Lessee
This lease is granted upon the express condition that Lessee and/or
the occupants of the premises herein leased, shall not conduct themselves in
a manner which the Lessor in his sole opinion may deem improper or
objectionable, and that if at any time during the term of this lease or any
extension or continuation thereof, Lessee or any occupier of the said
premises shall have conducted himself, herself or themselves in a manner
which Lessor in his sole opinion deems improper or objectionable, Lessee
shall be taken to have broken the covenants and conditions of this lease, and
Lessor will be entitled to all of the rights and remedies granted and
reserved herein for the Lessee's failure to observe any of the covenants and
conditions of this lease.
(d) Failure of Lessee to Repair
In the event of the failure of Lessee promptly to perform the
covenants of Section 14(b) hereof, Lessor may go upon the demised premises
and perform such covenants, the cost thereof, at the sole option of Lessor,
to be charged to Lessee as additional and delinquent rent.
(e) Waiver of Subrogation
Lessor and Lessee hereby agree that all insurance policies which
each of them shall carry to insure the demised premises and the contents
therein against casualty loss, and all liability policies which they shall
carry pertaining to the use and occupancy of the demised premises shall
contain waivers of the right of subrogation against Lessor and Lessee herein,
their heirs, administrators, successors, and assigns.
(f) Security Interest.
Lessee hereby grants to Lessor a security interest under the Uniform
Commercial Code in all of Lessee's goods and property in, on or about the
demised premises. Said security interest shall secure unto Lessor the
payment of all rent (and charges collectible or reserved as rent) hereunder
which shall be required under the provisions of the said Uniform Commercial
Code to perfect a security interest in Lessee's said goods and property.
20. Remedies of Lessor - If the Lessee
(a) Does not pay in full when due any and all installments of rent
and/or any other charge or payment herein reserved, included, or agreed to be
treated or collected as rent and/or any other charge, expense, or cost herein
agreed to be paid by the Lessee; or
(b) Violates or fails to perform or otherwise breaks any covenant or
agreement herein contained; or
(c) Vacates the demised premises or removes or attempts to remove or
manifests an
-11-
<PAGE>
intention to remove any goods or property therefrom otherwise than in the
ordinary and usual course of business without having first paid and satisfied
the Lessor in full for all rent and other charges then due or that may
thereafter become due until the expiration of the then current term, above
mentioned; or
(d) Becomes embarrassed or insolvent, or makes an assignment for the
benefit of creditors, or if a petition in bankruptcy is filed by or against
the Lessee, or a bill in equity or other proceeding for the appointment of a
receiver for the Lessee is filed, or if proceedings for reorganization or for
composition with creditors under any State or Federal law be instituted by or
against Lessee, or if the real or personal property of the Lessee shall be
levied upon or be sold, or if for any other reason Lessor shall, in good
faith believe that Lessee's ability to comply with the covenants of this
lease, including the prompt payment of rent hereunder, is or may become
impaired, thereupon:
(1) The whole balance of rent and other charges, payments, costs,
and expenses herein agreed to be paid by Lessee, or any part thereof, and
also all costs and officers' commissions including watchmen's wages shall be
taken to be due and payable and in arrears as if by the terms and provisions
of this lease said balance of rent and other charges, payments, taxes, costs
and expenses were on that date, payable in advance. Further, provisions of
this lease or any part thereof is assigned, or if the premises, or any part
thereof is sub-let, Lessee hereby irrevocably constitutes and appoints Lessor
as agent to collect the rents due from such assignee or sub-lessee and apply
the same to the rent due hereunder without in any way affecting Lessee's
obligation to pay any unpaid balance of rent due hereunder; or
(2) At the option of the Lessor, this lease and the terms
hereby created shall determine and become absolutely void without any right
on part of the Lessee to reinstate this Lease by payment of any sum due or by
other performance of any condition, term, or covenant broken upon Lessor
shall be entitled to recover damages for such breach in an amount equal to
the amount of rent reserved for the balance of this lease, less the fair
market rental value of the said demised premises for the remainder of the
lease term.
21. Further Remedies of Lessor
In the event of any default as above set forth in Section 14, the Lessor,
or anyone acting on Lessor's behalf. at Lessor's option:
(a) may without notice or demand enter the demised premises, breaking
open locked doors if necessary to effect entrance, without liability to
action for prosecution or damages for such entry or for the manner thereof,
for the purpose of distraining or levying and for any other purposes, and
take possession of and sell all goods and chattels at auction, on three days'
notice served in person on the Lessee or left on the premises, and pay the
said Lessor out of the proceeds, and even if the rent be not due and unpaid,
should the Lessee at any time remove or attempt to remove goods and chattels
from the premises without leaving enough thereon to meet
-12-
<PAGE>
the next periodical payment, Lessee authorizes the Lessor to follow for a
period of ninety days after such removal; take possession of and sell at
auction, upon like notice, sufficient of such goods to meet the proportion of
rent accrued at the time of such removal; and the Lessee hereby releases and
discharges the Lessor, and his agents, from all claims, actions, suits,
damages, and penalties, for or by reason or on account of any entry,
distraint, levy, appraisement or sale; and/or
(b) may enter the premises, and without demand proceed by distress and
sale of the goods there found to levy the rent and/or other charges herein
payable as rent, and all costs and officers' commissions, including
watchmen's wages and sums chargeable to Lessor, and further including a sum
equal to 5% of the amount of the levy as commissions to the constable or
other person making the levy, shall be paid by the Lessee, and in such case
all costs, officers' commission and other charges shall immediately attach
and become part of the claim of Lessor for rent, and any tender of rent
without said costs, commission and charges made after the issue of a warrant
of distress shall not be sufficient to satisfy the claim of the Lessor.
Lessee hereby expressly waives in favor of Lessor the benefit of all laws now
made or which may hereafter be made regarding any limitation as to the goods
upon which, or the time within which, distress is to be made after removal of
goods, and further relieves the Lessor of the obligations of proving or
identifying such goods, it being the purpose and intent of this provision
that all goods of Lessee, whether upon the demised premises or not, shall be
liable to distress for rent. Lessee waives in favor of Lessor all rights
under the Act of Assembly of April 6, 1951, P.L. 69, and all supplements and
amendments thereto that have been or may hereafter be passed, and authorizes
the sale of any goods distrained for rent at any time after five days from
said distraint without any appraisement and/or condemnation thereof.
(c) The Lessee further waives the right to issue a Writ of Replevin
under the Pennsylvania Rules of Civil Procedure, No. 1071 &c. and Laws of the
Commonwealth of Pennsylvania, or under any other law previously enacted and
now in force, or which may be hereafter enacted, for the recovery of any
articles, household goods, furniture, etc., seized under a distress for rent
or levy upon an execution for rent, damages or otherwise; all waivers
hereinbefore mentioned are hereby extended to apply to any such action; and/or
(d) May lease said premises or any part or parts thereof to such person
or persons as may in Lessor's discretion seem best and the Lessee shall be
liable for any loss of rent for the balance of the then current term.
22. Confession of Judgment for Money
Lessor covenants and agrees that if the rent and/or charges reserved in
this lease as rent (including all accelerations of rent by and under the
provisions of this lease) shall remain unpaid five (5) days after the same is
required to be paid, then and in that event. Lessor shall cause Judgment to
be entered against Lessee, and for that purpose Lessee hereby authorizes and
empowers Lessor or any Prothonotary of Court or Attorney of any Court of
Record to appear for and confess judgment against Lessee and agrees that
Lessor may commence pursuant to the Rule
-13-
<PAGE>
of Civil Procedure No. 2950 et. seq. for the recovery from Lessee of all rent
hereunder (including all of rent permissible under the provisions of
this lease) and/or for all charges reserved hereunder as rent, as well as for
interest and Attorney's commission, for which authorization to confess
judgment, this lease, or a true and correct copy thereof, shall be
sufficient. Such Judgment may be confessed against Lessee for the amount of
rent in arrears (including all accelerations of rent permissible provisions
of this lease) and/or for all charges reserved hereunder as rent, as well as
interest and costs; together with an commission of five percent (5%)
of the full amount of Lessor's claim against Lessee. Neither the right to
institute an action Pennsylvania Rules of Civil Procedure No. 2950 et.
seq. nor the authority to confess judgment granted herein shall be exhausted
by exercises thereof but successive complaints may be filed and
successive judgments may be entered for the aforedescribed sums five days
after they become due as well as after the expiration of the original term
and/or during or after the expiration of any extension or renewal
.
23. Confession of Judgment for Possession of Real Property
Lessee covenants and agrees that if this lease shall be terminated
(either because of condition broken during the term of this lease, renewal or
extension thereof and/or when the term hereby created or any extension
thereof shall have expired) then and in that event may cause a judgement in
ejectment to be entered against Lessee for possession of the demised
premises, and for that purpose Lessee authorizes and empowers any
Prothonotary, Clerk of Court or Attorney of any Court of Records to appear
for Lessee and to confess against Lessee in Ejectment for possession of the
herein demised premises and agrees that Lessor may commence any action
pursuant to the Rule of Civil Procedure No. 2970 et. seq. for the entry of a
an order in Ejectment for the possession of real property, and Lessee agrees
that a Writ of Possession pursuant thereto may issue forthwith, for which
authorization to confess judgment and for the issued writ or writ of
possession pursuant thereto this lease, or a true and correct copy thereof,
shall be sufficient warrant. Lessee further and agrees, that if
for any reason whatsoever, after said action shall have commenced the action
shall be terminated and the premises demised hereunder shall
remain in or be restored to Lessee. Lessor shall have the right upon any
subsequent default or defaults the termination of this lease as above set
forth to commence successive actions for possession of real property and to
cause the entry of such judgments by confession in Ejectment for possession
of the premises demised hereunder.
24. Affidavit of Default
In any amicable action of ejectment and/or for rent in arrears, Lessor
shall first cause to be filed in such action an affidavit made by him or
someone acting for him setting forth the facts necessary to authorize the
entry of judgment, of which facts such affidavit shall be conclusive evidence
and of a true copy of this lease (and of the truth of the copy such affidavit
shall be sufficient evidence) be filed in such action, it shall not be
necessary to file the original as a warrant of attorney, any rule of Court,
custom or practice to the contrary notwithstanding.
-14-
<PAGE>
25. Waivers by Lessee of Errors, Right of Appeal, Stay, Exemption,
Inquisition
Lessee hereby releases to Lessor and to any and all attorneys who may
appear for Lessee all errors in any procedure or action Judgment by
Confession by virtue of the warrants of attorney contained in this lease, and
all liability therefor. Lessee further authorizes the Prothonotary or Clerk
of Court to issue a Writ of Execution or other process, and further agrees
that real estate sold on a Writ of Execution or other process. If
proceedings shall be commenced to recover possession of the demised premises
either at the end of the term or sooner termination of this lease, or for
nonpayment of rent or any other reason Lessee specifically waives the right
to the three (3) months' notice and/or the fifteen (15) or thirty (30) days'
notice required by the Act of April 6, 1951, P.L. 69, and agrees that five
(5) days' notice shall be sufficient in either or any such case.
26. Right of Assignee of Lessor
The right to enter judgment against Lessee by confession and to enforce
all of the other provisions of this lease herein provided for the option of
any assignee of this lease, be exercised by any assignee of the Lessor's
right, title and interest in this lease in his, her or its name, any statute,
rule of court, custom, or practice to the contrary notwithstanding.
27. Remedies Cumulative
All of the remedies hereinbefore given to Lessor and all rights and
remedies given to him by law and equity shall be cumulative and concurrent.
No determination of this lease or the taking or recovering of the premises
shall deprive Lessor of any of his remedies or actions against the Lessee for
rent due at the time or which, under the terms hereof, would in the future
become due as if there has been no determination, or for any and all sums due
at the time or which, under the terms hereof, would in the future become due
as if there had been no determination, nor shall the bringing of any action
for rent or breach of covenant, or the resort to any other remedy herein
provided for the recovery of rent be construed as a waiver of the right to
obtain possession of the premises.
28. Condemnation
In the event that the premises demised or any part thereof is taken or
condemned for a public or quasi-public use, this lease shall, as to the part
so taken, terminate as of the date title shall vest in the condemnor, and
rent shall abate in proportion to the square feet of leased space taken or
condemned or shall cease if the entire premises be so taken. In either event
the Lessee waives all claims against the Lessor by reason of the complete or
partial taking of the demised premises.
29. Subordination
-15-
<PAGE>
This Agreement of Lease and all its terms, covenants and provisions are
and each of them is subject and subordinate to any lease or other arrangement
or right to possession, under which the Lessor is in control of the demised
premises, to the rights of the owner or owner's of the demised premises and
of the land or buildings of which the demised premises are a part, to all
rights of the Lessor's landlord and to any and all mortgages and other
encumbrances now or hereafter placed upon the demised premises or upon the
land and/or the buildings containing the same; and Lessee expressly agrees
that if Lessor's tenancy, control, or right to possession shall terminate
either by expiration, forfeiture or otherwise, then this lease shall
thereupon immediately terminate and the Lessee shall, thereupon, give
immediate possession; and Lessee hereby waives any and all claims for damages
or otherwise by reason of such termination of the aforesaid.
30. Notices
All notices must be given by registered mail return receipt requested.
31. Lease Contains All Agreements
It is expressly understood and agreed by and between the parties hereto
that this lease and the riders attached hereto and forming a part hereof set
forth all the promises, agreements, conditions and understandings between
Lessor or his Agents and Lessee relative to the demised premises, and that
there are no promises, agreements, conditions or understandings, either oral
or written, between them other than are herein set forth. It is further
understood and agreed that, except as herein otherwise provided, no
subsequent alteration, amendment, change or addition to this lease shall be
binding upon Lessor or Lessee unless reduced to writing and signed by them.
32. Heirs and Assignees
All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the several and respective
heirs, executors, administrators, successors and assigns of said parties; and
if there shall be more than one Lessee, they shall all be bound jointly and
severally by the terms, covenants and agreements, herein, and the word
"Lessee" shall be deemed and taken to mean each and every person or party
mentioned as a Lessee herein, be the same one or more; and if there shall be
more than one Lessee, any notice required or permitted by the terms of this
lease may be given by or to any one thereof, and shall have the same force
and effect as if given by or to all thereof. The words "his" and "him"
wherever stated herein shall be deemed to refer to the "Lessor" and "Lessee"
whether such Lessor or Lessee be singular or plural and irrespective of
gender. No rights, however, shall inure to the benefit of any assignee of
Lessee unless the assignment to such assignee has been approved by Lessor in
writing as aforesaid.
33. Headings No Part of Lease
Any headings preceding the text of the several paragraphs and
sub-paragraphs hereof are
-16-
<PAGE>
inserted solely for convenience of reference and shall not constitute a part
of this lease, nor shall they affect its meaning, construction or effect.
IN WITNESS WHEREOF, the parties hereto have executed these presents the
day and year first above written, and intend to be legally bound thereby.
SEALED AND DELIVERED IN THE
PRESENCE OF:
/s/ RE/MAX PROPERTIES (AGENT)
- -------------------------------- ------------------------------
(SEAL)
- -------------------------------- ------------------------------
/s/ Richard C. Birkmeyer (SEAL)
- -------------------------------- ------------------------------
(SEAL)
- -------------------------------- ------------------------------
/s/ Lang Associates (SEAL)
- -------------------------------- ------------------------------
-17-
<PAGE>
ADDENDUM TO LEASE AGREEMENT
34. The parties intend that the rent payable hereunder shall be an
absolutely net return to Lessor for the term of the Lease, undiminished by
the taxes, or any other carrying charges, maintenance charges, repairs or any
other charges of any kind whatsoever except Lessor's income taxes, and Lessor
shall not be required to furnish any utilities or perform any services of any
kind or nature whatsoever, except as specified in this lease or in this
Addendum thereto.
35. a. Lessee agrees to pay as rent in addition to the minimum rental
herein reserved:
(1) All taxes (including but not limited to real estate
taxes) ("taxes") assessed or imposed upon the demised
premises during the term of this lease or any renewal or
extension thereof.
(2) All premiums for insurance, obtained by Lessor,
against loss by fire and such other hazards, casualties
and contingencies as are usually covered by the broadest
form of extended coverage policy available in the area of
the county in which the demised premises is located, and
such other insurance as specified by Lessor from time to
time in connection with the demised premises. The fire
insurance and extended coverage insurance, together with
such other insurance as Lessor shall obtain in connection
with the demised premises shall be in such amounts as
Lessor shall determine.
(3) All premiums or comprehensive general liability
insurance, obtained by Lessor, protecting Lessor against
any injury or damage to any person or property occurring
in, or about the demised premises, or any sidewalks,
driveways, or other areas appurtenant to the demised
premises, said insurance to be in such amounts as Lessor
shall determine-
(4) All premiums for full rental value insurance
covering One Hundred Percent (100%) of the minimum and
additional rent payable hereunder.
b. Lessee's aforementioned payment of taxes and insurance premiums
shall be a proportionate share of the entire taxes and insurance premium
payable for Lot 53 of Newtown Industrial Commons (for both land and
improvements) The sum payable by Lessee, or Lessee's proportionate share,
shall be calculated by multiplying the total annual taxes and insurance
premiums by a fraction, the numerator of which is the number of square feet
in the demised premise and the denominator of which is the total square feet
of the buildings of Lot 53. The parties agree that the term "proportionate
share shall be equal to
Fifty Three and Twenty Eight Hundredths Percent (53.28%) for July, 1996 only
Forty Two and Eighty Eight Hundredths Percent (42.88%) from August 1, 1996
-18-
<PAGE>
through June 30, 1998
of the said taxes and insurance premium costs; provided, however, that said
proportion of insurance premiums payable by Lessee shall be adjusted to
reflect any disproportionate increase thereof which shall be as a result of
Lessee's use or occupancy of the demised premises.
c. Lessee shall pay the taxes and insurance premiums for each year of
the Lease monthly, initially on the basis of the prior year's tax bill and
insurance premiums. Thus, Lessee shall pay one-twelfth (1/12) of the
estimated total sum for taxes and insurance premiums each month at the same
time Lessee pays the minimum rental, subject to the following adjustment:
After a current bill is available to Lessor for either taxes or any insurance
premium, Lessor shall notify Lessee of any adjustment to be made to the
estimated annual taxes or insurance premium and Lessee shall pay with its
next monthly rental payment any adjustments necessary to cover its
proportionate share of the entire current year's actual taxes or insurance
premium from the beginning of said Lease year to the date of payment with
monthly payments thereafter based on the actual tax bill or insurance premium
for the current Lease year, as the case may be. To facilitate this, Lessee
will pay $1.30 sq. ft into an escrow account. Said amount to be escrowed
monthly and will be adjusted periodically. copies of actual bills to be
furnished to Lessee at no expense with each adjustment. This amount shall be
deemed as additional rent.
d. Anything herein contrary notwithstanding, Lessee shall be
responsible for all taxes imposed on the demised premises arising from or
related to the Lessee's use, occupancy, employment and/or business at the
demised premises.
(5) Insurance coverages specified under clauses 35 (a)
2-4) above shall be reasonable for the risk factors
involved and the premiums charged therefor competitive
with prevailing market rate structures.
