<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1998.
REGISTRATION NO. 333-51475
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GENVEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 2834 23-2705690
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
CODE NUMBER)
GENVEC, INC.
12111 PARKLAWN DRIVE
ROCKVILLE, MARYLAND 20852
(301) 816-0396
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DR. PAUL H. FISCHER
CHIEF EXECUTIVE OFFICER
GENVEC, INC.
12111 PARKLAWN DRIVE
ROCKVILLE, MARYLAND 20852
(301) 816-0396
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
PAGE MAILLIARD, ESQ. LESLIE E. DAVIS, ESQ.
NAN H. KIM, ESQ. KATHY A. FIELDS, ESQ.
WILSON SONSINI GOODRICH & ROSATI TESTA, HURWITZ & THIBEAULT, LLP
PROFESSIONAL CORPORATION HIGH STREET TOWER
650 PAGE MILL ROAD 125 HIGH STREET
PALO ALTO, CALIFORNIA 94304-1050 BOSTON, MASSACHUSETTS 02110
(650) 493-9300 (617) 248-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share........ 2,875,000 $13.00 $37,375,000 $11,025.63(3)
</TABLE>
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(1) Includes 375,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. Also reflects the proposed 5.9 for 1
reverse stock split of the Company's Common Stock, subject to stockholder
approval, which is anticipated to be consummated prior to the closing of
the offering contemplated hereby.
(2) Estimated solely for the purposes of computing the amount of the
registration fee in accordance with Rule 457(a).
(3) Fee previously paid in connection with original filing on April 30, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 22, 1998
[LOGO OF GENVEC APPEARS HERE]
2,500,000 SHARES
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
GenVec, Inc. ("GenVec" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, upon completion of this
offering, under the symbol "GNVC."
Warner-Lambert Company ("Warner-Lambert") is a party to a strategic alliance
with the Company. Pursuant to an existing agreement with the Company, Warner-
Lambert has agreed to purchase $5,000,000 of the Company's Common Stock in a
private transaction concurrent with this offering at a price per share equal to
125% of the initial public offering price. See "Business--Strategic Alliances--
Corporate Collaborations--Warner-Lambert Company."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total(3)................................... $ $ $
================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $900,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
-----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
J.P. MORGAN & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus is , 1998
<PAGE>
Treatment of Coronary Artery Disease with Gene Therapy
GenVec's lead product candidate, BIOBYPASS angiogen, is designed to induce
new blood vessel formation in tissues with inadequate blood flow. In December
1997, the Company initiated a Phase I/II clinical trial with BIOBYPASS
angiogen for direct injection into the hearts of patients with coronary artery
disease who are undergoing coronary artery bypass graft surgery. The Company
also intends to commence a Phase I/II clinical trial in patients with
peripheral vascular disease in May 1998.
[Two figures of coronary angiograms from pig models of coronary artery disease
illustrate the text immediately below the figures. Figure 1 is taken from the
control subject. Figure 2 is taken from the subject treated with BIOBYPASS
angiogen and shows the induction of new blood vessels relative to Figure 1 and
the refilling of the left circumflex artery beyond the area of blockage.]
BIOBYPASS angiogen was evaluated in a pig model of coronary artery disease.
Blood flow through the left circumflex artery of the pig heart was blocked
with an ameroid constrictor, shown in the upper left corners of both images.
In a single procedure three weeks later, the hearts received multiple
injections around the blockage site with either BIOBYPASS angiogen or a
control. The coronary angiograms above were taken four weeks after the
injections. In the treated heart, BIOBYPASS angiogen induced the formation of
new blood vessels, and refilling of the left circumflex artery beyond the area
of blockage was observed (figure 2). In contrast, no filling of the circumflex
artery was visible in the control case (figure 1). These and other preclinical
data have shown that administration of BIOBYPASS angiogen to the heart
increased the number of blood vessels, improved blood flow and restored
cardiac contractility to normal. Long-term studies on the effects of BIOBYPASS
angiogen have not been conducted. BIOBYPASS angiogen is not currently marketed
by GenVec, and there can be no assurance that the Company will be able to
obtain the necessary regulatory approvals to do so in the future. See "Risk
Factors--Uncertainties Related to Clinical Development."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 27
Management............................................................... 48
Certain Transactions..................................................... 56
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 59
Shares Eligible For Future Sale.......................................... 62
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 66
Index to Financial Statements............................................ F-1
</TABLE>
----------------
BIOBYPASS is a trademark of the Company, and the term angiogen is used to
refer to an angiogenic agent. Tradenames and trademarks of other companies
appearing in this Prospectus are the property of their respective holders.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent certified public accounting
firm and quarterly reports containing unaudited interim financial information
for each of the first three quarters of each year.
The Company was incorporated in Delaware in 1992. The Company's executive
offices are located at 12111 Parklawn Drive, Rockville, Maryland 20852, and
its telephone number is (301) 816-0396.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
GenVec focuses on the development and commercialization of novel gene therapy
products for major disease markets. GenVec's lead product candidate, BIOBYPASS
angiogen, is designed to induce angiogenesis, or new blood vessel formation, in
tissues with inadequate blood flow. BIOBYPASS angiogen uses an adenovirus
vector to deliver and express the gene for vascular endothedial growth factor-
121 ("VEGF/121/"). BIOBYPASS angiogen is being developed for the treatment
of coronary artery disease ("CAD") and peripheral vascular disease ("PVD"), and
is intended to be used either alone or as an adjunct to existing surgical
procedures. In December 1997, the Company initiated a Phase I/II clinical trial
with its BIOBYPASS angiogen for direct injection into the hearts of patients
with CAD who are undergoing coronary artery bypass graft ("CABG") surgery. The
Company also intends to commence a Phase I/II clinical trial in patients with
PVD in May 1998. The Company has entered into a collaboration with the Warner-
Lambert Company ("Warner-Lambert") to develop and commercialize BIOBYPASS
angiogen and other gene therapy products for therapeutic angiogenesis. Under
the terms of the collaboration, Warner-Lambert may pay to the Company a total
of more than $100 million in milestone payments, research funding, equity
purchases and technology access fees, if specified milestones are achieved. As
of April 20, 1998, Warner-Lambert had paid to the Company $13.5 million under
this collaboration, and had purchased $2.0 million of the Company's stock.
Additionally, GenVec is developing product candidates and vector technology
in the areas of cardiovascular disease, oncology and neurology. For the
treatment of restenosis associated with angioplasty and vascular damage
associated with arteriovenous ("A-V") grafts, GenVec is developing Ad.iNOS, an
adenovirus vector containing the inducible nitric oxide synthase ("iNOS") gene.