36. Lessee shall obtain all utility services, at Lessee's own cost and
expense, from the utility or municipality supplying same. Lessee
acknowledges that Lessor is not supplying any utility service to the demised
premises and that it shall have all invoices for utility service billed
directly to Lessee. Lessee agrees that in the event Lessee fails to pay for
utility services as provided for herein, Lessor shall bill Lessee directly
for same within ten (10) days after Lessor receives bill, and Lessee shall
promptly pay the same.
37. a. Lessee agrees to accept the demised premises in the physical order
and condition existing on the date of commencement of the term of this Lease.
Except as specified hereinafter, Lessee shall, throughout the term hereof,
at Lessee's sole expense, make all necessary or appropriate repairs,
replacements, and renewals, interior or exterior, non-structural, ordinary
and extraordinary, foreseen and unforeseen, required to keep and maintain the
demised premises and all systems, equipment and apparatus appurtenant thereto
or used in connection therewith, in good order and condition. The Lessee
shall also provide to the Lessor, a statement from a reputable contractor
that the heating and air conditioning systems (if any) have been serviced and
-19-
<PAGE>
checked over at least once in the period of a year.
b. Upon receipt of written notice from the Lessee, Lessor agrees to
proceed with due diligence to repair, at its own cost and expense, any leaks
in the roof or make any repairs, to the structural walls of the herein
demised premises, provided such repairs are not made necessary by the Lessee,
its servants, workmen, employees or any agents, or contractors employed by
it. In no event, however, shall Lessor be liable to Lessee, Its servants,
invitees, licensees, agents or contractors for any loss or damage due to, or
alleged to be due to, any leaks from the said roof and/or damage caused by
failure to make repairs necessary to the structural wall of the demised
premises during the term of this Lease or any renewals thereof.
c. Lessee shall be responsible and pay an amount equal to its
proportionate share, or
* Fifty Three and Twenty Eight Hundredths Percent (53.28%)
* Forty Two and Eighty Eight Hundredths Percent (42.88%)
* SEE NUMBER 35
of Lessor's cost of snow removal, maintenance Of pavement and parking area,
and landscaping (including grass cutting and shrubbery trimming) for said Lot
53. Payments covering snow removal, maintenance of paving and parking area
and landscaping are to be made from escrow account referred to in Paragraph
35c. Said account to -be adjusted periodically.
d. Lessor shall paint the outside trim on the buildings on Lot 53 once
in every four (4) year period. Lessee shall pay its proportionate share, or
* Fifty Three and Twenty Eight Hundredths Percent (53.28%)
* Forty Two and Eight Eight Hundredths Percent (42.88%)
* SEE NUMBER 35
for all costs incurred for such painting. Lessee's proportionate share for
the painting shall be limited, however, by a cap on the total expenditure for
painting in any given year of Two Thousand Five Hundred Dollars ($2,500.00),
the cap to he adjusted in accordance with any increase in the cost of living.
e. Lessee shall pay its proportionate share for any repaving of the
parking area of Lot 53. Lessee's proportionate share for the parking lot
repaving shall be limited, however, by a cap on total expenditures for such
repaving of Three Thousand Dollars ($3,000.00), the cap to be adjusted in
accordance with any increase in the cost of living in the same manner as set
forth in Subparagraph 37d. above.
-20-
<PAGE>
f. At the expiration of this Lease, or any earlier termination thereof,
Lessee covenants and agrees to return the demised premises, and all systems,
equipment, and apparatus appurtenant hereto or used in connection therewith
in the same condition required to be maintained by Lessee under this Lease,
normal wear and tear accepted. If, at the expiration of this Lease, Lessee
fails to return the demised premises, including air-conditioning units,
exhaust fans and other apparatus, in the same condition as required
hereunder, any expense incurred by Lessor to repair or replace same shall be
deducted from the sum deposited by Lessee as collateral security pursuant to
Clause 42, normal wear and tear excepted.;
g. Any repairs, replacements and renewals and/or any labor or materials
performed and/or furnished in or about the demised premises by Lessee during
the term of the Lease shall be performed and furnished in strict compliance
with all applicable laws, regulations, ordinances, and requirement of all
duly constituted municipal authorities or other governmental bodies having
jurisdiction, and the requirements of any board of fire underwriters having
jurisdiction.
38. Notwithstanding anything elsewhere herein contained to the contrary,
Lessee shall, at Lessee's sole risk and expense, have the privilege of
erecting a sign or signs upon the demised premises subject to and in
compliance with any and all laws, statutes, ordinances, rules, regulations
and requirements of the municipal and other duly constituted authorities and
insurance organizations; provided, however, the plans and specifications
therefor shall first be submitted to Lessor and Newtown Industrial Commons,
Inc. for written approval as to size, character and location, which approval
shall not be unreasonably withheld; and further provided that upon
termination of the Lease term, or any sooner determination of this Lease, or
any extension or renewal thereof, Lessee shall, at its sole risk and expense,
remove such sign or signs and restore the premises to its condition prior to
the erection thereof, ordinary wear and tear excepted. Lessee shall defend,
protect and save harmless Lessor of and from any and all claims for injuries
to persons or damage to property caused by the erection, maintenance, repair
or removal of said sign or signs.
39. Lessor hereby grants Lessee, its invitees and licensees, the right to
park automobiles in the parking area in front of the demised premises;
provided, however, that parking of automobiles shall be limited to continuous
periods no longer than twenty-four (24) hours, Lessee hereby agrees that it
shall not park, nor permit any of its invitees or licensees to park, any
automobile, in the said parking area for longer than a continuous twenty-four
(24) hour period.
40. Lessor hereby grants Lessee, its invitees and licensees, the right to
park tractor-trailer(s) in the parking area of the demised premises. Such
right to park, however, shall be limited to continuous periods no longer than
forty-eight (48) hours. if Lessee parks, or permits any of its invitees or
licensees to park, a tractor-trailer in the aforementioned area for longer
than any continuous forty-eight (48) hour period, Lessee shall pay to Lessor,
as additional rent Thirty Dollars ($30.00) per day for each day said
tractor-trailer is parked beyond the forty-eight (48) hour period up to Nine
Hundred Dollars ($900.00) per month. Failure to pay the aforementioned rent
shall be considered a default under this Lease.
-21-
<PAGE>
41. Lessee hereby agrees to use no exterior portion of the demised premises
or any exterior portion of Lot 53 for storage. In the event there is
exterior storage, Lessor shall have the right to remove any items stored
externally. Lessee hereby agrees to reimburse Lessor for the cost of
removing said goods and said invoice shall be paid within ten (10) days of
invoice presentation.
42. In the event the Lessee should default hereunder, security deposit shall
be forthwith applicable on account of sums which may be due to Lessor by
reason of such default. Such application of security deposit shall be in
addition to all other rights and remedies accruing to Lessor hereunder. At
the termination of Lessee's tenancy and upon surrender of the demised
premises as provided for in this Lease, the security sum shall be returned to
Lessee, only if Lessee is not in default hereunder.
43. It is agreed that if the rent is not paid by the tenth (10th) day of
each month, there will be automatically assessed a penalty of ten percent
(10%) of any rentals due which will be deemed as additional rent hereunder
and due for the current month.
IN WITNESS WHEREOF, and intending to be legally bound, these
presents have been duly executed under seal by a duly authorized officer of
each of the parties hereto.
WITNESSED; LESSOR; LANG ASSOCIATES
/s/ Lang Associates
- -------------------------- -----------------------------------
WITNESSED; LESSEE; STRATEGIC DIAGNOSTICS, INC.
/s/ Richard C. Birkmeyer
- -------------------------- ------------------------------------
AGENT; RE/MAX PROPERTIES, LTD.
/s/ RE/MAX PROPERTIES
-------------------------------------
-22-
<PAGE>
CONTINUANCES TO PART TWO OF LEASE AGREEMENT
BETWEEN LANG ASSOCIATES AND STRATEGIC DIAGNOSTICS, INC.
14B. Unless provided for by insurance.
17B. Unless provided for by insurance.
20. Except for Lessee's obligation to pay rent under
Paragraph Four hereunder. Lessor agrees to give Lessee
notice of a default with 15 days notice to cure such
default. if Lessee does not correct such default within
15 days, then Lessor can proceed with remedies hereunder.
IN WITNESS WHEREOF, and intending to be legally bound, these
presents have been duly executed under seal by a duly authorized officer of
each of the parties hereto.
WITNESSED; LESSOR; LANG ASSOCIATES
/s/ Lang Associates
- ------------------------- ------------------------------------
WITNESSED; LESSEE; STRATEGIC DIAGNOSTICS, INC.
/s/ Richard C. Birkmeyer
- ------------------------- ------------------------------------
AGENT; RE/MAX PROPERTIES, LTD.
/s/ RE/MAX PROPERTIES
------------------------------------
-23-
<PAGE>
Exhibit 10.18
INDUSTRIAL LEASE
1. Parties. This Lease, dated, for reference purposes only October 26,
1993, is made by and between TOBER & AGNEW PROPERTIES, INC., a Delaware
corporation (herein called "Lessor") and Strategic Diagnostic Industries
Incorporated, a Delaware corporation (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the Term (as hereinafter defined)at the rental, and upon all of
the conditions set forth herein, all that certain space (the "premises")
which is the portion of the building erected on lots 32 and 33, at 128 Sandy
Drive, Newark, Delaware as more fully shown on the plan attached hereto as
Exhibit "A", consisting of Ten Thousand Three Hundred (10,300) square feet,
more or less. The Premises includes all fixtures, improvements, additions
and other property installed therein at the commencement Date (as hereinafter
defined) or at any time during the time of this lease (other than Tenant's
movable personal property and trade fixtures) together with the right to use,
in common with others, any entrances, lobbies, hallways parking lot,
walkways, elevators and other public portions of the building in which the
Premises is located (the "Building") . The Building contains 25,600 square
feet.
3. Term.
3.1. Term. The term of this lease and Lessee's obligation to pay
rent hereunder shall commence upon the date when the premises is ready for
occupancy and a certificate of occupancy or equivalent certificate has been
issued by the appropriate governmental agency (the "Commencement Date") The
premises shall be deemed ready for occupancy when Lessor has substantially
completed the work depicted or described on the plans and specifications
listed in Exhibit "B" attached hereto (the "Tenant Improvement Work") . The
parties agree to execute an Addendum contemporaneously with the execution of
this lease which sets forth the parties' rights and duties with respect to
the Tenant Improvement Work. "Substantial Completion" shall mean such
completion as shall enable Lessee to reasonably and conveniently use and
occupy the premises for the conduct of its business. The term ("Term") of
this lease shall end five (5) years after the Commencement Date. The parties
agree to confirm the Commencement Date in writing.
3.2. Delay in-Possession. If for any reason Lessor cannot deliver
possession of the premises to Lessee on the Commencement Date, Lessee shall
not be obligated to pay rent until possession of the premises is tendered to
Lessee.
4. Use.
<PAGE>
4.1. Use. The premises shall be used and occupied for the
following: office and laboratory uses and the manufacturing of immunological
reagents and ascites and any uses accessory thereto or any other use which is
reasonably comparable and for no other purpose.
5. Base Rent.
(a) Lessee shall pay to Lessor as rent for the premises, (the "Base
Rent"), in advance, in fixed monthly payments on the first day of each month
of the Term.
(b) From the Commencement Date until the first anniversary of the
commencement Date, the Base Rent shall be an amount to be computed at the
rate of $4.27 annually per square foot.
(c) Rent for any period during the Term hereof which is for less than
one month shall be a pro rata portion of the monthly installment.
(d) Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.
(e) commencing on the first anniversary of the Commencement Date,
and on each anniversary of the Commencement Date thereafter through the end
of the Term and any renewal thereof, the Base Rent shall be computed in
accordance with the provisions of this subparagraph. In the event the
Consumer Price Index for Urban Wage Earners and clerical Workers in the city
of Philadelphia (1967 = 100) (hereinafter called the "Price Index") or a
successor or substitute index appropriately adjusted, reflects an increase in
the cost of living for the month immediately preceding such anniversary date
("Adjustment Month") over and above such cost of living as reflected by the
Price Index as it existed for the month immediately preceding the prior
anniversary date (hereinafter called the "Base Index"), the Base Rent during
such lease year shall equal to the number of square feet in the Premises,
multiplied by $4.27 plus the product of (i) $4.27 (as adjusted in the prior
year in accordance with this subparagraph) multiplied by (ii) the lesser of
(A) five percent 5% or (B) a fraction, the numerator of which is the Price
Index for the Adjustment Month and the denominator of which is the Base Index
(but in no event shall such increase be less than 4%). In the event that
such determination cannot be made until after any anniversary of the
Commencement Date, the increase in the monthly rental payments due for the
months prior to such determination shall be paid to Lessee upon the date the
next payment of rent is due following such determination.
6. Operating Expenses. In addition to the Base Rent, Lessee will pay to
Lessor as additional rent Lessee's operating Expense Share of the amount of
operating Expenses paid, payable or incurred by Lessor in each year of the
Term and Lessee's Tax Share of the real property taxes payable by Lessor in
each year of the Term, and Lessee's share of the premiums
2
<PAGE>
for required insurance payable by Lessor. As used in this lease the
following terms shall be defined as hereinafter provided:
(a) Lessee's Operating Expense Share shall be forty-one percent
(41%);
(b) "Operating Expenses" shall mean the following:
(i) Costs of cleaning, repairing and maintaining the Common
Areas of the Building (including the costs for snow removal). As used in
this lease, the term "common areas" means, without limitation, the
entrances, lobbies, trash facilities, driveways, walkways, landscaping and
all other areas and facilities, including the plumbing, electrical, and
sprinkler systems, ductwork, roof and exterior wall and windows, in the
Building which are provided for and designated from time to time by Lessor
for the general non-exclusive use and convenience of Lessee and its
employees, invitees, licensees or other visitors. Lessor grants Lessee,
its employees, invitees, licensees and other visitors a non-exclusive
license for the Term to use the common Areas; and
(ii) The cost of premiums for the insurance required under
paragraphs 9. 1 and 9. 3 (provided that Lessee shall pay loot of any
increase in or component of any such premiums directly attributable to
the construction of the Tenant Improvement Work and the specialty
equipment installed);
(iii) Notwithstanding anything else contained in this
paragraph, "Operating Expenses" shall not include: (i) any capital
additions made to the Building; (ii) repairs or other work occasioned by
fire, windstorm, or other insured casualty or hazard; (iii) leasing
commissions and advertising expenses incurred in procuring new tenants;
(iv) repairs or rebuilding necessitated by condemnation to the extent that
Lessor has received condemnation proceeds for such repairs or rebuilding;
(v) any depreciation and amortization of the Building; (vi) principal or
interest payments on any indebtedness applicable to the Building or the
Premises, including any mortgage debt or ground rents payable under any
ground lease for the Building.
(c) Lessee's Tax Share shall be 41% of the real property taxes
assessed on the date hereof, plus 100% of any increase in such taxes directly
attributable to the construction of the Tenant Improvement Work;
(d) As used herein the term "real property tax" shall include any
form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond
or bonds, levy or tax (other than inheritance, personal income or estate
taxes) imposed on the Premises by any authority having the direct or indirect
power to tax, including any city, state or federal government, or any school,
agricultural, sanitary,
3
<PAGE>
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Premises or in the real property
of which the Premises is a part, as against Lessor's right to rent or other
income therefrom, and as against Lessor's business of leasing the Premises.
The term "real property tax" shall also include any tax, fee, levy,
assessment or charge in substitution of, partially or totally, any tax, fee,
levy, assessment for charge hereinabove included within the definition of
"real property tax."
All payments of additional rent for operating Expenses payable by Lessee
shall be paid within ten days of receipt by Lessee of Lessor's statement of
amounts due, which statement shall include at Lessee's request copies of
relevant invoices and receipts. All payments of additional rent for real
property taxes payable by Lessee shall be paid within the period prescribed
by law for the payment thereof without penalty or interest; provided that
Lessor has sent to Lessee copies of such tax bills when received from the
taxing authority.
7. Compliance with Law; Environmental Matters.
7.1. Compliance With Law.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the Commencement Date, and the above described uses do not
violate any covenants or restrictions of record, or any applicable zoning or
building code, regulation or ordinance in effect on said date. In the event
it is determined that this warranty has been violated, then it shall be the
obligation of the Lessor to promptly, at Lessor's sole cost and expense,
rectify any such violation.
(b) Except as provided in paragraph 7.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the Term or any part of the term hereof,
regulating the use by Lessee of the Premises.
7.2. Environmental Matters. Lessor represents and warrants that
all activities at the Premises since Lessor's acquisition or Premises have
been and are being conducted in compliance with all statutes, ordinances,
regulations, orders, and requirements of common law concerning (i) those
activities, (ii) repairs or construction of any improvements, (iii) handling
of any materials, (iv) discharges to the air, soil, surface, or groundwater,
and (v) storage, treatment, or disposal of any waste at or connected with any
activity at the Premises ("Environmental Statutes").
Lessor represents and warrants that no Contamination is present at
the Premises. The term "Contamination" means the uncontained presence of
Hazardous Substances at the Premises, or arising from the Premises which may
require remediation under any applicable law. The term "Hazardous
Substances" means "hazardous substances" as defined pursuant to the
comprehensive Environmental Response, compensation and Liability Act, as
amended, "regulated substances" within the meaning of Subtitle I of the
Resource Conservation
4
<PAGE>
Recovery Act, as amended, "hazardous wastes", as defined pursuant to the
Delaware Hazardous Waste Management Act, or "regulated substances" as defined
pursuant to the Del aware Underground Storage Tank Act.
Lessor represents and warrants that no portion of the Premises
constitutes any of the following "Environmentally Sensitive Areas":
(i) a wetland or other "water of the United States" for purposes
of section 404 of the federal clean Water Act or any similar area regulated
under any state law;
(ii) a portion of the coastal zone for purposes of the Federal
Coastal Zone Management Act and the Delaware Coastal Zone Act; or
(iii) any other area, including but not limited to a floodplain
or other flood hazard area, the development of which is specially
restricted under any applicable law by reason of its physical
characteristics or prior use.
Lessor represents and warrants that no tanks for the storage of any
liquid or gas are present on the Premises except for two underground 500
gallon liquid propane tanks.
Lessor represents and warrants that (i) at no point in any
structure at the Premises will air radiation levels exceed 4
picocuries/liter, (ii) Lessor does not know or have reason to know of any
investigation of the Premises for the presence of radon gas or the presence
of the radioactive decay products of radon (collectively "Radon") and (iii)
Lessor has provided to Lessee a report of each investigation relevant to the
presence of Radon at the Premises of which Lessor has any knowledge.
The parties hereby agree that if any of the representations or
warranties contained in this paragraph 7.2 shall prove to be incorrect, or if
Lessor breaches any covenant contained in this paragraph 7.2, Lessor shall be
afforded an opportunity to cure such default provided that (i) such breach or
condition is susceptible of remediation within a reasonable amount of time as
determined by Lessee; and (ii) Lessor begins promptly after the discovery of
such breach or condition diligently to remedy same and continues such
diligent efforts until satisfactory remediation has been achieved.
Lessor shall indemnify and hold Lessee harmless of, from, and
against any and all expense, loss or liability suffered by Lessee by reason
of the Lessor's breach of any provision of this Section including, but not
limited to, (i) costs to comply with any Environmental Statutes; (ii) costs
to study or to remedy contamination of the Premises or arising from the
Premises; (iii) costs incident to the study or removal of tanks, their
contents or associated Contamination; (iv) cost to prevent air radiation
levels in any structure hereafter erected in the Premises from exceeding 4
picocuries/liter or to reduce air radiation levels in any structure on the
Premises to 4
5
<PAGE>
picocuries/liter or less; (v) fines, penalties, or other sanctions assessed
due to Lessor's failure to have complied with Environmental Statutes; (vi)
loss of value of the Property by reason of a failure to comply with
Environmental Statutes or the presence on the Property of any Hazardous
Substance, tank, Environmentally Sensitive Feature or Radon; and (vii) legal
and professional fees and costs in connection with the foregoing. For
purposes of this subparagraph, the term "Lessee" shall mean Lessee, its
successors and assigns. Nothing herein shall be construed to include (i) any
condition or occurrence arising out of Lessee's activities in or on the
Premises, or (ii) any consequential damages or losses sustained by Lessee as
a result of interruption of Lessee's business activities or the dislocation
of Lessee's facilities as a result of a default pursuant to this paragraph
7.2.
7.3. Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and Lessor further warrants to Lessee
that the Tenant Improvement Work in the Premises shall be in good operating
condition on the Commencement Date. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of Lessor,
after receipt of written notice from Lessee setting forth with specificity
the nature of the violation, to promptly, at Lessor's sole cost, rectify such
violation.
Within thirty (30) days after the Commencement Date, Lessee shall
give Lessor a written list (the "Punch List") of all contended defects in
Lessor's construction work and of all contained variances in Lessor's work as
described in Exhibit "HI' attached hereto. Lessor shall correct all items on
the Punch List within thirty (30) days after Lessor's receipt of the Punch
List, unless the nature of the defect or variance is such that a longer
period of time is required to repair or correct the same, in which case
Lessor shall exercise due diligence in correcting such defect or variance at
the earliest possible date and with a minimum of interference with Lessee's
operations. Nothing in this subparagraph shall be deemed a waiver by Lessee
of Lessor's warranty contained in paragraph 7.3(a) for violations discovered
after delivery of the Punch List.
8. Repairs, Alterations and Building Services.
8.1. Lessor's Obligations.
(a) Lessor shall keep in good order, condition and repair the
Common Areas of the Building.
(b) If Lessor fails to perform Lessor's obligations under
this paragraph 8.1 or under any other paragraph of this lease, Lessee may at
Lessee's option and upon 10 days' prior written notice to Lessor (except in
the case of emergency, in which case no notice shall be required), perform
such obligations on Lessor's behalf and put the Common Areas and HVAC in good
order, condition and repair, and the cost thereof shall be offset against the
installment rent next due.
6
<PAGE>
8.2. Lessee's Obligations. Lessee, at its expense, shall maintain
and keep in good order, condition and repair the plumbing, electric, HVAC,
lighting, fixtures, interior walls, ceilings, floors, windows, doors and
plate glass located in, on, or within the Premises or any part thereof, and
which are for the exclusive use of the Premises or Lessee. Lessee shall
procure and maintain at Lessee's expense an HVAC maintenance agreement, which
shall be in form and substance reasonably satisfactory to Lessor. On the last
day of the Term hereof, or on any sooner termination, Lessee shall surrender
the Premises to Lessor in the same condition as received, ordinary wear and
tear excepted, clean and free of debris.
8.3. Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent,
which consent shall not be unreasonably withheld or delayed, make any
alterations, improvements, additions, or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding
$7,500. In any event, whether or not in excess of $7,500 in cost, Lessee
shall make no change or alteration to the exterior of the Premises nor the
exterior of the Building without Lessor's prior written consent. As used in
this paragraph 8.3 the term "Utility Installation" shall mean air lines,
power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Should Lessee make any
alterations,, improvements, additions or Utility Installations without the
prior approval of Lessor, Lessor may require that Lessee remove any or all of
the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its
consent, the consent shall be deemed conditioned upon Lessee acquiring a
permit to do so from appropriate government agencies, the furnishing of a
copy thereof to Lessor prior to the commencement of the work and the
compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished to or for Lessee at or for use in the Premises, which
claims are or may be secured by any mechanics' or materialmen's lien against
the Premises or any interest therein. Lessee shall give Lessor not less than
ten (10) days' notice prior to the commencement of any work in the Premises,
and Lessor shall have the right to post notices of non-responsibility in or
on the Premises as provided by law. If Lessee shall, in good faith, contest
the validity of any such lien, claim or demand, then Lessee shall, at its
sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
endorsement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises free from the effect of such lien or claim and shall obtain release
of such lien by substitution of such surety bond as security therefor. In
addition, Lessor may require
7
<PAGE>
Lessee to pay Lessor's attorneys fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
paragraph 8.3(a), all alterations, improvements, additions and Utility
Installations, which may be made on the Premises, shall become the property
of Lessor and remain upon and be surrendered with the Premises at the
expiration of the Term.
9. Insurance; Indemnity.
9.1. Liability Insurance - Lessor. Lessor shall obtain and keep in
force during the Term of this lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor and Lessee against any
liability arising out of the ownership, use or occupancy maintenance of the
Premises and all areas appurtenant thereto in an amount not less than
$500,000 per occurrence.
9.2. Liability Insurance - Lessee.. Lessee shall obtain and keep in
force during the Term of this lease a policy of combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor and Lessee against any
liability arising out of the use or occupancy of the Premises and all areas
appurtenant thereto in an amount not less than $500,000 per occurrence.
9.3. Property Insurance. Lessor shall obtain and keep in force
during the Term of this lease a policy or policies of insurance covering loss
or damage to the Building, including Lessee's fixtures, equipment or tenant
improvements in an amount not to exceed the full replacement value thereof as
the same may exist from time to time, providing protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, flood (in the event same is required by a lender having a
lien on the Premises), special extended perils ("all risk", as such term is
used in the insurance industry).
9.4. Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender having a lien on the
Premises, as set forth in the most current issue of "Best Insurance Guide".
Lessor and Lessee shall deliver to each other copies of policies of all
insurance required under paragraph 8 or certificates evidencing the existence
and amounts of such insurance. No such policy shall be cancellable or
subject to reduction of coverage or other modification except after thirty
(30) days' prior written notice to the other. Each party shall, at least
thirty (30) days prior to the expiration of such policies, furnish the other
with renewals thereof. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in paragraph 9.3.
9.5. Waiver of Subrogation. Lessee and Lessor each hereby release
and relieve the other, and waive their entire right of recovery against the
other for loss or damage arising out
8
<PAGE>
of or incident to the perils insured against under paragraph 9.3, which
perils occur in, on or about the Premises, whether due to the negligence of
Lessor or Lessee or their agents, employees, contractors and/or invitees.
Lessee and Lessor shall, upon obtaining the policies of insurance required
hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this lease.
9.6. Indemnity. Lessee shall indemnify and hold harmless Lessor
from and against any and all claims arising from Lessee's use of the
Premises, or from the conduct of Lessee's business or from any activity, work
or things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and
against any and all claims arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this lease, or arising from any negligence of the Lessee, or any of
Lessee's agents, contractors, or employees, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case any action or
proceeding be brought against Lessor by reason of any such claim. Lessee
upon notice from Lessor shall defend the same at Lessee's expense by counsel
satisfactory to Lessor.
Lessor shall indemnify and hold harmless Lessee from and
against any and all claims arising from any breach or default in the
performance of any obligation on Lessor's part to be performed under the
terms of this lease, or arising from any negligence of the Lessor, or any of
Lessor's agents, contractors, or employees, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case any action or
proceeding be brought against Lessee by reason of any such claim. Lessor
upon notice from Lessee shall defend the same at Lessor's expense by counsel
satisfactory to Lessee.
10. Destruction.
10.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less
than 50% of the fair market value of the Premises immediately prior to such
damage or destruction. "Premises Building Partial Damage" shall herein mean
damage or destruction to the Building of which the Premises are a part to the
extent that the cost of repair is less that 50% of the fair market value of
the Building as a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or
more of the fair market value of the Premises immediately prior to such
damage or destruction.
9
<PAGE>
(c) "Insured Loss" shall herein mean damage or destruction
which was caused by an event required to be covered by the insurance
described in paragraph 10.
10.2. Partial Damage - Insured Loss. Subject to the provisions of
paragraph 10.4, 10.5 and 10.6, if at any time during the Term of this lease
there is damage which is an Insured loss and which falls into the
classification of Premises Partial Damage or Premises Building Partial
Damage, then Lessor shall, at Lessor's sole cost, repair such damage,
including Lessee's fixtures, equipment or tenant improvements as soon as
reasonably possible and this lease shall continue in full force and effect.
10.3. Partial Damage - Uninsured Loss. Subject to the provisions
of paragraphs 10.4, 10.5 and 10.6, if at any time during the Term of this
lease there is damage which is not an Insured loss and which fails within the
classification of Premises Partial Damage or Premises Building Partial
Damage, unless caused by a willful act of Lessee (in which event Lessee shall
make the repairs at Lessee's expense), Lessor may at Lessor's option either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this lease shall continue in full force and effect, or (ii) give
written notice to Lessee within fifteen (15) days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate this
lease. In the event Lessor shall give such notice of Lessor's intention to
cancel and terminate this lease, Lessee shall have the right within fifteen
(15) days after the receipt of such notice to give written notice to Lessor
of Lessee's intention to repair such damage at Lessee's expense, in which
event this lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does
not give such notice within such 15-day period this lease shall be cancelled
and terminated and Lessee shall have no further obligations or duties
thereunder including the payment of rent as of the date of the occurrence of
such damage.
10.4. Total Destruction. If at any time during the term of this
lease there is damage, whether or not an Insured loss, (including destruction
required by any authorized public authority), which falls into the
classification of Premises Total Destruction or Premises Building Total
Destruction, this lease shall automatically terminate and Lessee shall have
no further obligations or duties thereunder including the payment of rent as
of the date of such total destruction.
10.5. Damage Near End of Term.
(a) If at any time during the last six months of the Term of
this lease there is damage, whether or not an Insured loss, which falls
within the classification of Premises Partial Damage, Lessor and Lessee each
has the option to cancel and terminate this lease as of the date of
occurrence of such damage by giving written notice to the other of its
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 10. 5 (a) , in the event that
Lessee has an option to extend or renew this lease, and the time within which
said option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later that 25 days after
10
<PAGE>
the occurrence of an Insured loss falling within the classification of
Premises Partial Damage during the last six months of the Term of this lease.
If Lessee duly exercises such option during said 25 day period, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this lease shall continue in full force and effect. If Lessee fails to
exercise such option during said 25 day period, then Lessor may at Lessor's
option terminate and cancel this lease as of the expiration of said 25 day
period by giving written notice to Lessee of Lessor's election to do so
within 5 days after the expiration of said 25 day period, notwithstanding any
term or provision in the grant of option to the contrary.
10.6. Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 10.2 or
10.3 and Lessor or Lessee repairs or restores the Premises pursuant to the
provisions of this paragraph 10, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent Lessee shall have no claim against Lessor for
any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this paragraph 10 and shall not commence
meaningful repair or restoration within 30 days after such obligations shall
accrue, Lessee may at Lessee's option cancel and terminate his lease by
giving Lessor written notice of Lessee's election to do so at any time prior
to Lessor's meaningful commencement of such repair or restoration. In such
event this lease shall terminate as of the date of such notice and Lessee
shall have no further obligations or duties thereunder, including the payment
of rent, as of the date of the occurrence of the damage.
10.7. Termination - Advance Payments. Upon termination of this
lease pursuant to this paragraph 10, an equitable adjustment shall be made
concerning any advance rent and any advance payments made by Lessee to Lessor.
10.8. Waiver. Lessor and Lessee waive the provisions of any
statutes which relate to termination of leases when leased property is
destroyed and agree that such event shall be governed by the terms of this
lease.
11. Utilities, Lessee shall pay for all water, gas, heat, light, power,
telephone and other-utilities and services supplied to the Premises, together
with any taxes thereon. Such services are to be separately metered to Lessee.
12. Assignment and Subletting
12.1. Lessor's Consent Required, Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all of any part of Lessee's interest in this lease or in the
Premises, without Lessor's prior written consent, which Lessor shall
11
<PAGE>
not unreasonably withhold or delay. Lessor shall respond in writing to
Lessee's request for consent hereunder in a timely manner and any attempted
assignment, transfer, mortgage, encumbrance or subletting without such
consent shall be void and shall constitute a breach of this lease.
12.2. Lessee Affiliate. Notwithstanding the provisions of
paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any
portion thereof, without Lessor's consent, to any corporation which controls,
is controlled by or is under common control with Lessee, or to any
corporation resulting from the merger or consolidation with Lessee, or to any
person or entity, which acquires all or substantially all of the assets of
Lessee as a going concern of the business that is being conducted on the
Premises, provided that said assignee assumes, in full, the obligations of
Lessee under this lease. Any such assignment shall not, in any way, affect
or limit the liability of Lessee under the terms of this lease even if after
such assignment or subletting the terms of this lease are changed or altered,
provided, however, that any material change to the terms of this lease
(including, but not limited to, the Term or Rent) after such an assignment or
subletting, shall require the prior consent of Lessor and any such change
made without Lessor's prior consent shall not be binding on Lessor.
12.3. No Release of Lessee. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the Rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of Rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor or
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms thereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Lessee or any
successor of Lessee, and without obtaining its or their consent thereto and
such action shall not relieve Lessee of liability under this Lease.
12.4. Assignment Fees. In the event Lessee shall assign or sublet
the Premises then Lessee shall pay an assignment processing fee equal to
$200.00 for each such request.
13. Defaults; Remedies.
13.1. Defaults. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The failure by Lessee to make any payment of rent as and
when due, where such failure shall continue for a period of five days after
Lessee's receipt of written notice from Lessor. In the event that Lessor
serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable
Unlawful Detainer statutes, such Notice to Pay Rent or Quit shall also
constitute the notice required by this subparagraph;
12
<PAGE>
(b) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee, other than described in paragraph (a) above, where such failure
shall continue for a period of 30 days after written notice hereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's default
is such that more than 30 days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commenced such cure
within said 30-day period and thereafter diligently prosecutes such cure to
completion;
(c) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(c)
is contrary to any applicable law, such provision shall be of no force or
effect;
(d) The discovery by Lessor that any financial statement
given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee,
any successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2. Remedies. In the event of any such material default or
breach by Lessee, Lessor may at any time after providing Lessee with written
notice, but without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the premises, reasonable attorneys'
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could
be reasonably avoided.
(b) Maintain Lessee's right to possession in which case this
lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this lease, including the right to recover the rent
as it becomes due hereunder;
13
<PAGE>
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the State of Delaware. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under
the terms of this lease shall bear interest from the date due at the maximum
rate then allowable by law.
13.3. Default by Lessor. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable
time, but in no event later than ten (10) days after written notice by Lessee
to Lessor and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than ten (10) days are required for performance then Lessor
shall not be in default if Lessor commences meaningful performance within
such lo-day period and thereafter diligently prosecutes the same to
completion.
13.4. Late Charges. Lessee hereby acknowledges that late payment
by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent shall not be received by Lessor or
Lessor's designee within fifteen (15) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a late charge equal to 3% of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of
costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof are taken
under the power of eminent domain, or sold under the threat of the exercise
of said power (all of which are herein called "condemnation"), this lease
shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than
10% of the floor area of the Building, or more than 25% of the area of the
Premises is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within fifteen (15) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice,
within fifteen (15) days after the condemning authority shall have taken
possession) terminate this lease as of the date the condemning authority
takes such possession. If Lessee opts to terminate this lease as described
in the foregoing, Lessee's obligations and duties under this lease shall
cease as of the date of condemning authority take such possession. If Lessee
does not terminate this lease in accordance with the foregoing, this lease
shall remain in full force and effect as to the portion of the Premises
remaining, except that the rent shall be reduced in the proportion that the
floor area of the Building taken bears to the total floor area of the
Building situated on the Premises. No reduction of rent shall occur if the
only area taken is that which does not have a building located thereon. Any
award for the taking of all or any part of the Premises under the power of
eminent domain or any payment
14
<PAGE>
made under threat of the exercise of such power shall be the property of
Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any award for loss of or
damage to Lessee's equipment, trade fixtures and removable personal property.
In the event that this lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority.
15. Brokers' Fees.
Lessor shall be responsible for all brokers,, commissions or
finder's fees charged by Stoltz Realty and warrants to Lessee that no
brokers' commissions, finders, fees or similar payments shall be claimed
through Lessee in connection with the execution of this lease, and agrees to
indemnify and hold Lessee harmless from any liability that may arise from
such claims, including reasonable attorney's fees.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than 10 days'
prior written notice from Lessor execute,, acknowledge and deliver to Lessor
a statement in writing (i) certifying that this lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification and certifying that this lease, as so modified,, is in full
force and effect) and the date to which the rent is paid and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured
defaults, or events which with the passage of time would be defaults, on the
part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such
statement within such time shall be a material breach of this lease or shall
be conclusive upon Lessee (i) that this lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there
are no uncured defaults in Lessor's performance, and (iii) that not more than
one month's rent has been paid in advance or such failure may be considered
by Lessor as a default by Lessee under this lease.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender
or purchaser designated by Lessor such financial statements of Lessee as may
be reasonable required by such lender or purchaser. Such statements shall
include to the extent available the past three years' financial statements of
Lessee. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes
herein set forth.
15
<PAGE>
17. Lessor's Liability. The term "Lessor" as used herein shall mean
only the owner and owners at the time in question of the fee title or a
lessee's interest in a ground lease of the Premises. In the event of any
transfer of such title or interest, Lessor herein name (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the
date of such transfer of all liability as respects Lessor's obligations
thereafter to be performed, provided that any funds in the hands of Lessor of
the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in
this Lease to be performed by Lessor shall, subject as aforesaid, be binding
on Lessor's successors and assigns, only during their respective periods of
ownership.
18. Severability. The invalidity of any provisions of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Time--of Essence. Time is of the essence.
20. Incorporation of Prior Agreements; Amendments.
This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreement or understanding pertaining to
any such matter shall be effective. This Lease may be modified in writing
only, signed by the parties in interest at the time of the modification.
Except as otherwise stated in this Lease, Lessee hereby acknowledges that
neither the real estate brokers listed in paragraph 15 hereof nor any
cooperating broker on this transaction nor the Lessor or any employees or
agents of any of said persons has made any oral or written warranties or
representations to Lessee relative to the condition or use by Lessees of said
Premises and Leases acknowledges that Lessee assumes all responsibility
regarding the Occupational Safety Health Act, the legal use and adaptability
of the Premises and the compliance thereof with all applicable laws and
regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
21. Notices. Any notice required or permitted to be given hereunder
shall be in writing and may be given personal delivery or by certified mail,
and if given personally or by mail, shall be deemed sufficiently given if
addressed to Lessee or to Lessor at the address noted below the signature of
the respective parties, as the case may be. Each such notice shall be deemed
given upon personal delivery or, if by certified mail, upon mailing. Either
party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
22. Waivers. No waiver by Lessor or any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to, or approval
of any act, shall not be deemed to render unnecessary the obtaining of
Lessor's consent to or approval of any subsequent act by Lessee. The
acceptance of rent
16
<PAGE>
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee
of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
23. Recording. Either Lessor or Lessee shall, upon request of the
other, execute, acknowledge and deliver to the other a "short form"
memorandum of this lease for recording purposes.