In oncology, GenVec is developing Ad.TNFa, an adenovirus vector containing the
tumor necrosis factor alpha ("TNFa") gene. Ad.TNFa is designed to enhance the
effectiveness of radiation therapy without increasing toxicity to normal
tissue. In collaboration with Fuso Pharmaceutical Industries, Ltd. ("Fuso"),
GenVec is developing Ad.CD and is conducting research on immunotherapy of
cancer based on the delivery of tumor antigen genes. Ad.CD, an adenovirus
vector containing the cytosine deaminase ("CD") gene, is designed to convert a
nontoxic precursor drug into fluorouracil to effect tumor destruction, either
alone or in combination with radiation therapy. In neurology, GenVec intends to
develop product candidates through the application of its herpes simplex virus
("HSV") vector technology.
To customize gene therapy products for specific medical needs, GenVec is
developing vectors for cell-specific gene delivery and promoters which regulate
the level and duration of gene expression. GenVec's technology portfolio
includes: (i) therapeutic genes such as VEGF/121/, iNOS, TNFa and CD; (ii)
vector systems such as adenovirus and HSV; (iii) receptor mediated targeting
technology and (iv) tissue-specific and inducible promoters.
GenVec intends to successfully develop and commercialize product candidates
by applying the following business strategies: (i) enhance leadership in
therapeutic angiogenesis; (ii) expand its portfolio of products under
development; (iii) broaden its technology platform; (iv) strengthen product
development through corporate collaborations and (v) maintain and expand
intellectual property strength.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company.......... 2,500,000 shares
Common Stock Outstanding after the Offering.. 9,857,784 shares (1)
Use of Proceeds.............................. For research and development,
clinical trials, capital
expenditures, working capital
and general corporate purposes,
including possible acquisitions
of complementary technology,
products or businesses. See "Use
of Proceeds."
Nasdaq National Market Symbol................ GNVC
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ 1,005 $ 698 $10,188 $ -- $ 3,688
Operating expenses:
Research and development.. 6,500 6,355 8,986 1,614 3,093
General and
administrative........... 2,025 2,947 2,720 550 739
Total operating expenses.... 8,967 9,302 11,706 2,164 3,832
Interest income, net........ 413 496 263 74 115
------- ------- -------- --------- ---------
Net loss.................... $(7,549) $(8,108) $ (1,255) $(2,090) $ (29)
======= ======= ======== ========= =========
Pro forma basic net loss per
share (2).................. $ (0.18) $ (0.01)
======== =========
Shares used in computing pro
forma basic
net loss per share (2)..... 6,999 7,019
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (3)
-------- ---------------
(unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments........................................ $ 7,262 $ 39,262
Working capital..................................... 7,883 39,883
Total assets........................................ 10,692 42,692
Accumulated deficit................................. (28,889) (28,889)
Total stockholders' equity ......................... 8,639 40,639
</TABLE>
- --------
(1) Based on number of shares of Common Stock outstanding as of March 31, 1998.
Includes 333,333 shares of Common Stock to be sold to Warner-Lambert at an
assumed price of $15.00 per share. Excludes (i) 1,105,955 shares of Common
Stock issuable upon exercise of outstanding options as of March 31, 1998,
at a weighted average exercise price of $1.95 per share and (ii) 320,416
shares of Common Stock issuable upon exercise of outstanding warrants as of
March 31, 1998, at a weighted average exercise price of $12.65 per share.
(2) See Note 2 of Notes to Financial Statements for a description of the
computation of pro forma basic net loss per share.
(3) As adjusted to give effect to (i) the conversion of all issued and
outstanding shares of Preferred Stock into 6,042,263 shares of Common Stock
upon the completion of this offering; (ii) the sale of 2,500,000 shares of
Common Stock offered hereby at the assumed initial public offering price of
$12.00 per share and (iii) the sale of 333,333 shares of Common Stock to
Warner-Lambert at an assumed price of $15.00 per share. See "Use of
Proceeds" and "Capitalization."
----------------
Unless otherwise indicated, all information in this Prospectus (i) has been
adjusted to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and the conversion of all outstanding
warrants to purchase shares of Preferred Stock into warrants to purchase Common
Stock upon the completion of this offering; (ii) has been adjusted to give
effect to a 5.9 for 1 reverse split of the shares of Common Stock and Preferred
Stock, effected in June 1998 (the "Reverse Split") and (iii) assumes no
exercise of the Underwriters' over-allotment option. See "Capitalization" and
"Underwriting."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
UNCERTAINTIES RELATED TO CLINICAL DEVELOPMENT
Before obtaining regulatory approvals for the commercial sale of its product
candidates, including its BIOBYPASS angiogen, the Company or its corporate
collaborators will be required to demonstrate through preclinical studies and
clinical trials that the product candidates are safe and effective for use in
each target indication. To date, the Company's product candidates have only
undergone limited preclinical evaluation and in some cases, initial clinical
testing. Long term studies have not been conducted for any of the Company's
product candidates. There can be no assurance that the Company will obtain
authorization for human clinical testing of any of its products currently in
research or preclinical development or for further testing of products in
clinical trials. In addition, the results from preclinical studies and early
clinical trials may not be predictive of results that will be obtained in
large-scale testing, and there can be no assurance that the clinical trials
conducted by the Company or its collaborators will demonstrate sufficient
safety and efficacy to obtain the required regulatory approvals. Further, the
Company or regulatory authorities may suspend clinical trials at any time if
it is thought that the participants are being exposed to unacceptable health
risks. Even after regulatory approval, a product may later be shown to be
unsafe or not to have its purported effect, preventing its widespread use or
requiring its withdrawal from the market and exposing the Company to potential
product liability. The Company has limited experience conducting clinical
trials and intends to rely primarily on its corporate collaborators for
clinical testing of its product candidates.
Clinical trials are often conducted with patients having the most advanced
stages of disease. During the course of treatment, these patients can die or
suffer other adverse medical effects for reasons that may not be related to
the proposed product being tested, but which can nevertheless affect clinical
trial results. Various companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after attaining
promising results in earlier trials. Clinical trials for the product
candidates being developed by the Company may be delayed by many factors. Any
delays in, or termination of, the clinical trials of any of the Company's
product candidates, or the failure of any clinical trials to meet applicable
regulatory standards, could have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTIES RELATED TO GENE THERAPY
The Company's products are subject to risks particular to the development of
gene therapy products. Gene therapy is a new and rapidly evolving medical
approach, whose safety and efficacy have not been demonstrated on a widespread
basis. Data relating to the Company's specific approaches to gene therapy are
also limited. Product development involving new therapies is highly uncertain,
and gene therapy generally, or the Company's specific gene therapy products,
may prove to have undesirable and unintended side effects, show unacceptable
toxicity, trigger immune responses, demonstrate inadequate therapeutic
efficacy, or have other characteristics that may prevent or limit their
commercial use.