24. Holding Over. If Lessee, with Lessor's consent, remains in
possession of the Premises or any part thereof after the expiration of the
term hereof, such occupancy shall be a tenancy from month to month upon all
the provisions of this lease pertaining to the obligations of Lessee, but all
options and rights of first refusal, if any, granted under the terms of this
lease shall be deemed terminated and be of no further effect during said
month to month tenancy.
25. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
26. Covenants and Conditions. Each provision of this lease performable
by Lessee shall be deemed both a covenant and a condition.
27. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee, this lease shall bind the
parties, their personal representatives, successors and assigns. This lease
shall be governed by the laws of the State of Delaware.
28. Subordination.
(a) This lease, at Lessor's option, shall be subordinate to
any ground lease, mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the real property of which the Premises
are a part and to any and all advances made on the security thereof and to
all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the Rent and observe and perform all of the
provisions of this lease, unless this lease is otherwise terminated pursuant
to its terms. If any mortgagee, trustee or ground Lessor shall elect to have
this lease prior to the lien of its mortgage, deed of trust or ground lease,
and shall give written notice thereof to Lessee, this lease shall be deemed
prior to such mortgage, deed of trust, or ground lease, whether this lease is
dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to
effectuate an attornment, a subordination or to make this lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be. If
Lessee fails to execute such documents within 10 days after written demand,
Lessor may execute such documents on behalf of Lessee as Lessee's
attorney-in-
17
<PAGE>
fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as
Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute
such documents in accordance with this paragraph 28(b).
29. Intentionally Omitted.
30. Lessor's Access. Lessor and Lessor's agents, upon prior written
notice to Lessee, shall have the right to enter the Premises at reasonable
times for the purpose of inspecting the same, showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements or additions to the Premises or to the Building of which they
are a part as Lessor may deem necessary or desirable; provided, however that
upon such entry Lessor and/or Lessor's agents (except in the case of
emergency) shall be required to be accompanied by a representative of Lessee
for purposes of protecting and preserving the confidentiality of Lessee's
work on the Premises. Lessor may not at any time place on or about the
Premises any ordinary "For Sale" signs. Lessor may at any time during the
last 120 days of the Term hereof place on or about the Premises on the
Building any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee; provided that Lessor shall not permitted to place "For
Lease" signs on or about the Premises until any options or rights available
to Lessee to extend the term of this lease or to renew this lease or any
options or rights of first refusal to lease the Premises or rights of first
offer to purchase the Premises have lapsed.
31. Signs. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent, which shall not be unreasonably withheld,
except that Lessee shall have the right, without the prior permission of
Lessor, to place ordinary and usual for rent or sublet signs thereon.
32. Merger. The voluntary or other surrender of this lease by Lessee,
or a mutual cancellation thereof, or a termination by Lessor, shall not work
a merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
33. Consents. Wherever in this lease the consent of one party is
required to an act of the other party, such consent shall not be unreasonably
withheld.
34. Quiet Possession.. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire Term hereof subject to all of the
provisions of this lease. The individuals executing this lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
35. Options: Right of First Refusal.
18
<PAGE>
35.1. Definition. As used in this paragraph the word "Options"
means the right or option to extend the term of this lease or to renew this
lease.
35.2. Options Personal. Each Option granted to Lessee in this
lease is personal to Lessee and may not be exercised or be assigned,
voluntarily or involuntarily, by or to any person or entity other than
Lessee, provided, however, the Option may be exercised by or assigned to any
Lessee Affiliate as defined in paragraph 12 of this lease. The Options
herein granted to Lessee are not assignable separate and apart from this
lease.
35.3. Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(a) or 13.1(b) and continuing until the
default alleged in said notice of default is cured, or (ii) at any time after
an event of default described in paragraphs 13.1(c) or 13.1(d) (without any
necessity of Lessor to give notice of such default to Lessee).
(b) The period of time within which an option may be
exercised shall not be extended or enlarged by reason of Lessee's inability
to exercise an option because of the provisions of paragraph 36.3.
35.4. Option to Renew. Lessee shall have the right, at its sole
option, to renew this lease for an additional period of five (5), years
following the term hereof, upon the same terms and conditions in effect at
the expiration of the prior term, including provision for the escalation of
rent and including this option to renew; provided-that the ceiling and floor
limitations for the escalation of rent in Section 5(e) (ii) herein shall not
apply following the fifteenth anniversary of the Commencement Date; provided
further that Lessee shall have given Lessor no more than six and no less than
three months written notice in advance at the end of the prior term of its
intention to renew this lease. Lessee hereby guarantees that it will
exercise the first five (5) year renewal option under this Lease and that TSD
Biosciences will exercise the first five (5) year renewal option under its
lease with Lessor for a portion of the Building. In the event TSD
Biosciences fails to exercise its first five (5) year option as provided
above then Lessee will lease such space on the terms made available to TSD
Biosciences.
36. Multiple Tenant Building.. Lessee agrees that it will abide by, keep
and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good
order therein as well as for the convenience of other occupants and tenants
of the building. The violations of any such rules and regulations shall be
deemed a material breach of this Lease by Lessee.
19
<PAGE>
37. Security Measures. Lessee hereby acknowledges that the rent payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of
Lessee, its agents and invitees from acts of third parties.
38. Easements. Lessor reserves to itself the right, from time to time,
to grant such easements, rights and dedications that Lessor deems necessary
or desirable, and to cause the recordation of Parcel Maps and restrictions,
so long as such easements rights, dedications, Maps and restrictions do not
interfere' with the use of the Premises by Lessee. Lessee shall sign any of
the aforementioned documents upon request of Lessor and failure to do so
shall constitute a material breach of this lease.
39. Performance Under Protest. If at any time a dispute shall arise as
to any amount or sum of money to be paid by one party to the other under the
provisions hereof the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
SUM. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this lease.
40. Authority. If either Lessor or Lessee is a corporation, trust, or
general or limited partnership, each individual executing this lease on
behalf of such entity represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of said entity.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
The parties hereto have executed this Lease at the Place and on the dates
specified immediately adjacent to their respective signatures.
Executed at Strategic Diagnostics Industries, Inc., 128 Sandy Drive, Newark,
DE 19713 on Oct. 26, 1993.
LESSOR: TOBER & AGNEW PROPERTIES, INC.
By: /s/ ROBERT C. TOBER
------------------------------------
(Seal)
Title: PRES.
---------------------------------
20
<PAGE>
Executed at Strategic Diagnostics Industries, Inc., 128 Sandy Drive, Newark,
DE 19713 on Oct. 26, 1993.
LESSEE: STRATEGIC DIAGNOSTICS INDUSTRIES
INCORPORATED
By: /s/ ANNE CAVANAUGH
--------------------------------
(Seal)
Title: VICE PRES.
------------------------------
21
<PAGE>
ADDENDUM TO INDUSTRIAL LEASE
This Addendum to the Industrial Lease (the "Industrial Lease"), dated,
for reference purposes only October 26, 1993, is made by and between TOBER &
AGNEW PROPERTIES, INC., a Delaware corporation (herein called " Lessor") and
Strategic Diagnostics Industries, Inc. a Delaware corporation (herein called
"Lessee"). The "Industrial Lease" is that lease agreement dated as of this
same date made by and between the Lessor and the Lessee. All capitalized
terms used herein and not defined herein shall have the same meaning as set
forth in the Industrial Lease.
1. Lessor's Obligations to Construct Tenant Improvement Work.
(a) Lessor hereby covenants and agrees to commence the Tenant
Improvement Work immediately upon execution of the lease and to complete the
Tenant Improvement Work in as expeditious a manner as possible in accordance
with all applicable standards of care and diligence.
(b) Lessor represents and warrants that it has available to it the
financial resources and personnel and that it possesses the expertise to
commence construction of the Tenant Improvement Work and to complete it in
accordance with the covenants made in subparagraph (a).
(c) Any breach of the representations, warranties and covenants
contained in this Addendum to the Industrial Lease shall constitute a
material breach of the Industrial Lease. In the event of such breach, Lessee
may terminate the Industrial Lease.
2. Payment for Tenant Improvement Work.
(a) All costs (up to a maximum of $350,000 in the aggregate for
those items described in Sections 2(b)(i) and 2(b)(iii) herein) for Tenant
Improvement Work ("Tenant Improvement Costs"), as defined by Section 2(b)
herein, shall be financed by the Lessor and paid for by the Lessee. All
Tenant Improvement Costs shall be paid in full by the Lessee in monthly
installments over the five (5) year period immediately following the
Commencement Date.
(b) Tenant Improvement Costs shall be the following costs directly
associated with the work depicted or described in Exhibit B of the industrial
Lease:
(i) supplier and subcontractor costs, professional fees
including, but not limited to,, architectural fees, permits and
inspection costs incurred after February 22, 1991;
(ii) a ten percent (10%) surcharge on those costs described in
the foregoing Section 2(b)(i);
(iii) the following costs relating to the acquisition of
financing for the Tenant Improvement Work:
22
<PAGE>
A. loan origination fees;
B. other loan costs, including, but not limited to,
legal and recording costs and document preparation fees;
C. bank appraisal fees; and
D. interest on all loans undertaken by the Lessor
prior to the Commencement Date to finance the Tenant Improvement Work.
(c) Interest of nine percent (9%) per annum shall be charged on
all costs associated with the items described in the foregoing Sections
2(b)(i) - (iii).
(d) Beginning with the first year following the tenth anniversary
of the Commencement Date, and on each anniversary of the Commencement Date
thereafter through the end of the term and any renewal thereof, the Base
Rent, as defined in section 5 of the Industrial Lease and as adjusted
therein, as it is applied to that portion of the Premises subject to the
Tenant Improvement Work (the "Improvement Work Base Rent"), shall be
increased by $1.50 per square foot plus the product of (i) $1.50 (as adjusted
in each year beginning with the first anniversary of the Commencement Date
through the tenth anniversary in accordance with this subparagraph)
multiplied by (ii) the lesser of (A) five percent 5% or (B) a fraction, the
numerator of which is the Price Index for the Adjustment Month and the
denominator of which is the Base Index from the Prior Year (but in no event
shall such increase be less than 4%); provided that the ceiling and floor
limitations for the escalation of the Improvement Work Base Rent in this
Section 2(e) (ii) shall not apply following the fifteenth anniversary of the
Commencement Date.
The parties hereto have executed this Addendum to the Industrial Lease at the
Place and on the dates specified immediately adjacent to their respective
signatures.
Executed at Strategic Diagnostics Industries, Inc., 128 Sandy Drive, Newark,
DE 19713 on Oct. 26, 1993.
LESSOR: TOBER & AGNEW PROPERTIES, INC.
By: /s/ ROBERT C. TOBER
-----------------------------
(Seal)
Title: PRES.
--------------------------
23
<PAGE>
Executed at Strategic Diagnostics Industries, Inc., 128 Sandy Drive, Newark,
DE 19713 on Oct. 26, 1993.
LESSEE: STRATEGIC DIAGNOSTICS INDUSTRIES
INCORPORATED
By: /s/ ANNE CAVANAUGH
----------------------------
(Seal)
Title: VICE PRES.
--------------------------
24
<PAGE>
Exhibit 10.19
INDUSTRIAL LEASE
1. Parties. This Lease, dated, for reference purposes only August 9,
1990, is made by and between TOBER & AGNEW PROPERTIES, INC., a Delaware
corporation (herein called "Lessor") and STRATEGIC DIAGNOSTICS INCORPORATED, a
Delaware Corporation (herein called "Lessee").
2. Promises. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the Term (as hereinafter defined) at the rental, and upon all of the
conditions set forth herein, all that certain space (the "Premises") which is
the portion of the building erected on Lots 32 and 33, at 128 Sandy Drive,
Newark, Delaware as more fully shown on the plan attached hereto as Exhibit "A",
consisting of Seven Thousand Five Hundred Ten (7,510) square feet, more or less.
The Premises includes all fixtures, improvements, additions and other property
installed therein at the Commencement Date (as hereinafter defined), or at any
time during the time of this Lease (other than Tenant's movable personal
property and trade fixtures), together with the right to use, in common with
others, any entrances, lobbies, hallways parking lot, walkways, elevators and
other public portions of the building in which the Premises is located (the
"Building"). The Building contains 25,600 square feet.
3. Term. Tenant Improvement Work.
3.1. Term. The term of this Lease and Lessee's obligation to pay
rent hereunder shall commence upon the date when the Premises is ready for
occupancy and a certificate of occupancy or equivalent certificate has been
issued by the appropriate governmental agency (the "Commencement Date"). The
Premises shall be deemed ready for occupancy when Lessor has substantially
completed the work depicted or described on the plans and specifications listed
in Exhibit "B" attached hereto (the "Tenant Improvement Work"). "Substantial
Completion" shall mean such completion as shall enable Lessee to reasonably and
conveniently use and occupy the Premises for the conduct of its business. The
term ("Term") of this Lease shall end ten (10) years after the Commencement
Date. The parties agree to confirm the Commencement Date in writing.
3.2 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee on the Commencement Date, Lessee shall not
be obligated to pay rent until possession of the Premises is tendered to Lessee.
3.3 Lessor's Obligation to Construct Tenant Improvement Work.
(a) Lessor hereby covenants and agrees to commence the Tenant
Improvement Work immediately upon execution of the Lease and to complete the
Tenant
-1-
<PAGE>
Improvement Work in as expeditious a manner as possible in accordance
with all applicable standards of care and diligence.
(b) Lessor represents and warrants that it has available to
it the financial resources and personnel and that it possesses the expertise to
commence construction of the Tenant Improvement Work and to complete it in
accordance with the covenants made in subparagraph (a).
(c) Any breach of the representations, warranties and
covenants contained in this paragraph 3.3 shall constitute a material breach of
this Lease. In the event of such breach, Lessee may terminate this Lease.
4. Use.
4.1. Use. The Premises shall be used and occupied for the
following: office and laboratory uses and the manufacturing of immunological
reagents and test kits and any uses accessory thereto or any other use which is
reasonably comparable and for no other purpose.
5. Base Rent.
(a) Lessee shall pay to Lessor as rent for the Premises,
(the "Base Rent"), in advance, in fixed monthly payments on the first day of
each month of the Term.
(b) From the Commencement Date until the first anniversary of
the Commencement Date, the Base Rent shall be an amount to be computed as the
sum of the following components:
(i) $3.45 annually per square foot;
(ii) $3.75 annually per square foot (attributable to
the cost of the Tenant Improvement Work amortized over the entire Term);
(iii) an additional component to be calculated as the
(i) sum of (1) specialty equipment and materials costs plus (2) subcontractor
installation charges, (ii) multiplied by 1.12, (iii) amortized at the rate of
11.5% per annum over the first three years of the Term, and (iv) divided by the
number of square feet in the Premises. (All such costs and charges must be
approved by Lessee prior to commencement of work.)
On the Commencement Date, Lessor and Lessee shall execute an
addendum to this Lease setting forth the amount of the monthly rent to be paid
by Lessee to Lessor and the components thereof.
-2-
<PAGE>
(c) Rent for any period during the Term hereof which is for
less than one month shall be a pro rata portion of the monthly installment.
(d) Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
(e) Commencing on the first anniversary of the Commencement
Date, and on each anniversary of the Commencement Date thereafter through the
end of the Term and any renewal thereof, the Base Rent shall be computed in
accordance with the provisions of this subparagraph. In the event the Consumer
Price Index for Urban Wage Earners and Clerical Workers in the City of
Philadelphia (1967 = 100) (hereinafter called the "Price Index") or a successor
or substitute index appropriately adjusted, reflects an increase in the cost of
living for the month immediately preceding such anniversary date ("Adjustment
Month") over and above such cost of living as reflected by the Price Index as it
existed for the month immediately preceding the prior anniversary date
(hereinafter called the "Base Index"), the Base Rent during such lease year
shall equal (i) the number of square feet in the Premises, multiplied by the sum
of the components referenced in subparagraphs 5(b)(ii) and (iii), plus (ii) the
number of square feet in the Premises multiplied by $3.45 (as adjusted in the
prior year in accordance with this subparagraph) plus (iii) the number of square
feet in the Premises, multiplied by the product of (A) $3.45 (as adjusted in the
prior year in accordance with this subparagraph) multiplied by (B) the lesser of
(x) five percent 5% or (y) a fraction, the numerator of which is the Price Index
for the Adjustment Month and the denominator of which is the Base Index (but in
no event shall such increase be less than 4%). In the event that such
determination cannot be made until after any anniversary of the Commencement
Date, the increase in the monthly rental payments due for the months prior to
such determination shall be paid to Lessee upon the date the next payment of
rent is due following such determination. Commencing on the fourth anniversary
of the Commencement Date, the computation of Base Rent shall no longer include
the component referenced in subparagraph 5(b)(iii), which costs shall have been
reimbursed in full to Landlord by such date.
6. Operating Expenses. In addition to the Base Rent, Lessee will pay to
Lessor as additional rent Lessee's Operating Expense Share of the amount of
Operating Expenses paid, payable or incurred by Lessor in each year of the Term
and Lessee's Tax Share of the real property taxes payable by Lessor in each year
of the Term, and Lessee's share of the premiums for required insurance payable
by Lessor. As used in this Lease the following terms shall be defined as
hereinafter provided:
(i) Lessee's Operating Expense Share shall be twenty-nine
percent (29%);
(ii) "Operating Expenses" shall mean the following:
-3-
<PAGE>
(a) Costs of cleaning, repairing and maintaining the
Common Areas of the Building (including the costs for snow removal). As used in
this Lease, the term "common areas" means, without limitation, the entrances,
lobbies, trash facilities, driveways, walkways, landscaping and all other areas
and facilities, including the plumbing, electrical, and sprinkler systems,
ductwork, roof and exterior wall and windows, in the Building which are provided
for and designated from time to time by Lessor for the general non-exclusive use
and convenience of Lessee and its employees, invitees, licenses or other
visitors. Lessor grants Lessee, its employees, invitees, licensees and other
visitors a non-exclusive license for the Term to use the Common Areas; and
(b) The cost of premiums for the insurance required
under paragraphs 9.1 and 9.3 (provided that Lessee shall pay 100% of any
increase in or component of any such premiums directly attributable to the
construction of the Tenant Improvement Work and the specialty equipment
installed);
(c) Notwithstanding anything else contained in this
paragraph, "Operating Expenses" shall not include: (i) any capital additions
made to the Building; (ii) repairs or other work occasioned by fire, windstorm,
or other insured casualty or hazard; (iii) leasing commissions and advertising
expenses incurred in procuring new tenants; (iv) repairs or rebuilding
necessitated by condemnation to the extent that Lessor has received condemnation
proceeds for such repairs or rebuilding; (v) any depreciation and amortization
of the Building; (vi) principal or interest payments on any indebtedness
applicable to the Building or the Premises, including any mortgage debt or
ground rents payable under any ground lease for the Building.