The Company's product candidates, including its BIOBYPASS angiogen and its
gene delivery technologies, are in the early developmental stage and require
significant additional research and development, testing and regulatory
approval. To date no gene therapy products have been successfully manufactured
on a large scale or commercialized by the Company or others. The Company's
development of products will be subject to other risks of failure including,
among others, the possibilities that any such products will be found to be
ineffective or toxic, or otherwise fail to receive necessary regulatory
approvals; that any of the products, if safe and effective, will prove
difficult or impossible to manufacture on a large scale
6
<PAGE>
or will be uneconomical to market; that the proprietary rights of third
parties will preclude the Company or its collaborators from marketing any
products developed; that the products will fail to achieve market acceptance;
and that third parties will market equivalent or superior products. As a
result, there can be no assurance that the Company or its collaborators will
be able to develop, manufacture and successfully commercialize the Company's
product candidates within a reasonable time frame or ever. Failure to develop
successfully the Company's current product candidates would materially and
adversely affect the Company's business, financial condition and results of
operations.
RELIANCE ON WARNER-LAMBERT AND OTHER CORPORATE COLLABORATORS
The Company's strategy for development and commercialization of therapeutic
products depends, in large part, upon the formation of multiple corporate
collaborations and licensing arrangements with third parties. The Company has
established a corporate collaboration with Warner-Lambert in the area of
therapeutic angiogenesis, and has granted Warner-Lambert the right to conduct
research, development, marketing, commercialization and certain manufacturing
activities relating to gene therapy products incorporating the vascular
endothelial growth factor ("VEGF") gene for therapeutic angiogenesis.
Accordingly, the Company is substantially dependent on Warner-Lambert for the
development, funding and commercial success of any of its therapeutic
angiogenesis product candidates, including BIOBYPASS angiogen. In addition,
payments from Warner-Lambert are expected to constitute a substantial portion
of the Company's revenues for the next several years. The Warner-Lambert
agreement may be terminated by either party for breach. The research program
under the Warner-Lambert agreement may be terminated by Warner-Lambert on six
months prior written notice after July 21, 2000, in which event Warner-Lambert
would have no further research funding obligation to the Company. If Warner-
Lambert were to terminate its agreement with the Company or otherwise fail to
conduct its collaborative activities successfully and in a timely manner, the
preclinical and clinical development or commercialization of BIOBYPASS
angiogen, or any other potential therapeutic angiogenesis product candidates,
would be delayed or terminated. Any such delay or termination could have a
material adverse effect on the Company's business, financial condition and
results of operations. The success of the corporate collaboration with Warner-
Lambert will depend in part upon Warner-Lambert's own competitive, marketing
and strategic considerations, including the relative advantages of alternative
products being developed and marketed by Warner-Lambert and its competitors.
If Warner-Lambert is unsuccessful in commercializing any product candidate for
any reason, the Company's business, financial condition and results of
operations could be materially adversely affected.
The Company has also entered into strategic alliances with Fuso in certain
areas of oncology, and Varian in the area of radiation therapy. Each of these
and any other strategic alliances requires time, resources and management
attention. The Company's strategy includes entering into multiple, concurrent
corporate collaborations. There can be no assurance that the Company will
successfully manage simultaneous collaborative programs. Failure by the
Company to manage existing and future strategic alliances, maintain
confidentiality among corporate collaborators or prevent the occurrence of
conflicts among corporate collaborators could lead to disputes that result in,
among other things, a significant strain on management resources, legal claims
involving significant time, expense and loss of reputation, loss of capital or
loss of revenues, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
the Company has received substantially all of its revenues since inception
from its corporate collaborators and expects to continue to do so in the near
term. There can be no assurance that the Company will successfully establish
additional corporate collaborations or licensing arrangements in the future
under terms acceptable to the Company or that any future corporate
collaborations or licensing arrangements will ultimately be successful.
Failure of the Company to enter into additional corporate collaborations could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company intends to rely primarily on corporate collaborators for
preclinical studies, clinical development, regulatory approval, manufacturing
and marketing of its gene therapy products, if any. Agreements with corporate
collaborators typically allow such collaborators significant discretion in
electing
7
<PAGE>
whether to pursue any of these activities. The Company cannot control the
amount and timing of resources its corporate collaborators may devote to the
Company's programs or potential products, and there can be no assurance that
such collaborators will perform their obligations as expected. A corporate
collaborator's performance under its agreement with the Company could be
materially adversely affected if such collaborator were involved in certain
third-party transactions such as a business combination or in the event that
the corporate collaborator experienced a significant strategic shift in its
business focus. If any corporate collaborator were to breach its agreement
with the Company, otherwise fail to conduct its collaborative activities in a
timely manner or terminate the collaboration agreement early, such action
could have a material adverse effect on the Company's business, financial
condition and results of operations. The failure of a collaborator to develop
or commercialize a product to which it has rights could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Under its current corporate collaborations, the Company has agreed not to
conduct certain research, independently or with other third parties, that is
in the same field as the research conducted under the collaboration agreement.
Consequently, such arrangements have the effect of limiting the areas of
research the Company may elect to pursue, either alone or with others. There
can be no assurance that a corporate collaborator will not develop, either
alone or with others, alternative technologies or products which are
competitive with any that might result from the Company's research program
with the corporate collaborator. Possible disagreements between the Company
and its corporate collaborators, including disputes relating to the ownership
of rights to any technology developed with third parties, could lead to delays
in collaborative research, development or commercialization of certain
products or could require or result in litigation or arbitration, which would
be time consuming and expensive, and could have a material adverse effect on
the Company's business, financial condition and results of operations.
EARLY STAGE OF COMPANY DEVELOPMENT; LIMITED EXPERIENCE
The Company is at an early stage of development and has limited resources
and operating experience. To date, the Company has no experience with respect
to conducting late stage clinical trials, obtaining regulatory approvals for
product commercialization, marketing, product sales and large-scale
manufacturing. The Company will depend, to a significant extent, on the
resources and experience of corporate collaborators in these and related
areas. There can be no assurance that the Company will be able to enter into
arrangements with corporate collaborators on acceptable terms, if at all.
Failure to enter into acceptable collaborative arrangements, or the failure of
collaborators to provide the Company with adequate resources and experience,
may have a material adverse effect on the Company's ability to develop and
deliver products on a timely and competitive basis, if at all. To the extent
the Company directly engages in the late stage clinical trials, marketing,
sales and large-scale manufacturing of its product candidates, it will require
substantial additional funds, personnel and production facilities.
INTELLECTUAL PROPERTY
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. In addition, patent law, and particularly patent
law relating to the gene therapy field, is still evolving. Development and
commercialization of the Company's product candidates and any potential
products will require, among other things, the integration of genes, vectors
and promoters with a delivery mechanism and the development of commercially
viable manufacturing processes. The Company's commercial success will be
dependent in part upon achieving such integration and development without
infringing the proprietary rights of others and upon obtaining intellectual
property protection that will give the Company's products an exclusive market
position.