(iii) Lessee's Tax Share shall be 29% of the real property
taxes assessed on the date hereof, plus 100% of any increase in such taxes
directly attributable to the construction of the Tenant Improvement Work;
(iv) As used herein the term "real property tax" shall
include any form of real estate tax or assessment, general, special, ordinary
or extraordinary, and any license fee, commercial rental tax, improvement
bond or bonds, levy or tax (other than inheritance, personal income or estate
taxes) imposed on the Premises by any authority having the direct or indirect
power to tax, including any city, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Premises
or in the real property of which the Premises is a part, as against Lessor's
right to rent or other income therefrom, and as against Lessor's business of
leasing the Premises. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge in substitution of, partially or
totally, any tax, fee, levy, assessment for charge hereinabove included
within the definition of "real property tax."
All payments of additional rent for operating Expenses payable
by Lessee shall be paid within ten days of receipt by Lessee of Lessor's
statement of amounts due, which
-4-
<PAGE>
statement shall include at Lessee's request copies of relevant invoices and
receipts. All payments of additional rent for real property taxes payable by
Lessee shall be paid within the period prescribed by law for the payment
thereof without penalty or interest; provided that Lessor has sent to Lessee
copies of such tax bills when received from the taxing authority.
7. Compliance with Law; Environmental Matters.
7.1 Compliance with Law. (a) Lessor warrants to Lessee that the
Premises, in its state existing on the Commencement Date, and the
above-described uses do not violate any covenants or restrictions of record,
or any applicable zoning or building code, regulation or ordinance in effect
on said date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor to promptly, at
Lessor's sole cost and expense, rectify any such violation.
(b) Except as provided in paragraph 7.2(a), Lessee shall,
at Lessee's expense, comply promptly with all applicable statutes,
ordinances, rules, regulations, orders, covenants and restrictions of record,
and requirements in effect during the Term or any part of the term hereof,
regulating the use by Lessee of the Premises.
7.2 Environmental Matters. Lessor represents and warrants that
all activities at the Premises since Lessor's acquisition of the Premises
have been and are being conducted in compliance with all statutes,
ordinances, regulations, orders, and requirements of common law concerning
(i) those activities, (ii) repairs or construction of any improvements, (iii)
handling of any materials, (iv) discharges to the air, soil, surface, or
groundwater, and (v) storage, treatment, or disposal of any waste at or
connected with any activity at the Premises ("Environmental Statutes").
Lessor represents and warrants that no Contamination is present at
the Premises. The term "Contamination" means the uncontained presence of
Hazardous Substances at the Premises, or arising from the Premises which may
require remediation under any applicable law. The term "Hazardous
Substances" means "hazardous substances" as defined pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, "regulated substances" within the meaning of Subtitle I of the
Resource Conservation Recovery Act, as amended, "hazardous wastes". as
defined pursuant to the Delaware Hazardous Waste Management Act, or
"regulated substances" as defined pursuant to the Delaware Underground
Storage Tank Act.
Lessor represents and warrants that no portion of the Premises
constitutes any of the following "Environmentally Sensitive Areas":
(i) a wetland or other "water of the United states"
for purposes of section 404 of the federal Clean Water Act or any similar
area regulated under any state law;
-5-
<PAGE>
(ii) a portion of the coastal zone for purposes of
the Federal Coastal Zone Management Act and the Delaware Coastal Zone Act; or
(iii) any other area, including but not limited to a
floodplain or other flood hazard area, the development of which is specially
restricted under any applicable law by reason of its physical characteristics
or prior use.
Lessor represents and warrants that no tanks for the storage of any
liquid or gas are present on the Premises except for two underground 500
gallon liquid propane tanks.
Lessor represents and warrants that (i) at no point in any structure
at the Premises will air radiation levels exceed 4 picocuries/liter, (ii)
Lessor does not know or have reason to know of any investigation of the
Premises for the presence of radon gas or the presence of the radioactive
decay products of radon (collectively "Radon") and (iii) Lessor has provided
to Lessee a report of each investigation relevant to the presence of Radon at
the Premises of which Lessor has any knowledge.
The parties hereby agree that if any of the representations or
warranties contained in this paragraph 7.2 shall prove to be incorrect, or if
Lessor breaches any covenant contained in this paragraph 7.2, Lessor shall be
afforded an opportunity to cure such default provided that (i) such breach or
condition is susceptible of remediation within a reasonable amount of time as
determined by Lessee; and (ii) Lessor begins promptly after the discovery of
such breach or condition diligently to remedy same and continues such
diligent efforts until satisfactory remediation has been achieved.
Lessor shall indemnify and hold Lessee harmless of, from, and
against any and all expense, loss or liability suffered by Lessee by reason
of the Lessor's breach of any provision of this Section including, but not
limited to, (i) costs to comply with any Environmental Statutes; (ii) costs
to study or to remedy Contamination of the Premises or arising from the
Premises; (iii) costs incident to the study or removal of tanks, their
contents or associated Contamination; (iv) cost to prevent air radiation
levels in any structure hereafter erected in the Premises from exceeding 4
picocuries/liter or to reduce air radiation levels in any structure on the
Premises to 4 picocuries/liter or less; (v) fines, penalties, or other
sanctions assessed due to Lessor's failure to have complied with
Environmental Statutes; (vi) loss of value of the Property by reason of a
failure to comply with Environmental Statutes or the presence on the Property
of any Hazardous Substance, tank, Environmentally Sensitive Feature or Radon;
and (vii) legal and professional fees and costs in connection with the
foregoing. For purposes of this subparagraph, the term "Lessee" shall mean
Lessee, its successors and assigns. Nothing herein shall be construed to
include (i) any condition or occurrence arising out of Lessee's activities in
or on the Premises, or (ii) any consequential damages or losses sustained by
Lessee as a result of interruption of Lessee's business activities or the
dislocation of Lessee's facilities as a result of a default pursuant to this
paragraph 7.2.
-6-
<PAGE>
7.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and Lessor further warrants to Lessee
that the Tenant Improvement Work in the Premises shall be in good operating
condition on the Commencement Date. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of Lessor,
after receipt of written notice from Lessee setting forth with specificity
the nature of the violation, to promptly, at Lessor's sole cost, rectify such
violation.
(b) Within thirty (30) days after the Commencement Date,
Lessee shall give Lessor a written list (the "Punch List") of all contended
defects in Lessor's construction work and of all contained variances in
Lessor's work as described in Exhibit "HI' attached hereto. Lessor shall
correct all items on the Punch List within thirty (30) days after Lessor's
receipt of the Punch List, unless the nature of the defect or variance is
such that a longer period of time is required to repair or correct the same,
in which case Lessor shall exercise due diligence in correcting such defect
or variance at the earliest possible date and with a minimum of interference
with Lessee's operations. Nothing in this subparagraph shall be deemed a
waiver by Lessee of Lessor's warranty contained in paragraph 7.3(a) for
violations discovered after delivery of the Punch List.
8. Maintenance, Repairs, Alterations and Building Services.
8.1 Lessor's Obligations
(a) Lessor shall keep in good order, condition and repair
the Common Areas of the Building, and the heating, ventilation and air
conditioning system installed for the use of the Premises (the "HVAC").
(b) If Lessor fails to perform Lessor's obligations under this
paragraph 8.1 or under any other paragraph of this Lease, Lessee may at
Lessee's option and upon 10 days' prior written notice to Lessor (except in
the case of emergency, in which case no notice shall be required), perform
such obligations on Lessor's behalf and put the Common Areas and HVAC in good
order, condition and repair, and the cost thereof shall be offset against the
installment rent next due.
8.2 Lessee's Obligations. Lessee, at its expense, shall
maintain and keep in good order, condition and repair the plumbing, electric,
HVAC, lighting, fixtures, interior walls, ceilings, floors, windows, doors
and plate glass located in, on, or within the Premises or any part thereof,
and which are for the exclusive use of the Premises or Lessee. Lessor shall
procure and maintain at Lessee's expense an HVAC maintenance agreement, which
shall be in form and substance reasonably satisfactory to Lessee. On the last
day of the Term hereof, or on any sooner termination, Lessee shall surrender
the Premises to Lessor in the same condition as received, ordinary wear and
tear excepted, clean and free of debris.
-7-
<PAGE>
8.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written
consent, which consent shall not be unreasonably withheld or delayed, make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding
$7,500. In any event, whether or not in excess of $7,500 in cost, Lessee
shall make no change or alteration to the exterior of the Premises nor the
exterior of the Building without Lessor's prior written consent. As used in
this paragraph 8.3 the term "Utility Installation" shall mean air lines,
power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Should Lessee make any
alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, Lessor may require that Lessee remove any or all of
the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its
consent, the consent shall be deemed conditioned upon Lessee acquiring a
permit to do so from appropriate government agencies, the furnishing of a
copy thereof to Lessor prior to the commencement of the work and the
compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished to or for Lessee at or for use in the Premises, which
claims are or may be secured by any mechanics' or materialmen's lien against
the Premises or any interest therein. Lessee shall give Lessor not less than
ten (10) days' notice prior to the commencement of any work in the Premises,
and Lessor shall have the right to post notices of non-responsibility in or
on the Premises as provided by law. If Lessee shall, in good faith, contest
the validity of any such lien, claim or demand, then Lessee shall, at its
sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
endorsement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises free from the effect of such lien or claim and shall obtain release
of such lien by substitution of such surety bond as security therefor. In
addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
(d) Unless Lessor requires their removal, as set forth in
paragraph 8.3(a), all alterations, improvements, additions and Utility
Installations, which may be made on the Premises, shall become the property
of Lessor and remain upon and be surrendered with the Premises at the
expiration of the Term.
-8-
<PAGE>
9. Insurance; Indemnity.
9.1 Liability Insurance - Lessor. Lessor shall obtain and keep
in force during the Term of this Lease a policy of Combined Single Limit
Bodily Injury and Property Damage Insurance, insuring Lessor and Lessee
against any liability arising out of the ownership, use or occupancy
maintenance of the Premises and all areas appurtenant thereto in an amount
not less than $500,000 per occurrence.
9.2 Liability Insurance - Losses. Lessee shall obtain and keep
in force during the Term of this Lease a policy of Combined Single Limit
Bodily Injury and Property Damage Insurance, insuring Lessor and Lessee
against any liability arising out of the use or occupancy of the Premises and
all areas appurtenant thereto in an amount not less than $500,000 per
occurrence.
9.3 Property Insurance. Lessor shall obtain and keep in force
during the Term of this Lease a policy or policies of insurance covering loss
or damage to the Building, including Lessee's fixtures, equipment or tenant
improvements in an amount not to exceed the full replacement value thereof as
the same may exist from time to time, providing protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, flood (in the event same is required by a lender having a
lien on the Premises), special extended perils ("all risk", as such term is
used in the insurance industry).
9.4 Insurance Policies. Insurance required hereunder shall be
in companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender having a lien on the
Premises, as set forth in the most current issue of "Best Insurance Guide".
Lessor and Lessee shall deliver to each other copies of policies of all
insurance required under paragraph 8 or certificates evidencing the existence
and amounts of such insurance. No such policy shall be cancellable or
subject to reduction of coverage or other modification except after thirty
(30) days' prior written notice to the other. Each party shall, at least
thirty (30) days prior to the expiration of such policies, furnish the other
with renewals thereof. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in paragraph 9.3.
9.5 Waiver of Subrogation. Lessee and Lessor each hereby
release and relieve the other, and waive their entire right of recovery
against the other for loss or damage arising out of or incident to the perils
insured against under paragraph 9.3, which perils occur in, on or about the
Premises, whether due to the negligence of Lessor or Lessee or their agents,
employees, contractors and/or invitees. Lessee and Lessor shall, upon
obtaining the policies of insurance required hereunder, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation
is contained in this Lease.
9.6 Indemnity. Lessee shall indemnify and hold harmless Lessor
from and against any and all claims arising from Lessee's use of the
Premises, or from the conduct of
-9-
<PAGE>
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from
any negligence of the Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel satisfactory to Lessor.
Lessor shall indemnify and hold harmless Lessee from and against
any and all claims arising from any breach or default in the performance of
any obligation on Lessor's part to be performed under the terms of this
Lease, or arising from any negligence of the Lessor, or any of Lessor's
agents, contractors, or employees, and from and against all costs, attorneys'
fees, expenses and liabilities incurred in the defense of any such claim or
any action or proceeding brought thereon; and in case any action or
proceeding be brought against Lessee by reason of any such claim. Lessor upon
notice from Lessee shall defend the same at Lessor's expense by counsel
satisfactory to Lessee.
10. Damage or Destruction.
10.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage
or destruction to the Premises to the extent that the cost of repair is less
than 50% of the fair market value of the Premises immediately prior to such
damage or destruction. "Premises Building Partial Damage" shall herein mean
damage or destruction to the Building of which the Premises are a part to the
extent that the cost of repair is less that 50% of the fair market value of
the Building as a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean
damage or destruction to the Premises to the extent that the cost of repair
is 50% or more of the fair market value of the Premises immediately prior to
such damage or destruction.
(c) "Insured Loss" shall herein mean damage or
destruction which was caused by an event required to be covered by the
insurance described in paragraph 10.
10.2 Partial Damage - Insured Loss. Subject to the provisions
of paragraph 10.4, 10.5 and 10.6, if at any time during the Term of this
Lease there is damage which is an Insured Loss and which falls into the
classification of Premises Partial Damage or Premises Building Partial
Damage, then Lessor shall, at Lessor's sole cost, repair such damage,
including Lessee's fixtures, equipment or tenant improvements as soon as
reasonably possible and this Lease shall continue in full force and effect.
-10-
<PAGE>
10.3 Partial Damage - Uninsured Loss. Subject to the
provisions of paragraphs 10.4, 10.5 and 10.6, if at any time during the Term
of this Lease there is damage which is not an Insured Loss and which fails
within the classification of Premises Partial Damage or Premises Building
Partial Damage, unless caused by a willful act of Lessee (in which event
Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's
option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within fifteen (15) days after
the date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease. In the event Lessor shall give such notice of Lessor's
intention to cancel and terminate this Lease, Lessee shall have the right
within fifteen (15) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, in which event this Lease shall continue in full force and effect,
and Lessee shall proceed to make such repairs as soon as reasonably possible.
If Lessee does not give such notice within such 15-day period this Lease
shall be cancelled and terminated and Lessee shall have no further
obligations or duties thereunder including the payment of rent as of the date
of the occurrence of such damage.
10.4 Total Destruction. If at any time during the term of
this Lease there is damage, whether or not an Insured Loss, (including
destruction required by any authorized public authority), which falls into
the classification of Premises Total Destruction or Premises Building Total
Destruction, this Lease shall automatically terminate and Lessee shall have
no further obligations or duties thereunder including the payment of rent as
of the date of such total destruction.
10.5 Damage Near End of Term.
(a) If at any time during the last six months of the
Term of this Lease there is damage, whether or not an Insured Loss, which
falls within the classification of Premises Partial Damage, Lessor and Lessee
each has the option to cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to the other of its
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 10.5(a), in the event that
Lessee has an option to extend or renew this Lease, and the time within which
said option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later that 25 days after the
occurrence of an Insured Loss falling within the classification of Premises
Partial Damage during the last six months of the Term of this Lease. If
Lessee duly exercises such option during said 25 day period, Lessor shall, at
Lessor's expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise
such option during said 25 day period, then Less may at Lessee's option
terminate and cancel this Lease as of the expiration of said 25 day period by
giving written notice to Lessee of
-11-
<PAGE>
Lessor's election to do so within 5 days after the expiration of said 25 day
period, notwithstanding any term or provision in the grant of option to the
contrary.
10.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 10.2
or 10.3 and Lessor or Lessee repairs or restores the Premises pursuant to the
provisions of this paragraph 10, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent Lessee shall have no claim against Lessor for
any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore
the Premises under the provisions of this paragraph 10 and shall not commence
meaningful repair or restoration within 30 days after such obligations shall
accrue, Lessee may at Lessee's option cancel and terminate his Lease by
giving Lessor written notice of Lessee's election to do so at any time prior
to Lessor's meaningful commencement of such repair or restoration. In such
event this Lease shall terminate as of the date of such notice and Lessee
shall have no further obligations or duties thereunder, including the payment
of rent, as of the date of the occurrence of the damage.
10.7 Termination - Advance Payments. Upon termination of this
Lease pursuant to this paragraph 10, an equitable adjustment shall be made
concerning any advance rent and any advance payments made by Lessee to Lessor.
10.8 Waiver. Lessor and Lessee waive the provisions of any
statutes which relate to termination of leases when leased property is
destroyed and agree that such event shall be governed by the terms of this
Lease.
11. Utilities. Lessee shall pay for all water, gas, heat, light,
power, telephone and other utilities and services supplied to the Premises,
together with any taxes thereon. Such services are to be separately metered
to Lessee.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily
or by operation of law assign, transfer, mortgage, sublet, or otherwise
transfer or encumber all of any part of Lessee's interest in this Lease or in
the Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold or delay. Lessor shall respond in writing to Lessee's
request for consent hereunder in a timely manner and any attempted
assignment, transfer, mortgage, encumbrance or subletting without such
consent shall be void and shall constitute a breach of this Lease.
-12-
<PAGE>
12.2 Lessee Affiliate. Notwithstanding the provisions of
paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any
portion thereof, without Lessor's consent, to any corporation which controls,
is controlled by or is under common control with Lessee, or to any
corporation resulting from the merger or consolidation with Lessee, or to any
person or entity, which acquires all or substantially all of the assets of
Lessee as a going concern of the business that is being conducted on the
Premises, provided that said assignee assumes, in full, the obligations of
Lessee under this Lease. Any such assignment shall not, in any way, affect
or limit the liability of Lessee under the terms of this Lease even if after
such assignment or subletting the terms of this Lease are changed or altered,
provided, however, that any material change to the terms of this Lease
(including, but not limited to, the Term or Rent) after such an assignment or
subletting, shall require the prior consent of Lessor and any such change
made without Lessor's prior consent shall not be binding on Lessor.
12.3 No Release of Losses. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the Rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of Rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms thereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Lessee or any
successor of Lessee, and without obtaining its or their consent thereto and
such action shall not relieve Lessee of liability under this Lease.
12.4 Assignment Fees. In the event Lessee shall assign or
sublet the Premises then Lessee shall an assignment processing fee equal to
$200.00 for each such request.
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the
following events shall constitute a material default and breach of this Lease
by Lessee:
(a) The failure by Lessee to make any payment of rent as
and when due, where such failure shall continue for a period of five days
after Lessee's receipt of written notice from Lessor. In the event that
Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable
Unlawful Detainer statutes, such Notice to Pay Rent or Quit shall also
constitute the notice required by this subparagraph;
(b) The failure by Lessee to observe or perform any of
the covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in paragraph (a) above, where such
failure shall continue for a period of 30 days after written notice hereof
from Lessor to Lessee; provided, however, that if the nature of Lessee's
-13-
<PAGE>
default is such that more than 30 days are reasonably required for its cure,
then Lessee shall not be deemed to be in default if Lessee commenced such
cure within said 30-day period and thereafter diligently prosecutes such cure
to completion;
(c) (i) The making by Lessee of any general arrangement
or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition field against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(c)
is contrary to any applicable law, such provision shall be of no force or
effect;
(d) The discovery by Lessor that any financial statement
given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee,
any successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 Remedies. In the event of any such material default or
breach by Lessee, Lessor may at any time after providing Lessee with written
notice, but without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by reason of Lessee's default including, but not limited
to, the cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the premises, reasonable
attorneys' fees, and any real estate commission actually paid; the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided.