Certain intellectual property components used in developing gene therapy
products, such as certain vectors and promoters used by the Company and
others, are in the public domain. As a result, the Company is unable to obtain
patent protection with respect to such components and third parties can freely
use such
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components. There can be no assurance that third parties will not develop
products using such components that compete with the Company's potential
products.
There can be no assurance that any of the pending patent applications owned
or licensed by the Company contain patentable and enforceable claims or will
result in valid issued patents, that the claims of any issued patents or any
patents issued in the future are valid and enforceable and will provide
meaningful protection, that the Company or its collaborators will develop
additional proprietary technologies that are patentable, or that any patents
now or in the future licensed or issued to the Company or its collaborators
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
licensed or issued to the Company, design around or otherwise circumvent the
patented technologies or other intellectual property licensed to or developed
by the Company. For example, while the Company has an exclusive license under
two United States patents relating to the VEGF/121/ gene and the use thereof for
gene therapy applications, third parties have patents for other forms of the
VEGF gene and such third parties or their licensees may develop products using
such other forms of the VEGF gene. There can be no assurance that products based
on such other forms of the VEGF gene or based upon other growth factors will not
be functionally equivalent to or better than the Company's proposed products, or
that such other products will not be more commercially successful than any
products commercialized by the Company or its collaborators for other reasons,
such as superior marketing or lower costs. Similarly, other parties hold patents
for other nitric oxide synthase, tumor necrosis factor and CD genes. Patents and
patent applications of the Company, its collaborators and its licensors may
become involved in interferences, oppositions or similar proceedings, and there
can be no assurance that such patents and patent applications will survive, in
whole or in part, such proceedings. No assurance can be given that patents
issued to the Company, its collaborators or its licensors, if any, will not be
contested, narrowed, revoked or invalidated. Academic collaborators and the U.S.
government may retain certain rights in intellectual property, including patents
and patent applications, developed by such academic collaborators.
While the Company has not conducted freedom to use patent searches on
aspects of its product candidates and potential products and may therefore be
unaware of relevant patents and patent applications of third parties, the
Company is aware of several United States patents and patent applications and
foreign patents and patent applications owned by third parties relating to
gene therapy, promoters, cell lines, vectors and delivery mechanisms which do
or may cover aspects of the Company's product candidates and potential
products or their use, or manufacture including BIOBYPASS angiogen, as well as
other aspects of the Company's technology. Because patent applications are
maintained in secrecy in the United States, the Company cannot be certain that
third parties have not filed applications relating to technology being
developed by the Company or its collaborators or technology covered by patents
or patent applications of the Company, its collaborators or its licensors.
Certain third-party patent applications contain broad claims, and it is not
possible to determine whether or not such claims will be narrowed during
prosecution or will issue as patents, even if the claims appear to encompass
prior art or have other defects. The Company, its collaborators or its
licensors may choose to oppose or challenge third-party patents and patent
applications and such an opposition or challenge can be expensive and time
consuming. There can be no assurance that any opposition or challenge will be
successful. There can also be no assurance that the development, manufacture,
use, offer for sale, sale or importation of the Company's product candidates
and potential products by the Company or its collaborators will not infringe
claims of these or other issued patents, or claims that may issue from these
or other applications or that a third party will not threaten or file an
infringement action.
If the Company or one of its collaborators brings a patent infringement
action or otherwise brings an action to protect proprietary rights against
third parties or is required to defend against a charge of patent infringement
or a charge of infringement of other intellectual property rights, substantial
costs could be incurred and such actions could result in a significant
diversion of management's time and attention. In addition to being a potential
party to patent infringement litigation, the Company is involved in an
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interference proceeding relating to a pending patent application pertaining to
the treatment of blood vessel injury licensed by the Company from the National
Institutes of Health ("NIH") and a pending patent application of the
University of Michigan. An adverse resolution of such interference proceeding
would restrict or eliminate the scope of the license granted by NIH to GenVec,
which the Company believes would not have a material adverse effect on the
Company's current product candidates. The Company believes it will become
involved in additional interference proceedings declared by the United States
Patent and Trademark Office or opposition proceedings in a foreign patent
office. The adverse resolution of potential proceedings could have a material
adverse effect on the Company's product candidates. The Company intends to
provoke interference proceedings where it believes such actions to be
necessary to protect its intellectual property rights. There can be no
assurance that the Company will be successful in provoking such proceedings or
that the Company will achieve a favorable outcome. Patent infringement actions
and other intellectual property litigation, as well as participation in
interference or opposition proceedings, can be expensive and time-consuming,
even in those instances in which the outcome is favorable to the Company.
There can be no assurance that the Company or its collaborators will prevail
in any such litigation or proceedings. The Company and its licensors obtain
intellectual property, including biological material and know-how, from third
parties pursuant to various agreements and arrangements. Third parties may
challenge the intellectual property rights of the Company or its licensors or
claim ownership of intellectual property developed by the Company or its
collaborators. The Company could incur substantial expenses in contesting such
claims, whether successful or not.
The Company has certain licenses and believes that it or its collaborators
will be required to obtain additional licenses under third-party patents and
patent applications to continue research and development and to commercialize
the Company's product candidates and potential products, and there can be no
assurance that any such license will be made available on commercially viable
terms, if at all. If the Company is unable to obtain a license it may be
required to use an alternate technology or product and this may result in a
delay in FDA approval. In addition, licensors may terminate existing or future
license agreements, or terminate the exclusive nature of such agreements, if
the Company fails to meet specified milestones or other events. Any
termination of a license, or any failure of the Company or its collaborators
to obtain any required license on reasonable terms or at all, or the failure
to maintain the exclusivity of the Company's exclusive licenses, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's product candidates and potential products
will require several components that may each be the subject of a license
agreement. The cumulative license fees and royalties for these components may
make the commercialization of such product candidates and potential products
uneconomical.
The Company may rely on trade secret protection and confidentiality
agreements to protect its interests. There can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information or
otherwise gain access to the Company's trade secrets, or that the Company can
meaningfully protect its trade secrets. Any material leak of confidential
information into the public domain or to third parties may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Intellectual Property."