(b) Maintain Lessee's right to possession in which case
this Lease shall continue in effect whether or not Lessee shall have
abandoned the Premises. In such event Lessor shall be entitled to enforce
all of Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder;
(c) Pursue any other remedy now or hereafter available
to Lessor under the laws or judicial decisions of the State of Delaware.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
-14-
<PAGE>
13.3 Default by Lessor. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable
time, but in no event later than ten (10) days after written notice by Lessee
to Lessor and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than ten (10) days are required for performance then Lessor
shall not be in default if Lessor commences meaningful performance within
such lo-day period and thereafter diligently prosecutes the same to
completion.
13.4 Late Charges. Lessee hereby acknowledges that late
payment by Lessee to Lessor of rent and other sums due hereunder will cause
Lessor to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges which may
be imposed on Lessor by the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent shall not be received by
Lessor or Lessor's designee within fifteen (15) days after such amount shall
be due, then, without any requirement for notice to Lessee, Lessee shall pay
to Lessor a late charge equal to 3% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate
of costs Lessor will incur by reason of late payment by Lessee. Acceptance
of such late charge by Lessor shall in no event constitute a waiver of
Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof are taken
under the power of eminent domain, or sold under the threat of the exercise
of said power (all of which are herein called "condemnation"), this Lease
shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than
10% of the floor area of the Building, or more than 25% of the area of the
Premises is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within fifteen (15) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice,
within fifteen (15) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee opts to terminate this Lease as described
in the foregoing, Lessee's obligations and duties under this Lease shall
cease as of the date of condemning authority take such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the Premises
remaining, except that the rent shall be reduced in the proportion that the
floor area of the Building taken bears to the total floor area of the
Building situated on the Premises. No reduction of rent shall occur if the
only area taken is that which does not have a building located thereon. Any
award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of
the fee, or as severance damages; provided, however, that Lessee shall be
entitled to any award for loss of or damage to Lessee's equipment, trade
fixtures and removable personal property. In the event that this Lease
-15-
<PAGE>
is not terminated by reason of such condemnation, Lessor shall to the extent
of severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
15. Brokers' Fees.
Lessor shall be responsible for all brokers, commissions or
finder's fees charged by Stoltz Realty and Dunn Associates, and warrants to
Lessee that no brokers' commissions, finders' fees or similar payments shall
be claimed through Lessee in connection with the execution of this Lease, and
agrees to indemnify and hold Lessee harmless from any liability that may
arise from such claims, including reasonable attorney's fees.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than 10 days I prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force and effect)
and the date to which the rent is paid and (ii) acknowledging that there are
not, to Lessee's knowledge, any uncured defaults, or events which with the
passage of time would be defaults, on the part of Lessor hereunder, or
specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises.
(b) At Lessor's option, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall
be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there
are no uncured defaults in Lessor's performance, and (iii) that not more than
one month's rent has been paid in advance or such failure may be considered
by Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender
or purchaser designated by Lessor such financial statements of Lessee as may
be reasonably required by such lender or purchaser. Such statements shall
include to the extent available the past three years' financial statements of
Lessee. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes
herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean
only the owner or owners at the time in question of the fee title or a
lessee's interest in a ground lease of the Premises. In the event of any
transfer of such title or interest, Lessor herein named (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the
date of such transfer of all liability as respects Lessor's obligations
thereafter to be performed, provided that
-16-
<PAGE>
any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall,
subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
18. Severability. The invalidity of any provisions of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Time of Essence. Time is of the essence.
20. Incorporation of Prior Agreements; Amendments. This Lease
contains all agreements of the parties with respect to any matter mentioned
herein. No prior agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by
the parties in interest at the time of the modification. Except as otherwise
stated in this Lease, Lessee hereby acknowledges that neither the real estate
brokers listed in paragraph 15 hereof nor any cooperating broker on this
transaction nor the Lessor or any employees or agents of any of said persons
has made any oral or written warranties or representations to Lessee relative
to the condition or use by Lessee of said Premises and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety
Health Act, the legal use and adaptability of the Premises and the compliance
thereof with all applicable laws and regulations in effect during the term of
this Lease except as otherwise specifically stated in this Lease.
21. Notices. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by certified
mail, and if given personally or by mail, shall be deemed sufficiently given
if addressed to Lessee or to Lessor at the address noted below the signature
of the respective parties, as the case may be. Each such notice shall be
deemed given upon personal delivery or, if by certified mail, upon mailing.
Either party may by notice to the other specify a different address for
notice purposes except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice purposes. A copy
of all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
22. Waivers. No waiver by Lessor or any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to, or approval
of any act, shall not be deemed to render unnecessary the obtaining of
Lessor's consent to or approval of any subsequent act by Lessee. The
acceptance of rent hereunder by Lessor shall not be a waiver of any preceding
breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
-17-
<PAGE>
23. Recording. Either Lessor or Lessee shall, upon request of the
other, execute, acknowledge and deliver to the other a "short form"
memorandum of this Lease for recording purposes.
24. Holding Over. If Lessee, with Lessor's consent, remains in
possession of the Premises or any part thereof after the expiration of the
term hereof, such occupancy shall be a tenancy from month to month upon all
the provisions of this Lease pertaining to the obligations of Lessee, but all
options and rights of first refusal, if any, granted under the terms of this
Lease shall be deemed terminated and be of no further effect during said
month to month tenancy.
25. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
26. Covenants and Conditions. Each provision of this Lease
performable by Lessee shall be deemed both a covenant and a condition.
27. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee, this Lease shall bind the
parties, their personal representatives, successors and assigns. This Lease
shall be governed by the laws of the State of Delaware.
28. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate
to any ground lease, mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the real property of which the Premises
are a part and to any and all advances made on the security thereof and to
all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the Rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant
to its terms. If any mortgagee, trustee or ground lessor shall elect to have
this Lease prior to the lien of its mortgage, deed of trust or ground lease,
and shall give written notice thereof to Lessee, this Lease shall be deemed
prior to such mortgage, deed of trust, or ground lease, whether this Lease is
dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to
effectuate an attornment, a subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be. If
Lessee fails to execute such documents within 10 days after written demand,
Lessor may execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably
appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and
stead, to execute such documents in accordance with this paragraph 28(b).
-18-
<PAGE>
29. Intentionally Omitted
30. Lessor's Access. Lessor and Lessor's agents, upon prior written
notice to Lessee, shall have the right to enter the Premises at reasonable
times for the purpose of inspecting the same, showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements or additions to the Premises or to the Building of which they
are a part as Lessor may deem necessary or desirable; provided, however that
upon such entry Lessor and/or Lessor's agents (except in the case of
emergency) shall be required to be accompanied by a representative of Lessee
for purposes of protecting and preserving the confidentiality of Lessee's
work on the Premises. Lessor may not at any time place on or about the
Premises any ordinary "For Sale" signs. Lessor may at any time during the
last 120 days of the Term hereof place on or about the Premises on the
Building any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee; provided that Lessor shall not permitted to place "For
Lease" signs on or about the Premises until any options or rights available
to Lessee to extend the term of this Lease or to renew this Lease or any
options or rights of first refusal to lease the Premises or rights of first
offer to purchase the Premises have lapsed.
31. Signs. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent, which shall not be unreasonably withheld,
except that Lessee shall have the right, without the prior permission of
Lessor, to place ordinary and usual for rent or sublet signs thereon.
32. Merger. The voluntary or other surrender of this Lease by Lessee,
or a mutual cancellation thereof, or a termination by Lessor, shall not work
a merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
lessor of any or all of such subtenancies.
33. Consents. Wherever in this Lease the consent of one party is
required to an act of the other party, such consent shall not be unreasonably
withheld.
34. Quiet Possession. Upon Lessee paying the rent for the Premises
and observing and performing all of the covenants, conditions and provisions
on Lessee's part to be observed and performed hereunder, Lessee shall have
quiet possession of the Premises for the entire Term hereof subject to all of
the provisions of this Lease. The individuals executing this Lease on behalf
of Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
36. Options; Right of First Refusal.
36.1 Definition. As used in this paragraph the word "Options"
has the following meaning: (1) the right or option to extend the term of this
Lease or to renew this Lease; (2) the option or right of first refusal to
lease any space contiguous to the Premises.
-19-
<PAGE>
36.2 Options Personal. Each Option granted to Lessee in this
Lease is personal to Lessee and may not be exercised or be assigned,
voluntarily or involuntarily, by or to any person or entity other than
Lessee, provided, however, the Option may be exercised by or assigned to any
Lessee Affiliate as defined in paragraph 12 of this Lease. The Options
herein granted to Lessee are not assignable separate and apart from this
Lease.
36.3 Effect of Default on Options.
(a) Lessee shall have no right to exercise an option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(a) or 13.1(b) and continuing until the
default alleged in said notice of default is cured, or (ii) at any time after
an event of default described in paragraphs 13.1(c) or 13.1(d) (without any
necessity of Lessor to give notice of such default to Lessee).
(b) The period of time within which an option may be
exercised shall not be extended or enlarged by reason of Lessee's inability
to exercise an option because of the provisions of paragraph 36.3.
36.4 Option to Renew. Lessee shall have the right, at its sole
option, to renew this Lease for an additional period of three (3) years
following the term hereof, upon the same terms and conditions in effect at
the expiration of the prior term (including provision for the escalation of
rent and including this option to renew); provided Lessee shall have given
Lessor no more than six and no less than three months written notice in
advance at the end of the prior term.
36.5 Option to Extend Promises. Lessor hereby grants to Lessee
the right at any time and from time to time to lease any or all of the
unleased space adjacent to the Premises for a term concurrent with the
remaining Term of this Lease, at a Base Rent (prior to the inclusion of
reimbursement for Lessor's "tenant finish work" in such space) of $3.95 per
square foot (as escalated beginning on the first anniversary of the
Commencement Date to reflect any increase in the Price Index between the date
of this Lease and the date of the exercise of this option), on all the other
terms and conditions set forth in this Lease. For purposes of this paragraph
36.5, "tenant finish work" shall mean improvements to such space made by
Lessor comparable in quality and type to the Tenant Improvement Work
described in Exhibit C, for which Lessor shall be reimbursed an amount equal
to $30.15 per square foot (as escalated beginning on the first anniversary of
the Commencement Date to reflect any increase in the Price Index between the
date of this Lease and the date of the exercise of this option) plus interest
thereon calculated at 1 1/2% over the prime rate then in effect at Wilmington
Trust Company.
36.6 Right of First Refusal. If, at any time during the term
of this Lease or any extension thereof, Lessor or its successors or assigns
shall receive a bona fide offer from any
-20-
<PAGE>
third party to lease all or any portion of the space adjacent to the
Premises, Lessor shall offer such space to Lessee upon same financial terms
as set forth in such offer. Lessor's offer to Lessee shall be in writing,
and Lessee shall have a period of fourteen days within which Lessee may
elect, by written notice to Lessor, to rent such space on the same terms as
set forth in such offer. If Lessee shall refuse any such offer and if Lessor
shall nevertheless fail to complete the leasing of such space under the terms
of such offer, Lessor shall not thereafter lease such space except by
preceding in accordance of the terms of this paragraph as though any
subsequent offer were a new offer made under the terms hereof.
37. Multiple Tenant Building. Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make
from time to time for the management, safety, care, and cleanliness of the
Building and grounds, the parking of vehicles and the preservation of good
order therein as well as for the convenience of other occupants and tenants
of the Building. The violations of any such rules and regulations shall be
deemed a material breach of this Lease by Lessee.
38. Security Measures. Lessee hereby acknowledges that the rent
payable to Lessor hereunder does not include the cost of guard service or
other security measures, and that Lessor shall have no obligation whatsoever
to provide same. Lessee assumes all responsibility for the protection of
Lessee, its agents and invitees from acts of third parties.
39. Easements. Lessor reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Lessor deems
necessary or desirable, and to cause the recordation of Parcel Maps and
restrictions, so long as such easements, rights, dedications, Maps and
restrictions do not interfere with the use of the Premises by Lessee. Lessee
shall sign any of the aforementioned documents upon request of Lessor and
failure to do so shall constitute a material breach of this Lease.
40. Performance Under Protest. If at any time a dispute shall arise
as to any amount or sum of money to be paid by one party to the other under
the provisions hereof, the party against whom the obligation to pay the money
is asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
41. Authority. If either Lessor or Lessee is a corporation, trust, or
general or limited partnership, each individual executing this Lease on
behalf of such entity represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of said entity.
-21-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures.
Executed at Strategic Diagnostics Industries, Inc., 128 Sandy Drive, Newark, DE
19713 on Oct. 26, 1993.
LESSOR: TOBER & AGNEW PROPERTIES, INC.
By: /s/ ROBERT C. TOBER
-------------------------------------
(Seal)
Title: PRES.
----------------------------------
Executed at Strategic Diagnostics Industries, Inc., 128 Sandy Drive, Newark, DE
19713 on Oct. 26, 1993.
LESSEE: STRATEGIC DIAGNOSTICS INDUSTRIES
INCORPORATED
By: /s/ ANNE CAVANAUGH
-------------------------------------
(Seal)
Title: VICE PRES.
----------------------------------
-22-
<PAGE>
Exhibit 10.20
INDUSTRIAL LEASE
1. Parties. This Lease, dated, for reference purposes only June 7, 1991,
is made by and between TOBER & AGNEW PROPERTIES, INC., a Delaware corporation
(herein called "Lessor") and TSD BioServices, a Delaware general partnership
(herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the Term (as hereinafter defined)at the rental, and upon all of the
conditions set forth herein, all that certain space (the "premises") which is
the portion of the building erected on lots 32 and 33, at 128 Sandy Drive,
Newark, Delaware as more fully shown on the plan attached hereto as Exhibit
"A", consisting of Seven Thousand Six Hundred Fifty (7,650) square feet, more
or less. The Premises includes all fixtures,improvements, additions and other
property installed therein at the commencement Date (as hereinafter defined) or
at any time during the time of this lease (other than Tenant's movable personal
property and trade fixtures) together with the right to use, in common with
others, any entrances, lobbies, hallways parking lot, walkways, elevators and
other public portions of the building in which the Premises is located
(the "Building") The Building contains 25,600 square feet.
3. Term.
3.1. Term. The term of this lease and Lessee's obligation to pay rent
hereundershall commence upon the date when the premises is ready for occupancy
and a certificate of occupancy or equivalent certificate has been issued by the
appropriate governmental agency (the "Commencement Date") The premises shall be
deemed ready for occupancy when Lessor has substantially completed the work
depicted or described on the plans and specifications listed in Exhibit "B"
attached hereto (the "Tenant Improvement Work"). The parties agree to execute
an Addendum contemporaneously with the execution of this lease which sets forth
the parties, rights and duties with respect to the Tenant Improvement Work.
"Substantial Completion" shall mean such completion as shall enable Lessee to
reasonably and conveniently use and occupy the premises for the conduct of its
business. The term ("Term") of this lease shall end five (5) years after the
commencement Date. The parties agree to confirm the commencement Date in
writing.
3.2. Delay in Possession. If for any reason Lessor cannot deliver
possession of the premises to Lessee on the commencement Date, Lessee shall
not be obligated to pay rent until possession of the premises is tendered to
Lessee.
4. Use.
4.1. Use. The premises shall be used and occupied for the following:
office and laboratory uses and the manufacturing of immunological reagents
and ascites and any uses accessory thereto or any other use which is reasonably
comparable and for no other purpose.
1
<PAGE>
5. Base Rent.
(a) Lessee shall pay to Lessor as rent for the premises, (the
"Base Rent"), in advance, in fixed monthly payments on the first day of each
month of the Term.
(b) From the Commencement Date until the first anniversary of
the commencement Date, the Base Rent shall be an amount to be computed at the
rate of $3.95 annually per square foot.
(c) Rent for any period during the Term hereof which is for less
than one month shall be a pro rata portion of the monthly installment.
(d) Rent shall be payable in lawful money of the United States
to Lessor at the address stated herein or to such other persons or at such
other places as Lessor may designate in writing.
(e) commencing on the first anniversary of the Commencement
Date, and on each anniversary of the commencement Date thereafter through the
end of the Term and any renewal thereof, the Base Rent shall be computed in
accordance with the provisions of this subparagraph. In the event the Consumer
Price Index for Urban Wage Earners and clerical Workers in the city of
Philadelphia (1967 = 100) (hereinafter called the "Price Index") or a successor
or substitute index appropriately adjusted, reflects an increase in the cost of
living for the month immediately preceding such anniversary date ("Adjustment
Month") over and above such cost of living as reflected by the Price Index as
it existed for the month immediately preceding the prior anniversary date
(hereinafter called the "Base Index"), the Base Rent during such lease year
shall equal to the number of square feet in the Premises, multiplied by $3.95
plus the product of (i) $3.95 (as adjusted in the prior year in accordance
with this subparagraph) multiplied by (ii) the lesser of (A) five percent 5% or
(B) a fraction, the numerator of which is the Price Index for the Adjustment
Month and the denominator of which is the Base Index (but in no event shall
such increase be less than 4%). In the event that such determination cannot
be made until after any anniversary of the commencement Date, the increase in
the monthly rental payments due for the months prior to such determination
shall bepaid to Lessee upon the date the next payment of rent is due following
such determination.
6. Operating Expenses. In addition to the Base Rent, Lessee will pay to
Lessor as additional rent Lessee's operating Expense Share of the amount of
Operating Expenses paid, payable or incurred by Lessor in each year of the Term
and Lessee's Tax Share of the real property taxes payable by Lessor in each
year of the Term, and Lessee's share of the premiums for required insurance
payable by Lessor. As used in this lease the following terms shall be defined
as hereinafter provided:
(a) Lessee's operating Expense Share shall be thirty percent (30%);
2
<PAGE>
(b) "Operating Expenses" shall mean the following:
(i) Costs of cleaning, repairing and maintaining the
Common Areas of the Building (including the costs for snow removal). As used
in this lease, the term "common areas" means, without limitation, the
entrances, lobbies, trash facilities, driveways, walkways, landscaping and all
other areas and facilities, including the plumbing, electrical, and sprinkler
systems, ductwork, roof and exterior wall and windows, in the Building which
are provided for and designated from time to time by Lessor for the general
non-exclusive use and convenience of Lessee and its employees, invitees,
licensees or other visitors. Lessor grants Lessee, its employees,invitees,
licensees and other visitors a non-exclusive license for the Term to use the
common Areas; and
(ii) The cost of premiums for the insurance required under
paragraphs 9.1 and 9.3 (provided that Lessee shall pay 100% of any increase in
or component of any such premiums directly attributable to the construction of
the Tenant Improvement Work and the specialty equipment installed);
(iii) Notwithstanding anything else contained in this
paragraph, "Operating Expenses" shall not include: (i) any capital
additions made to the Building; (ii)repairs or other work occasioned by fire,
windstorm, or other insured casualty or hazard; (iii) leasing commissions and
advertising expenses incurred inprocuring new tenants; (iv) repairs or
rebuilding necessitated by condemnation to the extent that Lessor has received
condemnation proceeds for such repairs or rebuilding; (v)any depreciation and
amortization of the Building; (vi) principal or interest payments on any
indebtedness applicable to the Building or the Premises, including any mortgage
debt or ground rents payable under any ground lease for the Building.
(c) Lessee's Tax Share shall be 30% of the real property taxes
assessed on the date hereof, plus 100% of any increase in such taxes directly
attributable to the construction of the Tenant Improvement Work;
(d) As used herein the term "real property tax" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed on the Premises by any authority having the direct or indirect power to
tax, including any city, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Premises
or in the real property of which the Premises is a part, as against Lessor's
right to rent or other income therefrom, and as against Lessor's business of
leasing the Premises. The term "real property tax" shall also include any tax,
fee, levy, assessment or charge in substitution of, partially or totally, any
tax, fee, levy, assessment for charge hereinabove included within the definition
of "real property tax."
3
<PAGE>
All payments of additional rent for Operating Expenses
payable by Lessee shall be paid within ten days of receipt by Lessee of
Lessor's statement of amounts due, which statement shall include at Lessee's
request copies of relevant invoices and receipts. All payments of additional
rent for real property taxes payable by Lessee shall be paid within the period
prescribed by law for the payment thereof without penalty or interest; provided
that Lessor has sent to Lessee copies of such tax bills when received from the
taxing authority.
7. Compliance with Law; Environmental Matters.
7.1. Compliance With Law.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the commencement Date, and the above described uses do not violate
any covenants or restrictions of record, or any applicable zoning or building
code, regulation or ordinance in effect on said date. In the event it is
determined that this warranty has been violated, then it shall be the
obligation of the Lessor to promptly, at Lessor's sole cost and expense,
rectify any such violation.
(b) Except as provided in paragraph 7.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the Term or any part of the term hereof,
regulating the use by Lessee of the Premises.
7.2. Environmental Matters. Lessor represents and warrants that all
activities at the Premises since Lessor's acquisition or Premises have been and
are being conducted in compliance with all statutes, ordinances, regulations,
orders, and requirements of common law concerning (i) those activities, (ii)
repairs or construction of any improvements, (iii) handling of any materials,
(iv) discharges to the air, soil, surface, or groundwater, and (v) storage,
treatment, or disposal of any waste at or connected with any activity at the
Premises ("Environmental Statutes").
Lessor represents and warrants that no contamination is present
at the Premises. The term "Contamination" means the uncontained presence of
Hazardous Substances at the Premises, or arising from the Premises which may
require remediation under any applicable law. The term Hazardous Substances"
means "hazardous substances" as defined pursuant to the comprehensive
Environmental Response, compensation and Liability Act, as amended, "regulated
substances" within the meaning of Subtitle I of the Resource Conservation
Recovery Act, as amended, "hazardous wastes", as defined pursuant to the
Delaware Hazardous Waste Management Act, or "regulated substances" as defined
pursuant to the Del aware Underground Storage Tank Act.
Lessor represents and warrants that no portion of the Premises
constitutes any of the following "Environmentally Sensitive Areas":
4
<PAGE>
(i) a wetland or other "water of the United States"
for purposes of section 404 of the federal clean Water Act or any
similar area regulated under any state law;
(ii) a portion of the coastal zone for purposes of the
Federal Coastal Zone Management Act and the Delaware Coastal Zone
Act; or
(iii) any other area, including but not limited to a
floodplain or other flood hazard area, the development of which is
specially restricted under any applicable law by reason of its
physical characteristics or prior use.
Lessor represents and warrants that no tanks for the storage of any
liquid or gas are present on the Premises except for two underground 500
gallon liquid propane tanks.
Lessor represents and warrants that (i) at no point in any
structure at the Premises will air radiation levels exceed 4
picocuries/liter, (ii) Lessor does not know or have reason to know of any
investigation of the Premises for the presence of radon gas or the presence
of the radioactive decay products of radon (collectively "radon") and (iii)
Lessor has provided to Lessee a report of each investigation relevant to the
presence of Radon at the Premises of which Lessor has any knowledge.
The parties hereby agree that if any of the representations or
warranties contained in this paragraph 7.2 shall prove to be incorrect, or if
Lessor breaches any covenant contained in this paragraph 7.2, Lessor shall be
afforded an opportunity to cure such default provided that (i) such breach or
condition is susceptible of remediation within a reasonable amount of time as
determined by Lessee; and (ii) Lessor begins promptly after the discovery of
such breach or condition diligently to remedy same and continues such
diligent efforts until satisfactory remediation has been achieved.
Lessor shall indemnify and hold Lessee harmless of, from, and
against any and all expense, loss or liability suffered by Lessee by reason
of the Lessor's breach of any provision of this Section including, but not
limited to, (i) costs to comply with any Environmental Statutes; (ii) costs
to study or to remedy contamination of the Premises or arising from the
Premises; (iii) costs incident to the study or removal of tanks, their
contents or associated Contamination; (iv) cost to prevent air radiation
levels in any structure hereafter erected in the Premises from exceeding 4
picocuries/liter or to reduce air radiation levels in any structure on the
Premises to 4 picocuries/liter or less; (v) fines, penalties, or other
sanctions assessed due to Lessor's failure to have complied with
Environmental Statutes; (vi) loss of value of the Property by reason of a
failure to comply with Environmental Statutes or the presence on the Property
of any Hazardous Substance, tank, Environmentally Sensitive Feature or Radon;
and (vii) legal and professional fees and costs in connection with the
foregoing. For purposes of this subparagraph, the term "lessee" shall mean
Lessee, its successors and assigns. Nothing herein shall be construed to
include (i) any condition or occurrence arising out of Lessee's activities in
or on the Premises, or (ii) any consequential damages or losses sustained by
Lessee as a result of interruption of
5
<PAGE>
Lessee's business activities or the dislocation of Lessee's facilities as a
result of a default pursuant to this paragraph 7.2.
7.3. Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and Lessor further warrants to Lessee that
the Tenant Improvement Work in the Premises shall be in good operating
condition on the Commencement Date. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of Lessor,
after receipt of written notice from Lessee setting forth with specificity
the nature of the violation, to promptly, at Lessor's sole cost, rectify such
violation.
Within thirty (30) days after the commencement Date, Lessee shall
give Lessor a written list (the "Punch List") of all contended defects in
Lessor's construction work and of all contained variances in Lessor's work as
described in Exhibit "HO attached hereto. Lessor shall correct all items on
the Punch List within thirty (30) days after Lessor's receipt of the Punch
List, unless the nature of the defect or variance is such that a longer
period of time is required to repair or correct the same, in which case
Lessor shall exercise due diligence in correcting such defect or variance at
the earliest possible date and with a minimum of interference with Lessee's
operations. Nothing in this subparagraph shall be deemed a waiver by Lessee
of Lessor's warranty contained in paragraph 7.3(a) for violations discovered
after delivery of the Punch List.
8. Maintenance, Repairs, Alterations and Building Services.
8.1. Lessor's Obligations.
(a) Lessor shall keep in good order, condition and repair the
Common Areas of the Building, and the heating, ventilation and air
conditioning system installed for the use of the Premises (the "HVAC").
(b) If Lessor fails to perform Lessor's obligations under this
paragraph 8.1 or under any other paragraph of this lease, Lessee may at
Lessee's option and upon 10 days' prior written notice to Lessor (except in
the case of emergency, in which case no notice shall be required), perform
such obligations on Lessor's behalf and put the Common Areas and HVAC in good
order, condition and repair, and the cost thereof shall be offset against the
installment rent next due.
8.2. Lessee's Obligations. Lessee, at its expense, shall maintain
and keep inood order, condition and repair the plumbing, electric, HVAC,
lighting, fixtures, interior walls, ceilings, floors, windows, doors and
plate glass located in, on, or within the Premises or any part thereof, and
which are for the exclusive use of the Premises or Lessee. Lessor shall
procure and maintain at Lessee's expense an HVAC maintenance agreement, which
shall be in form and substance reasonably satisfactory to Lessee. On the
last day of the Term hereof, or on any sooner
6
<PAGE>
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free fo
debris.
8.3. Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent,
which consent shall not be unreasonably withheld or delayed, make any
alterations, improvements, additions, or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding
$7,500. In any event, whether or not in excess of $7,500 in cost, Lessee
shall make no change or alteration to the exterior of the Premises nor the
exterior of the Building without Lessor's prior written consent. As used in
this paragraph 8.3 the term "Utility Installation" shall mean air lines,
power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Should Lessee make any
alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, Lessor may require that Lessee remove any or all of
the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its
consent, the consent shall be deemed conditioned upon Lessee acquiring a
permit to do so from appropriate government agencies, the furnishing of a
copy thereof to Lessor prior to the commencement of the work and the
compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished to or for Lessee at or for use in the Premises, which claims are or
may be secured by any mechanics, or materialmen's lien against the Premises
or any interest therein. Lessee shall give Lessor not less than ten (10)
days' notice prior to the commencement of any work in the Premises, and
Lessor shall have the right to post notices of nonresponsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
any such adverse judgment that may be rendered thereon before the endorsement
thereof against the Lessor or the Premises, upon the condition that if Lessor
shall require, Lessee shall furnish to Lessor a surety bond satisfactory to
Lessor in an amount equal to such contested lien claim or demand indemnifying
Lessor against liability for the same and holding the Premises free from the
effect of such lien or claim and shall obtain release of such lien by
substitution of such surety bond as security therefor. In addition, Lessor
may require Lessee to pay Lessor's attorneys fees and costs in participating
in such action if Lessor shall decide it is to its best interest to do SO.
(d) Unless Lessor requires their removal, as set forth in
paragraph 8.3(a), all alterations, improvements, additions and Utility
Installations, which may be made on the
7
<PAGE>
Premises, shall become the property of Lessor and remain upon and be
surrendered with the Premises at the expiration of the Term.
9. Insurance; Indemnity.
9.1. Liability Insurance - Lessor. Lessor shall obtain and keep in
force during the Term of this lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor and Lessee against any
liability arising out of the ownership, use or occupancy maintenance of the
Premises and all areas appurtenant thereto in an amount not less than
$500,000 per occurrence.
9.2. Liability Insurance - Lessee. Lessee shall obtain and keep in
force during the Term of this lease a policy of combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor and Lessee against any
liability arising out of the use or occupancy of the Premises and all areas
appurtenant thereto in an amount not less than $500,000 per occurrence.
9.3. Property Insurance. Lessor shall obtain and keep in force
during the Term of this lease a policy or policies of insurance covering loss
or damage to the Building, including Lessee's fixtures, equipment or tenant
improvements in an amount not to exceed the full replacement value thereof as
the same may exist from time to time, providing protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, flood (in the event same is required by a lender having a
lien on the Premises), special extended perils ("all risk", as such term is
used in the insurance industry).
9.4. Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender having a lien on the
Premises, as set forth in the most current issue of "Best Insurance Guide".
Lessor and Lessee shall deliver to each other copies of policies of all
insurance required under paragraph 8 or certificates evidencing the existence
and amounts of such insurance. No such policy shall be cancellable or
subject to reduction of coverage or other modification except after thirty
(30) days, prior written notice to the other. Each party shall, at least
thirty (30) days prior to the expiration of such policies, furnish the other
with renewals thereof. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in paragraph 9.3.
9.5. Waiver or Subrogation. Lessee and Lessor each hereby release
and relievehe other, and waive their entire right of recovery against the
other for loss or damage arising out of or incident to the perils insured
against under paragraph 9.3, which perils occur in, on or about the Premises,
whether due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance
carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this lease.
8
<PAGE>
9.6. Indemnity. Lessee shall indemnify and hold harmless Lessor
from and against any and all claims arising from Lessee's use of the
Premises, or from the conduct of Lessee's business or from any activity,
work or things done, permitted or suffered by Lessee in or about the Premises
or elsewhere and shall further indemnify and hold harmless Lessor from and
against any and all claims arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this lease, or arising from any negligence of the Lessee, or any of
Lessee's agents, contractors, or employees, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case any action or
proceeding be brought against Lessor by reason of any such claim. Lessee
upon notice from Lessor shall defend the same at Lessee's expense by counsel
satisfactory to Lessor.
Lessor shall indemnify and hold harmless Lessee from and
against any and all claims arising from any breach or default in the
performance of any obligation on Lessor's part to be performed under the
terms of this lease, or arising from any negligence of the Lessor, or any of
Lessor's agents, contractors, or employees, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case any action or
proceeding be brought against Lessee by reason of any such claim. Lessor upon
notice from Lessee shall defend the same at Lessor's expense by counsel
satisfactory to Lessee.
10. Damage or Destruction.
10.1. Definitions.
(a) "Premises Partial Damage" shall herein mean damage
or destruction to the Premises to the extent that the cost of repair is less
than 50% of the fair market value of the Premises immediately prior to such
damage or destruction. "Premises Building Partial Damage" shall herein mean
damage or destruction to the Building of which the Premises are a part to the
extent that the cost of repair is less that 50% of the fair market value of
the Building as a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean
damage or destruction to the Premises to the extent that the cost of repair
is 50% or more of the fair market value of the Premises immediately prior to
such damage or destruction.
(c) "Insured Loss" shall herein mean damage or
destruction which was caused by an event required to be covered by the
insurance described in paragraph 10.
10.2. Partial Damage - Insured Loss. Subject to the provisions
of paragraph 10.4, 10.5 and 10.6, if at any time during the Term of this
lease there is damage which is an Insured loss and which falls into the
classification of Premises Partial Damage or Premises Building Partial
Damage, then Lessor shall, at Lessor's sole cost, repair such damage,
including Lessee's fixtures,
9
<PAGE>
equipment or tenant improvements as soon as reasonably possible and this
lease shall continue in full force and effect.
10.3. Partial Damage - Uninsured Loss. Subject to the
provisions of paragraphs 10.4, 10.5 and 10.6, if at any time during the Term
of this lease there is damage which is not an Insured loss and which fails
within the classification of Premises Partial Damage or Premises Building
Partial Damage, unless caused by a willful act of Lessee (in which event
Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's
option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this lease shall continue in full force and
effect, or (ii) give written notice to Lessee within fifteen (15) days after
the date of the occurrence of such damage of Lessor's intention to cancel and
terminate this lease. In the event Lessor shall give such notice of Lessor's
intention to cancel and terminate this lease, Lessee shall have the right
within fifteen (15) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, in which event this lease shall continue in full force and effect,
and Lessee shall proceed to make such repairs as soon as reasonably possible.
If Lessee does not give such notice within such 15-day period this lease
shall be cancelled and terminated and Lessee shall have no further
obligations or duties thereunder including the payment of rent as of the date
of the occurrence of such damage.
10.4. Total Destruction. If at any time during the term of
this lease there is damage, whether or not an Insured loss, (including
destruction required by any authorized public authority), which falls into
the classification of Premises Total Destruction or Premises Building Total
Destruction, this lease shall automatically terminate and Lessee shall have
no further obligations or duties thereunder including the payment of rent as
of the date of such total destruction.
10.5 Damage Year End of Term.
(a) If at any time during the last six months of the
Term of this lease there is damage, whether or not an Insured loss, which
falls within the classification of Premises Partial Damage, Lessor and Lessee
each has the option to cancel and terminate this lease as of the date of
occurrence of such damage by giving written notice to the other of its
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 10.5(a), in the event that
Lessee has an option to extend or renew this lease, and the time within which
said option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later that 25 days after the
occurrence of an Insured loss falling within the classification of Premises
Partial Damage during the last six months of the Term of this lease. If
Lessee duly exercises such option during said 25 day period, Lessor shall, at
Lessor's expense, repair such damage as soon as reasonably possible and this
lease shall continue in full force and effect. If Lessee fails to exercise
such option during said 25 day period, then less may at Lessee's option
terminate and cancel this lease
10
<PAGE>
as of the expiration of said 25 day period by giving written notice to Lessee
of Lessor's election to do so within 5 days after the expiration of said 25
day period, notwithstanding any term or provision in the grant of option to
the contrary.
10.6. Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 10.2
or 10.3 and Lessor or Lessee repairs or restores the Premises pursuant to the
provisions of this paragraph 10, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent Lessee shall have no claim against Lessor for
any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore
the Premises under the provisions of this paragraph 10 and shall not commence
meaningful repair or restoration within 30 days after such obligations shall
accrue, Lessee may at Lessee's option cancel and terminate his lease by
giving Lessor written notice of Lessee's election to do so at any time prior
to Lessor's meaningful commencement of such repair or restoration. In such
event this lease shall terminate as of the date of such notice and Lessee
shall have no further obligations or duties thereunder, including the payment
of rent, as of the date of the occurrence of the damage.
10.7. Termination Advance Payments. Upon termination of this
lease pursuant to this paragraph 10, an equitable adjustment shall be made
concerning any advance rent and any advance payments made by Lessee to Lessor.
10.8. Waiver. Lessor and Lessee waive the provisions of any
statutes which relate to termination of leases when leased property is
destroyed and agree that such event shall be governed by the terms of this
lease.
11. Utilities. Lessee shall pay for all water, gas, heat, light,
power, telephone and other utilities and services supplied to the Premises,
together with any taxes thereon. Such services are to be separately metered
to Lessee.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily
or by operation of law assign, transfer, mortgage, sublet, or otherwise
transfer or encumber all of any part of Lessee's interest in this lease or in
the Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold or delay. Lessor shall respond in writing to Lessee's
request for consent hereunder in a timely manner and any attempted
assignment, transfer, mortgage, encumbrance or subletting without such
consent shall be void and shall constitute a breach of this lease.
11
<PAGE>
12.2 Lessee Affiliate. Notwithstanding the provisions of
paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any
portion thereof, without Lessor's consent, to any corporation which controls,
is controlled by or is under common control with Lessee, or to any
corporation resulting from the merger or consolidation with Lessee, or to any
person or entity, which acquires all or substantially all of the assets of
Lessee as a going concern of the business that is being conducted on the
Premises, provided that said assignee assumes, in full, the obligations of
Lessee under this lease. Any such assignment shall not, in any way, affect
or limit the liability of Lessee under the terms of this lease even if after
such assignment or subletting the terms of this lease are changed or altered,
provided, however, that any material change to the terms of this lease
(including, but not limited to, the Term or Rent) after such an assignment or
subletting, shall require the prior consent of Lessor and any such change
made without Lessor's prior consent shall not be binding on Lessor.
12.3 No Release of Lessee. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or
alter the primary liability of Lessee to pay the Rent and to perform all
other obligations to be performed by Lessee hereunder. The acceptance of
Rent by Lessor from any other person shall not be deemed to be a waiver by
Lessor or any provision hereof. Consent to one assignment or subletting
shall not be deemed consent to any subsequent assignment or subletting. In
the event of default by any assignee of Lessee or any successor of Lessee, in
the performance of any of the terms thereof, Lessor may proceed directly
against Lessee without the necessity of exhausting remedies against said
assignee. Lessor may consent to subsequent assignments or subletting of this
Lease or amendments or modifications to this Lease with assignees of Lessee
or any successor of Lessee, and without obtaining its or their consent
thereto and such action shall not relieve Lessee of liability under this
Lease.
12.4 Assignment Fees. In the event Lessee shall assign or
sublet the Premises then Lessee shall pay an assignment processing fee equal
to $200.00 for each such request.