INTENSE COMPETITION
Competition among entities attempting to identify and develop new therapies
is intense. The Company faces, and will continue to face, competition from
pharmaceutical and biotechnology companies, academic and research institutions
and government agencies, both in the United States and abroad. Many of the
Company's competitors have substantially greater capital resources, research
and development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than the Company. Future competition
will likely come from existing competitors (including competitors with rights
to proprietary forms of the VEGF gene and other genes the Company currently
uses in its product candidates), as well as other companies seeking to develop
new treatments. Competitors or their academic collaborators may identify
important genes or delivery mechanisms before the Company, or develop gene
therapies that
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are more effective than those developed by the Company or its corporate
collaborators, or obtain regulatory approvals of their drugs more rapidly than
the Company or its corporate collaborators. Moreover, there can be no
assurance that the Company's competitors will not obtain patent protection or
other intellectual property rights that would limit the Company's or its
collaborators' ability to use the Company's gene therapy technologies. Any of
these events could materially and adversely affect the Company's business,
financial condition and results of operations.
The Company will rely on its corporate collaborators for support of certain
of its enabling technologies and intends to rely on its corporate
collaborators for preclinical and clinical development of related potential
products and the manufacturing and marketing of such products. Generally, the
Company's strategic alliance agreements do not preclude the corporate
collaborator from pursuing development efforts utilizing approaches distinct
from that which is the subject of the alliance. Product candidates of the
Company, therefore, may be subject to competition with a potential product
under development by a corporate collaborator. See "--Reliance on Warner-
Lambert and Other Corporate Collaborators."
Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers
development expenses. Products developed by the Company could be made obsolete
by less expensive or more effective technologies, even technologies unrelated
to gene therapy. For example, competitors may also develop small molecule,
protein, antisense or other therapeutic or surgical approaches that may
compete with or obviate the need for the Company's products. There can be no
assurance that the Company will be able to make the enhancements to its
technology necessary to compete successfully with existing or newly emerging
technologies.
MANUFACTURING LIMITATIONS
The Company has limited experience in manufacturing and currently lacks the
resources or capability to manufacture any of its product candidates on a
commercial scale. It currently has a research facility for the production of
its product candidates for preclinical purposes and relies on third-party
manufacturers of its product candidates for clinical purposes. For the
Company's lead product, BIOBYPASS angiogen, Warner-Lambert has the right to
fill and finish the final product. However, production of BIOBYPASS angiogen
for future clinical trials and possible commercialization is currently
intended to be performed primarily through a third-party manufacturer. The
Company currently intends to rely primarily on corporate collaborators and
third-party manufacturers for clinical and commercial purposes. If a third-
party manufacturer cancels or terminates an existing relationship or if the
Company is unable to contract for or obtain a sufficient supply of its product
candidates on acceptable terms, there could be significant reductions in sales
and delays in bringing the Company's product candidates to market, as well as
delays in the Company's clinical testing schedule, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, it is anticipated that production of the
Company's product candidates will be based in part on proprietary technology
of the Company. Successful technology transfer will be necessary. There can be
no assurance that manufacturers will abide by any limitations or
confidentiality restrictions on licenses with the Company. In addition, any
such manufacturer may develop process technology related to the manufacture of
the Company's compounds that such manufacturer owns either independently or
jointly with the Company. This would increase the Company's reliance on such
manufacturer or require the Company to obtain a license from such manufacturer
in order to have its products manufactured. There can be no assurance that any
such license would be available on terms acceptable to the Company, if at all.
Further, there can be no assurance that the arrangements with third-party
manufacturers will be successful.
Successful large-scale manufacturing of gene therapy products has yet to be
demonstrated by any third party, and it is anticipated that significant
process development changes will be necessary for the commercial process. For
example, changes in the current production process will be required for any
commercial manufacture of BIOBYPASS angiogen. There can be no assurance that
the Company or any third party will be able to manufacture commercial-scale
quantities of gene therapy products, or receive appropriate governmental
approvals on a timely basis or at all. Failure to manufacture successfully or
to obtain appropriate
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government approvals on a timely basis would have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, the Company intends to continue to develop its own
manufacturing capability, which will require significant resources and will be
subject to ongoing government approval and oversight. There can be no
assurance that the Company's efforts in this regard will be successful. See
"Business--Manufacturing" and "Business--Government Regulation."
HISTORY OF OPERATING LOSSES; FUTURE CAPITAL REQUIREMENTS
The Company has incurred operating losses in each year since its inception.
Net losses were approximately $7.5 million, $8.1 million and $1.3 million for
the years ended December 31, 1995, 1996 and 1997, respectively, and
approximately $29,000 for the three month period ended March 31, 1998. The
Company had an accumulated deficit of approximately $28.9 million as of March
31, 1998. The Company expects that it will incur additional losses for at
least the next several years and that such losses will increase as the Company
expands its research and development activities. The Company's losses to date
have resulted principally from costs incurred in research and development and
from general and administrative costs associated with the Company's
operations. Substantially all of the Company's revenues to date have been
derived from payments from corporate collaborations, and the Company expects
that substantially all of its revenues for the next several years will result
from payments from corporate collaborations. There can be no assurance that
the Company will be successful in entering into any new corporate
collaboration that results in revenues. The Company expects that it will be
several years, if ever, before the Company will recognize revenue from product
sales or royalties. Failure to achieve significant revenues or profitability
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company believes that the net proceeds from this offering and the sale
of shares to Warner-Lambert, existing cash and short-term securities and
anticipated cash flow from corporate collaborations will be sufficient to
support the Company's operations at least through 1999. However, this
expectation is based on the Company's current operating plan, which could
change as a result of many factors, and the Company could require additional
funding sooner than expected. In addition, the Company may choose to raise
additional capital due to market conditions or strategic considerations even
if it has sufficient funds for its operating plan. The Company's actual future
capital requirements and the adequacy of its available funds will depend on
many factors, including progress of its research and development programs, the
number and breadth of these programs, the results and timing of the Company's
clinical trials, the ability of the Company to establish and maintain
strategic alliance and licensing arrangements and the progress of the
development and commercialization efforts of the Company's corporate
collaborators. These factors also include the level of the Company's
activities relating to the development and commercialization rights it retains
in its corporate collaboration arrangements, competing technological and
market developments and the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual property
rights.
The Company expects that it will require significant additional funding in
the future, which it may seek through public or private equity offerings, debt
financings or additional strategic alliance and licensing arrangements. Upon
the closing of this offering, the Company will have no credit facility or
other committed sources of capital. No assurance can be given that additional
financing or strategic alliances and licensing arrangements will be available
when needed, or that, if available, such financing will be obtained on terms
favorable to the Company or its stockholders. To the extent the Company raises
additional capital by issuing equity or convertible securities, ownership
dilution to stockholders will result. If adequate funds are not available when
needed, the Company may be required to curtail operations significantly or to
obtain funds by entering into strategic alliances and licensing arrangements,
in which case the Company may be required to relinquish rights to certain of
its technologies, discoveries or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Unavailability of adequate funds would have a material
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adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on its scientific and management employees.