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the
following events shall constitute a material default and breach of this Lease
by Lessee:
(a) The failure by Lessee to make any payment of rent as
and when due, where such failure shall continue for a period of five days
after Lessee's receipt of written notice from Lessor. In the event that
Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable
Unlawful Detainer statutes, such Notice to Pay Rent or Quit shall also
constitute the notice required by this subparagraph;
(b) The failure by Lessee to observe or perform any of
the covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in paragraph (a) above, where such
failure shall continue for a period of 30 days after written notice hereof
from Lessor to Lessee; provided, however, that if the nature of Lessee's
12
<PAGE>
default is such that more than 30 days are reasonably required for its cure,
then Lessee shall not be deemed to be in default if Lessee commenced such
cure within said 30-day period and thereafter diligently prosecutes such cure
to completion;
(c) (i) The making by Lessee of any general arrangement
or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(c)
is contrary to any applicable law, such provision shall be of no force or
effect;
(d) The discovery by Lessor that any financial statement
given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee,
any successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 Remedies. In the event of any such material default or
breach by Lessee, Lessor may at any time after providing Lessee with written
notice, but without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this lease shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by reason of Lessee's default including, but not limited
to, the cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the premises, reasonable
attorneys' fees, and any real estate commission actually paid; the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided.
(b) Maintain Lessee's right to possession in which case
this lease shall continue in effect whether or not Lessee shall have
abandoned the Premises. In such event Lessor shall be entitled to enforce
all of Lessor's rights and remedies under this lease, including the right to
recover the rent as it becomes due hereunder;
(c) Pursue any other remedy now or hereafter available
to Lessor under the laws or judicial decisions of the State of Delaware.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this lease shall bear interest from the date due at the
maximum rate then allowable by law.
13
<PAGE>
13.3. Default by Lessor. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable
time, but in no event later than ten (10) days after written notice by Lessee
to Lessor and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than ten (10) days are required for performance then Lessor
shall not be in default if Lessor commences meaningful performance within such
10-day period and thereafter diligently prosecutes the same to completion.
13.4. Late Charges. Lessee hereby acknowledges that late
payment by Lessee to Lessor of rent and other sums due hereunder will cause
Lessor to incur costs not contemplated by this lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges which may
be imposed on Lessor by the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent shall not be received by
Lessor or Lessor's designee within fifteen (15) days after such amount shall
be due, then, without any requirement for notice to Lessee, Lessee shall pay
to Lessor a late charge equal to 3% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate
of costs Lessor will incur by reason of late payment by Lessee. Acceptance
of such late charge by Lessor shall in no event constitute a waiver of
Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation.
If the Premises or any portion thereof are taken under the power of
eminent domain, or sold under the threat of the exercise of said power (all
of which are herein called "condemnation"), this lease shall terminate as to
the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of
the Building, or more than 25% of the area of the Premises is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
within fifteen (IS) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within fifteen (15) days
after the condemning authority shall have taken possession) terminate this
lease as of the date the condemning authority takes such possession. If
Lessee opts to terminate this lease as described in the foregoing, Lessee's
obligations and duties under this lease shall cease as of the date of
condemning authority take such possession. If Lessee does not terminate this
lease in accordance with the foregoing, this lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the rent
shall be reduced in the proportion that the floor area of the Building taken
bears to the total floor area of the Building situated on the Premises. No
reduction of rent shall occur if the only area taken is that which does not
have a building located thereon. Any award for the taking of all or any part
of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the' fee, or as severance damages;
14
<PAGE>
provided, however, that Lessee shall be entitled to any award for loss of or
damage to Lessee's equipment, trade fixtures and removable personal property.
In the event that this lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority.
15. Brokers' Fees.
Lessor shall be responsible for all brokers, commissions or
finder's fees charged by Stoltz Realty and warrants to Lessee that no
brokers' commissions, finders, fees or similar payments shall be claimed
through Lessee in connection with the execution of this lease, and agrees to
indemnify and hold Lessee harmless from any liability that may arise from
such claims, including reasonable attorney's fees.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than 10 days, prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification
and certifying that this lease, as so modified, is in full force and effect)
and the date to which the rent is paid and (ii) acknowledging that there are
not, to Lessee's knowledge, any uncured defaults, or events which with the
passage of time would be defaults, on the part of Lessor hereunder, or
specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this lease or shall be
conclusive upon Lessee (i) that this lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there
are no uncured defaults in Lessor's performance, and (iii) that not more than
one month's rent has been paid in advance or such failure may be considered
by Lessor as a default by Lessee under this lease.
(c) If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonable required by such lender or purchaser. Such statements shall
include to the extent available the past three years' financial statements of
Lessee. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes
herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean
only the owner and owners at the time in question of the fee title or a
lessee's interest in a ground lease of the Premises. In the event of any
transfer of such title or interest, Lessor herein name (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the
date of such
15
<PAGE>
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor of the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
18. Severability. The invalidity of any provisions of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Time--of Essence. Time is of the essence.
20. Incorporation of Prior Agreements; Amendments. This Lease
contains all agreements of the parties with respect to any matter mentioned
herein. No prior agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by
the parties in interest at the time of the modification. Except as otherwise
stated in this Lease, Lessee hereby acknowledges that neither the real estate
brokers listed in paragraph 15 hereof nor any cooperating broker on this
transaction nor the Lessor or any employees or agents of any of said persons
has made any oral or written warranties or representations to Lessee relative
to the condition or use by Lessees of said Premises and Leases acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety
Health Act, the legal use and adaptability of the Premises and the compliance
thereof with all applicable laws and regulations in effect during the term of
this Lease except as otherwise specifically stated in this Lease.
21. Notices. Any notice required or permitted to be given hereunder
shall be in writing and may be given personal delivery or by certified mail,
and if given personally or by mail, shall be deemed sufficiently given if
addressed to Lessee or to Lessor at the address noted below the signature of
the respective parties, as the case may be. Each such notice shall be deemed
given upon personal delivery or, if by certified mail, upon mailing. Either
party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
22. Waivers. No waiver by Lessor or any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to, or approval
of any act, shall not be deemed to render unnecessary the obtaining of
Lessor's consent to or approval of any subsequent act by Lessee. The
acceptance of rent hereunder by Lessor shall not be a waiver of any preceding
breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
16
<PAGE>
23. Recording. Either Lessor or Lessee shall, upon request of the
other, execute, acknowledge and deliver to the other a "short form"
memorandum of this lease for recording purposes.
24. Holding Over. If Lessee, with Lessor's consent, remains in
possession of the Premises or any part thereof after the expiration of the
term hereof, such occupancy shall be a tenancy from month to month upon all
the provisions of this lease pertaining to the obligations of Lessee, but all
options and rights of first refusal, if any, granted under the terms of this
lease shall be deemed terminated and be of no further effect during said
month to month tenancy.
25. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
26. Covenants and Conditions. Each provision of this lease performable
by Lessee shall be deemed both a covenant and a condition.
27. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee, this lease shall bind the
parties, their personal representatives, successors and assigns. This lease
shall be governed by the laws of the State of Delaware.
28. Subordination.
(a) This lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a
part and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of
the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the Rent and observe and perform all of the provisions of
this lease, unless this lease is otherwise terminated pursuant to its terms.
If any mortgagee, trustee or ground Lessor shall elect to have this lease
prior to the lien of its mortgage, deed of trust or ground lease, and shall
give written notice thereof to Lessee, this lease shall be deemed prior to
such mortgage, deed of trust, or ground lease, whether this lease is dated
prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate
an attornment, a subordination or to make this lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. If Lessee fails
to execute such documents within 10 days after written demand, Lessor may
execute such documents on behalf of Lessee as Lessee's attorney-in-fact.
Lessee does hereby make, constitute and irrevocably appoint Lessor as
Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute
such documents in accordance with this paragraph 28(b).
17
<PAGE>
29. Intentionally omitted.
30. Lessor's Access. Lessor and Lessor's agents, upon prior written
notice to Lessee, shall have the right to enter the Premises at reasonable
times for the purpose of inspecting the same, showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements or additions to the Premises or to the Building of which they
are a part as Lessor may deem necessary or desirable; provided, however that
upon such entry Lessor and/or Lessor's agents (except in the case of
emergency) shall be required to be accompanied by a representative of Lessee
for purposes of protecting and preserving the confidentiality of Lessee's
work on the Premises. Lessor may not at any time place on or about the
Premises any ordinary "For Sale" signs. Lessor may at any time during the
last 120 days of the Term hereof place on or about the Premises on the
Building any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee; provided that Lessor shall not permitted to place "For
lease" signs on or about the Premises until any options or rights available
to Lessee to extend the term of this lease or to renew this lease or any
options or rights of first refusal to lease the Premises or rights of first
offer to purchase the Premises have lapsed.
31. Signs. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent, which shall not be unreasonably withheld,
except that Lessee shall have the right, without the prior permission of
Lessor, to place ordinary and usual for rent or sublet signs thereon.
32. Merger. The voluntary or other surrender of this lease by Lessee,
or a mutual cancellation thereof, or a termination by Lessor, shall not work
a merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
33. Consents. Wherever in this lease the consent of one party is
required to an act of the other party, such consent shall not be unreasonably
withheld.
34. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire Term hereof subject to all of the
provisions of this lease. The individuals executing this lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
35. Options; Right of First Refusal.
35.1. Definition. As used in this paragraph the word "0ptions"
means the right or option to extend the term of this lease or to renew this
lease.
18
<PAGE>
35.2. Options Personal. Each Option granted to Lessee in this
lease is personal to Lessee and may not be exercised or be assigned,
voluntarily or involuntarily, by or to any person or entity other than
Lessee, provided, however, the Option may be exercised by or assigned to any
Lessee Affiliate as defined in paragraph 12 of this lease. The Options
herein granted to Lessee are not assignable separate and apart from this
lease.
35.3. Efect of Default on Options.
(a) Lessee shall have no right to exercise an option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(a) or 13.1(b) and continuing until the
default alleged in said notice of default is cured, or (ii) at any time after
an event of default described in paragraphs 13.1(c) or 13.1(d) (without any
necessity of Lessor to give notice of such default to Lessee).
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an option because of the provisions of paragraph 36.3.
35.4. Option to Renew. Lessee shall have the right, at its
sole option, to renew this lease for an additional period of five (5) years
following the term hereof, upon the same terms and conditions in effect at
the expiration of the prior term, including provision for the escalation of
rent and including this option to renew,* provided---that the ceiling and
floor limitations for the escalation of rent in Section 5(a)(ii) herein shall
not apply following the fifteenth anniversary of the Commencement Date;
provided further that Lessee shall have given Lessor no more than six and no
less than three months written notice in advance at the end of the prior term
of its intention to renew this lease,
36. Multiple Tenant Building. Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make
from time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good
order therein as well as for the convenience of other occupants and tenants
of the building. The violations of any such rules and regulations shall be
deemed a material breach of this Lease by Lessee.
37. Security Measures. Lessee hereby acknowledges that the rent
payable to Lessor hereunder does not include the cost of guard service or
other security measures, and that Lessor shall have no obligation whatsoever
to provide same. Losses assumes all responsibility for the protection of
Lessee, its agents and invitees from acts of third parties.
38. Easements. Lessor reserves to itself the right, from time to time,
to grant such easements, rights and dedications that Lessor deems necessary
or desirable, and to cause the recordation of Parcel Maps and restrictions,
so long as such easements rights, dedications, Maps and restrictions
19
<PAGE>
do not interfere' with the use of the Premises by Lessee. Lessee shall sign
any of the aforementioned documents upon request of Lessor and failure to do
so shall constitute a material breach of this lease.
39. Performance Under Protest. If at any time a dispute shall arise as
to-any amount or sum of money to be paid by one part to the other under the
revisions hereof the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this lease.
40. Authority. If either Lessor or Lessee is a corporation, trust, or
general or limited partnership, each individual executing this lease on
behalf of such entity represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of said entity.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
The parties hereto have executed this Lease at the Place and on the dates
specified immediately adjacent to their respective signatures.
Executed at 128 Sandy Bank Drive, Newark, DE 19713 on June 7, 1991.
LESSOR: TOBER & AGNEW PROPERTIES, INC.
By: /s/ R. TOBER
------------------------------------- (Seal)
Title: PRESIDENT
---------------------------------- (Seal)
Executed at 128 Sandy Bank Drive, Newark, DE 19713 on June 7, 1991.
[CORPORATE SEAL] LESSEE: /s/ TSD BioServices
--------------------------------- (Seal)
a Delaware general partnership,
its general partners
20
<PAGE>
STRATEGIC DIAGNOSTICS VENTURES, INC.
By: /s/ MARTHA C. REIDER (Seal)
------------------------------------- (Seal)
Title: Vice President
---------------------------------- (Seal)
TACONIC VENTURES, INC.
By: /s/ RICHARD S. PHALEN (Seal)
------------------------------------- (Seal)
Title: President
---------------------------------- (Seal)
STRATEGIC DIAGNOSTICS INCORPORATED
By: /s/ MARTHA C. REIDER (Seal)
------------------------------------- (Seal)
Title: Vice President
---------------------------------- (Seal)
TACONIC FARMS, INC.
By: /s/ RICHARD S. PHELAN (Seal)
------------------------------------- (Seal)
Title: President
---------------------------------- (Seal)
21
<PAGE>
ADDENDUM TO INDUSTRIAL LEASE
This Addendum to the Industrial Lease (the "Industrial Lease") ,
dated, for reference purposes only June 7, 1991, is made by and between TOBER
& AGNEW PROPERTIES, INC. , a Delaware corporation (herein called "Lessor")
and TSD BioServices, a Delaware general partnership (herein called "Lessee")
, Strategic Diagnostics Incorporated (herein called "SDI") and Taconic Farms
Inc. (herein called "Taconic") . The "Industrial Lease" is that lease
agreement dated as of this same date made by and between the Lessor and the
Lessee. All capitalized terms used herein and not defined herein shall have
the same meaning as set forth in the Industrial Lease.
1. Lessor's Obligation to Construct Tenant Improvement Work.
(a) Lessor hereby covenants and agrees to commence the Tenant
improvement work immediately upon execution of the lease and to complete the
Tenant improvement Work in as expeditious a manner as possible in accordance
with all applicable standards of care and diligence.
(b) Lessor represents and warrants that it has available to it the
financial resources and personnel and that it possesses the expertise to
commence construction of the Tenant Improvement Work and to complete it in
accordance with the covenants made in subparagraph (a),
(c) Any breach of the representations, warranties and covenants
contained in this Addendum to the Industrial Lease shall constitute a
material breach of the Industrial Lease. In the event of such breach, Lessee
may terminate the Industrial Lease.
2. Payment for Tenant Improvement work
(a) All costs (up to a maximum of $300,000 in the Aggregate for
those items described in Sections 2(b)(i) and 2(b)(iii) herein) for Tenant
Improvement Work (#Tenant Improvement Costs"), as defined by Section 2(b)
herein, shall be financed by the Lessor and paid for by the Lessee. All
Tenant Improvement Costs shall be paid in full by the Lessee in monthly
installments over the five (5) year period immediately following the
Commencement Date.
(b) Tenant Improvement Costs shall be the following costs directly
associated with the work depicted or described in Exhibit B of the Industrial
Lease:
(i) supplier and subcontractor costs, professional fees
including, but not limited to, architectural fees, permits and inspection
costs incurred after February 22, 1991;
(ii) a ten percent (10%) surcharge on those costs described in
the foregoing Section 2(b)(i);
22
<PAGE>
(iii) the following costs relating to the acquisition of
financing for the Tenant Improvement Work:
A. loan origination fees;
B. other loan costs, including, but not limited to,
legal and recording costs and document preparation fees;
C. bank appraisal fees; and
D. interest on all loans undertaken by the Lessor prior
to the Commencement Date to finance the Tenant Improvement Work.
(c) Interest of eleven percent (11%) per annum shall be charged on
all costs associated with the items described in the foregoing Sections
2(b)(i) - (iii).
(d) SDI and Taconic hereby guarantee, jointly and severally, the
payments due from the Lessee for all Tenant Improvement Costs required by
this Addendum to the Industrial Lease.
(e) Beginning with the first year following the tenth anniversary
of the Commencement Date, the Base Rent, as defined in Section 5 of the
Industrial Lease and as adjusted therein, as it is applied to that portion of
the Premises subject to the Tenant Improvement Work (the "Improvement Work
Base Rent"), shall be increased by $1.50 per square foot plus the product of
(i) $1.50 (as adjusted in the prior year in accordance with this
subparagraph) multiplied by (ii) the lesser of (A) five percent 5% or (B) a
fraction, the numerator of which is the Price Index -for the Adjustment Month
and the denominator of which is the Base Index (but in no event shall such
increase be less than 4%); provided that the ceiling and floor limitations
for the escalation of the Improvement Work Base Rent in this Section 2(e)(ii)
shall not apply following the fifteenth anniversary of the Commencement Date.
The parties hereto have executed this Lease at the Place and on the dates
specified immediately adjacent to their respective signatures.
Executed at 128 Sandy Bank Drive, Newark, DE 19713 on June 7, 1991.
LESSOR: TOBER & AGNEW PROPERTIES, INC.
By: /s/ R. TOBER (Seal)
------------------------------------- (Seal)
Title: PRESIDENT
---------------------------------- (Seal)
23
<PAGE>
Executed at 128 Sandy Bank Drive, Newark, DE 19713 on June 7, 1991.
[CORPORATE SEAL] LESSEE: /s/ TSD BioServices
--------------------------------- (Seal)
a Delaware general partnership,
its general partners
STRATEGIC DIAGNOSTICS VENTURES, INC.
By: /s/ MARTHA C. REIDER (Seal)
------------------------------------- (Seal)
Title: Vice President
---------------------------------- (Seal)
TACONIC VENTURES, INC.
By: /s/ RICHARD (Seal)
------------------------------------- (Seal)
Title: President
---------------------------------- (Seal)
STRATEGIC DIAGNOSTICS INCORPORATED
By: /s/ MARTHA C. REIDER (Seal)
------------------------------------- (Seal)
Title: Vice President
---------------------------------- (Seal)
TACONIC FARMS, INC.
By: /s/ RICHARD W. PHELAN (Seal)
------------------------------------- (Seal)
Title: President
---------------------------------- (Seal)
24
<PAGE>
Exhibit 21.1 Subsidiaries of the Registrant
Name of Subsidiary Jurisdiction of Organization Year of Formation
----------------- ---------------------------- -----------------
EnSys (Europe) Limited United Kingdom 1993
TSD BioServices, Inc. Delaware 1996
<PAGE>
Exhibit 24 Consent of Arthur Andersen LLP
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (No. 333-20421) and on Form S-8
(No. 333-21211) of Strategic Diagnostics Inc. (formerly EnSyS Enviromental
Products, Inc.).
Arthur Andersen LLP
Philadelphia, Pa.,
April 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 917
<SECURITIES> 5,710
<RECEIVABLES> 2,514
<ALLOWANCES> 180
<INVENTORY> 1,557
<CURRENT-ASSETS> 11,028
<PP&E> 1,266
<DEPRECIATION> 538
<TOTAL-ASSETS> 14,581
<CURRENT-LIABILITIES> 3,858
<BONDS> 0
0
22
<COMMON> 131
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,581
<SALES> 3,402
<TOTAL-REVENUES> 5,837
<CGS> 0
<TOTAL-COSTS> 14,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 81
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (8,388)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,388)
<EPS-PRIMARY> (2.12)
<EPS-DILUTED> 0
</TABLE>