The Company also relies heavily on consultants to assist the Company in its
research and development programs. Attracting and retaining qualified
personnel and consultants is critical to the Company's success. The loss of
the services of any of these persons could significantly impede the
accomplishment of the Company's scientific and business objectives. The
Company's success is also dependent upon its ability to attract and retain
additional qualified scientific and managerial personnel. The Company is
actively recruiting additional personnel, including, without limitation, a
Chief Financial Officer. The Company faces substantial competition for
qualified individuals from numerous biotechnology, pharmaceutical and health
care companies, universities and other research organizations. The inability
of the Company to retain its current scientific and managerial personnel and
to attract and retain additional key employees and consultants could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, a significant portion of the Company's research and development
is conducted under sponsored research programs with several universities and
research institutions. The Company depends on the availability of a principal
investigator for such programs, and the Company cannot assure that any of
these individuals or their research staffs will be available to conduct
research and development for the Company. In addition, the Company's academic
collaborators are not employees of the Company. As a result, the Company has
limited control over their activities and can expect that only limited amounts
of their time will be dedicated to the Company's activities. The Company's
academic collaborators may have relationships with other commercial entities,
some of which could compete with the Company.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Prior to marketing, any products developed by the Company or its corporate
collaborators must undergo an extensive regulatory approval process in the
United States and other countries. This regulatory process, which includes
preclinical studies and clinical trials, and may include post-marketing
surveillance of each compound to establish its safety and efficacy, can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Delays
or rejections may also be encountered based upon changes in FDA policies for
drug approval during the period of product development and FDA regulatory
review. Similar delays may also be encountered in obtaining regulatory
approval in foreign countries. Delays in obtaining regulatory approvals could
adversely affect the marketing of any drugs developed by the Company or its
corporate collaborators, impose costly procedures upon the Company's or its
corporate collaborators' activities, diminish any competitive advantages that
the Company or its corporate collaborators may attain and adversely affect the
Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for products developed by the Company or its
corporate collaborators. Furthermore, regulatory approval may entail
limitations on the indicated uses of a proposed product. Because certain of
the Company's product candidates involve the application of new technologies
and may be based upon a new therapeutic approach, such products may be subject
to substantial additional review by various government regulatory authorities,
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon more conventional technologies. The Company's product
candidates may require a delivery device and such product and device may be
subject to separate regulatory review, which could also delay regulatory
approval.
The Company believes that the commercial uses of its products will be
regulated as biologics by the FDA and comparable regulatory bodies of other
countries. Gene therapy is, however, a relatively new technology, and the
regulatory requirements governing gene therapy products are uncertain. This
uncertainty may result in excessive costs or extensive delays in the
regulatory approval process, adding to the already lengthy review process for
human therapeutic products in general. The Company is not aware of any gene
therapy products
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that have received marketing approval from the FDA or any comparable
regulatory body of any other country. The regulation of the Company's products
and its ongoing research is subject to change, and future legislative or
administrative acts in the United States or other countries could have a
material adverse effect on the Company's business, financial condition and
results of operations. Regulatory requirements ultimately imposed could
adversely affect the ability of the Company's corporate collaborators to
clinically test, manufacture or market products, and could significantly delay
or reduce the milestone or royalty payments payable to the Company.
In order to obtain FDA approval of a new biological product, the Company
must submit substantial evidence of safety, purity, potency and efficacy.
The FDA approval process for a new biological drug involves completion of
pre-clinical studies which include laboratory tests and animal studies to
assess safety and effectiveness of the drug. Among other things, the results
of these studies as well as how the product will be manufactured are submitted
to the FDA as part of an Investigational New Drug ("IND") application and,
unless the FDA objects, the IND becomes effective 30 days following receipt by
the FDA. Human clinical trials may then be conducted. There can be no
assurance that submission of an IND will result in FDA authorization to
commence clinical trials or that approval of an IND will result in subsequent
approval of the drug. The results of the clinical trials are submitted to the
FDA as part of a Biologic License Application ("BLA"). Product sales may only
commence if the BLA is approved. Regulatory requirements for obtaining FDA
approval are rigorous and there can be no assurance that such approvals will
be obtained on a timely basis or at all.
Human clinical trials are typically conducted in three sequential phases,
but the phases may overlap. Phase I trials consist of testing the product in a
small number of patients primarily for safety at one or more dosage levels. In
Phase II, in addition to safety, the efficacy of the product is typically
evaluated in a patient population slightly larger than is used in Phase I
trials, and appropriate dosage is established. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
patient population at geographically dispersed test sites, and with the dosage
that will be submitted for approval. A clinical plan, or "protocol,"
accompanied by the approval of the institutional review board at the
institution participating in the trials, and patient-informed consent forms
must be submitted to and approval by the FDA prior to commencement of each
clinical trial. The FDA may order the temporary or permanent discontinuation
of a clinical trial at any time if it believes patient safety is at risk. The
Company's regulatory strategy is to seek input from the FDA at all stages of
clinical testing and manufacturing process development.
The results of the pre-clinical and clinical studies on biological drugs are
submitted to the FDA in the form of a BLA for approval to commence commercial
sales. After completion of the FDA's preliminary review of the BLA submission,
the submission is sent to an FDA selected scientific advisory panel composed
of physicians and scientists with expertise in the particular field. The FDA
scientific advisory panel issues a recommendation to the FDA that may include
conditions for approval of the BLA. Although the recommendation is not
binding, the FDA generally follows an advisory panel's advice. Toward the end
of the BLA review process, the FDA will conduct an inspection of the
manufacturer's facilities to ensure that they are in compliance with the
applicable current Good Manufacturing Practices ("cGMPs") requirements. If the
FDA evaluation of the manufacturing facilities contained in the BLA
application are favorable, the FDA will issue an approval letter, which
usually contains a number of conditions which must be met in order to secure
final approval. In responding to the BLA, the FDA may grant marketing
approval, require additional testing or information, or deny the application.
Governmental approval of products developed by the Company may entail
limitations on the indicated uses for which such products may be marketed.
Continued compliance with all FDA requirements and the conditions in an
approved application, including product specification, manufacturing process,
labeling and promotional material and record keeping and reporting
requirements, is necessary for all products. Failure to comply, or the
occurrence of unanticipated adverse effects during commercial marketing, could
lead to the need for product recall or other FDA-initiated action, which could
delay further marketing until the products are brought into compliance.
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Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, and could have a material adverse effect on the Company's business,
financial condition and results of operations. Violations of regulatory
requirements at any stage during the regulatory process, including preclinical
studies and clinical trials, the approval process, post-approval or in cGMP,
may result in various adverse consequences to the Company, including the FDA's
delay in approval or refusal to approve a product, withdrawal of an approved
product from the market or the imposition of criminal penalties against the
manufacturer and license holder. There can be no assurance that the Company or
its corporate collaborators will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Further, the terms of approval of any marketing application,
including the labeling content, may be more restrictive than the Company
desires and could affect the marketability of the Company's proposed products.
Failure to obtain required governmental approvals will delay or preclude the
Company or its corporate collaborators from marketing products or limit the
commercial use of such products and could have a material adverse effect on
the Company's business, financial condition and results of operations. The
President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the biologic
provisions of the Federal Drug and Cosmetic Act (the "FDC Act"). The Company
cannot predict how or what effect the changes will have on the regulation of
the Company's products. There can be no assurance that the new legislation
will not impose additional costs or lengthen review times for the Company's
products. See "Business--Government Regulation."
UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT
In both domestic and foreign markets, sales of the Company's product
candidates will depend in part upon the availability of reimbursement from
third-party payers, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payers are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
In many major markets outside the United States, pricing approval is required
before sales can commence. There can be no assurance as to what price can be
obtained or whether government-approved prices, once established, may not be
reduced in subsequent years. There can be no assurance that the Company's
product candidates will be considered cost effective or that adequate third-
party reimbursement will be available to enable the Company to maintain price
levels sufficient to realize an appropriate return on its investment in
product development. Legislation and regulations affecting pricing of medical
products may change before the Company's product candidates are approved for
marketing. Adoption of such legislation could further limit reimbursement for
medical products. If adequate coverage and reimbursement levels are not
provided by the government and third-party payers for the Company's potential
products, the market acceptance of these products would be adversely affected,
which would have a material adverse effect on the Company's business,
financial condition and results of operations.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, including variations in payments received or
made by the Company under strategic alliances, which include milestone
payments, royalties, license fees and other revenues, changes in the research
and development budgets of the Company's corporate collaborators and any
potential collaborators, adoption of new technologies, manufacturing
results, regulatory actions, changes in the demand for the Company's product,
the timing of new product introductions, if any, and the introduction of new
products by the Company's competitors and other competitive factors. If
revenue in a particular period does not meet expectations, the Company may not
be able to adjust significantly its level of expenditures in such period,
which would have an adverse effect on the Company's operating results. The
Company believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance. Given these
factors, in some future quarter or quarters the Company's operating results
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock could be materially and
adversely affected.
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RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
The Company's research and development activities involve the controlled use
of certain biological and other hazardous materials, chemicals and various
radioactive materials. The Company is subject to federal, state and local laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by federal, state and local laws and regulations, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result, and any liability could exceed the
resources of the Company and could have a material adverse effect on the
Company's business, financial condition and results of operations.
PRODUCT LIABILITY EXPOSURE
Clinical trials, manufacturing, marketing and sale of any of the potential
products of the Company or its corporate collaborators may expose the Company
to liability claims from the use of such products. Such risks exist even with
respect to products that are manufactured in licensed and regulated facilities
or that otherwise possess regulatory approval for commercial sale. Product
liability insurance coverage is expensive, difficult to obtain and may not be
available in the future on acceptable terms, if at all. There can be no
assurance that the Company or its corporate collaborators will be able to
obtain such insurance for commercial or other applications or, if obtained,
that sufficient coverage can be acquired at a reasonable cost. The inability
to obtain sufficient insurance coverage at an acceptable cost or to otherwise
protect against potential product liability claims could prevent or inhibit
the commercialization of pharmaceutical products developed by the Company or
its corporate collaborators. A product liability claim or recall would have a
material adverse effect on the Company's business, financial condition and
results of operations.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
Upon completion of this offering, the Company's executive officers,
directors and affiliated individuals and entities together will beneficially
own approximately 50.5% of the outstanding shares of Common Stock (48.7% if
the Underwriters' over-allotment option is exercised in full). As a result,
these stockholders, acting together, will be able to exert significant
influence over most matters requiring approval by the stockholders of the
Company, including approvals of amendments to the Company's Certificate of
Incorporation, mergers, a sale of all or substantially all of the assets of
the Company, going private transactions and other fundamental transactions. In
addition, the Company's Certificate of Incorporation, as it is proposed to be
amended and restated concurrently with the closing of this offering (the
"Restated Certificate"), does not provide for cumulative voting with respect
to the election of directors. Consequently, the present executive officers,
directors and affiliated individuals and entities will be able to influence
significantly the election of the members of the Board of Directors of the
Company. Such a concentration of ownership could affect the liquidity of the
Company's Common Stock and have an adverse effect on the price of the Common
Stock, and may have the effect of delaying or preventing a change in control
of the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. See
"Principal Stockholders" and "Description of Capital Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiations between the Company and the Underwriters and is not necessarily
indicative of the market price at which the Common Stock of the Company will
trade after this offering. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
16
<PAGE>
The market prices for securities of biotechnology and pharmaceutical
companies have been highly volatile, and the market has experienced
significant price and volume fluctuations that are often unrelated to the
operating performance of particular companies. Announcements of technological
innovations or new commercial products by the Company or its competitors,
disputes or other developments concerning proprietary rights, including
patents and litigation matters, developments concerning strategic alliance
agreements, publicity regarding actual or potential results with respect to
products or technology under development by the Company, its corporate
collaborators or its competitors, regulatory developments in both the United
States and foreign countries, public concern as to the efficacy of new
technologies, quarterly fluctuations in the Company's operating results,
future sales of substantial amounts of Common Stock by existing stockholders
and comments by securities analysts, as well as general market conditions and
other factors, may have a significant impact on the market price of the Common
Stock. In particular, the realization of any of the risks described in these
"Risk Factors" could have a material adverse impact on such market price.
ANTI-TAKEOVER PROVISIONS
The Restated Certificate authorizes the Board of Directors of the Company,
without stockholder approval, to issue additional shares of Common Stock and
to fix the rights, preferences and privileges of and issue additional shares
of Preferred Stock with voting, conversion, dividend and other rights and
preferences that could adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock, rights to
purchase Preferred Stock or additional shares of Common Stock may have the
effect of delaying or preventing a change in control of the Company. In
addition, the possible issuance of Preferred Stock or additional shares of
Common Stock could discourage a proxy contest, make more difficult the
acquisition of a substantial block of the Company's Common Stock or limit the
price that investors might be willing to pay for shares of the Company's
Common Stock. Further, the Restated Certificate provides that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may
not be effected by written consent. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, by the President of
the Company or by stockholders holding a majority of the shares outstanding
and entitled to vote. These and other provisions contained in the Restated
Certificate and the Company's Amended and Restated Bylaws, as well as certain
provisions of Delaware law, could delay or make more difficult certain types
of transactions involving an actual or potential change in control of the
Company or its management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices)
and may limit the ability of stockholders to remove current management of the
Company or approve transactions that stockholders may deem to be in their best
interests and, therefore, could adversely affect the price of the Company's
Common Stock. See "Description of Capital Stock."
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS
A significant portion of the anticipated net proceeds to the Company from
the offering has not been designated for specific uses. Accordingly,
management of the Company will have broad discretion with respect to the use
of these funds. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
Future sales of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion
of this offering, the Company will have 9,857,784 shares of Common Stock
outstanding, assuming no exercise of currently outstanding options or
warrants. Of these shares, the 2,500,000 shares sold in this offering (plus
any additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act of 1933, as amended (the "Securities Act"), unless they are held by
"affiliates" of the Company as that term is used under the Securities Act and
the regulations promulgated thereunder. The remaining 7,357,784 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144
17
<PAGE>
of the Securities Act (the "Restricted Shares"). Restricted Shares may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act. As a
result of contractual restrictions and the provisions of Rules 144 and 701,
additional shares will be available for sale in the public market as follows:
(i) 49,748 Restricted Shares will be eligible for immediate sale on the date
of this Prospectus; (ii) 76,658 Restricted Shares will be eligible for sale 90
days after the date of this Prospectus and (iii) 7,231,378 Restricted Shares
will be eligible for sale 180 days from the date of this Prospectus upon
expiration of their respective holding periods under Rule 144. In addition,
10,751 shares will be eligible for immediate sale on the date of this
Prospectus upon exercise of vested stock options, and 765,639 shares will be
issuable upon exercise of vested stock options 180 days after the effective
date of this offering upon the expiration of lock-up agreements.
The holders of 6,375,891 shares of Common Stock and the holders of warrants
to purchase 211,864 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning 180 days from the date of
this Prospectus. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders and holders of an
additional 505,809 shares of Common Stock pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. In addition, the Company expects to
file a registration statement on Form S-8 registering a total of 2,326,218
shares of Common Stock subject to outstanding stock options or reserved for
issuance under the Company's equity incentive plans. Such registration
statement is expected to be filed and to become effective 180 days after the
effective date of this offering. Shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the lock-up agreements
described above.
DILUTION; ABSENCE OF CASH DIVIDENDS
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution of $7.88 in the net tangible book value of
their investment from the initial public offering price. Additional dilution
will occur upon exercise of outstanding options and warrants. The Company has
never paid any dividends and does not anticipate paying dividends in the
foreseeable future. See "Dilution," "Dividend Policy" and "Shares Eligible for
Future Sale."
YEAR 2000 COMPLIANCE
The Company uses a number of computer software programs and operating
systems in its internal operations, including applications used in financial
business systems and various administration functions. To the extent that
these software applications, and the software applications of the Company's
vendors, suppliers, financial institutions and service providers, contain
source code that is unable to appropriately interpret the upcoming calendar
year "2000," some level of modification or even possibly replacement of such
source code or applications will be necessary. The Company is in the process
of identifying the software applications that are not "Year 2000" compliant
and it will be communicating with its vendors, suppliers, financial
institutions and service providers regarding their "Year 2000" compliance.
There can be no assurance that the costs necessary to update software or
potential systems interruptions would not have a material adverse effect on
the Company's business, financial condition and results of operations.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company, and
the sale of 333,333 shares of Common Stock to Warner-Lambert at an assumed
offering price of $15.00 per share, are estimated to be approximately $32.0
million ($36.2 million if the Underwriters' over-allotment option is exercised
in full).
The Company intends to use the net proceeds from this offering and the sale
of shares to Warner-Lambert to expand facilities (approximately $5 million),
to purchase equipment (approximately $5 million), to fund its research and
development activities (approximately $20 million) and to use the remainder
for general corporate purposes. The Company's management will retain broad
discretion over the allocation of the net proceeds. The Company may also use a
portion of the net proceeds to fund acquisitions of complementary
technologies, products or businesses, although the Company has no current
agreements or commitments for any such acquisitions. Pending such uses, the
Company intends to invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including progress of the Company's product
programs, the number and breadth of these programs, future revenue growth, if
any, achievement of milestones under corporate collaborations and licensing
arrangements, the ability of the Company to establish and maintain corporate
collaborations and other arrangements, the progress of the development efforts
of the Company's corporate collaborators and the amount of cash, if any,
generated by the Company's operations. Such factors also include the pace and
amount of any acquisitions or investments, and competing technological and
market developments that make the Company's technologies relatively less
attractive to corporate collaborators.
The Company believes that its existing capital resources, together with the
net proceeds from this offering, interest income and future payments due under
its existing corporate collaborations, will be sufficient to satisfy its
current and projected funding requirements at least through 1999. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Resources" and "Risk Factors--History of Operating
Losses; Future Capital Requirements."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since its inception and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain any future
earnings to fund the development of its business.
19
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998, (i) the actual
capitalization of the Company after giving effect to the Reverse Split; (ii)
the pro forma capitalization of the Company after giving effect to the
conversion of all outstanding shares of Preferred Stock into 6,042,263 shares
of Common Stock upon the closing of this offering and the sale of 333,333
shares of Common Stock to Warner-Lambert at an assumed price of $15.00 per
share; and (iii) pro forma as adjusted capitalization giving effect to the
sale of 2,500,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $12.00 per share and the application of the estimated
net proceeds therefrom:
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
PRO PRO FORMA
ACTUAL (1)(2) FORMA(3) AS ADJUSTED (3)(4)
------------- -------- ------------------
(in thousands)
<S> <C> <C> <C>
Current portion of capital leases... $ 131 $ 131 $ 131
======== ======== ========
Long-term capital leases less
current portion.................... $ 26 $ 26 $ 26
Stockholders' equity: (2)(3)
Convertible Preferred Stock,
$0.001 par value; 6,365,785
shares authorized, 6,042,263
shares issued and outstanding,
actual; 6,365,785 shares
authorized, none issued and
outstanding, pro forma and pro
forma as adjusted................ 6 -- --
Preferred Stock, $0.001 par value;
no shares authorized, issued and
outstanding at December 31, 1996
and 1997 and March 31, 1998,
(5,000,000 shares authorized, no
shares issued and outstanding)...
Common Stock, $0.001 par value;
9,553,191 shares authorized,
1,029,488 shares issued and
outstanding, actual; 50,000,000
shares authorized, 7,405,084
shares issued and outstanding,
pro forma, 9,857,784 shares
issued and outstanding, pro forma
as adjusted...................... 1 7 10
Additional paid-in capital........ 37,521 42,521 69,518
Accumulated deficit............... (28,889) (28,889) (28,889)
Treasury stock, at cost, 47,300
common shares.................... -- -- --
-------- -------- --------
Total stockholders' equity...... 8,639 13,639 40,639
-------- -------- --------
Total capitalization.......... $ 8,796 $ 13,796 $ 40,796
======== ======== ========
</TABLE>
- --------
(1) Excludes: (i) 1,105,955 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 31, 1998, at a weighted average
exercise price of $1.95 per share and (ii) 320,416 shares of Common Stock
issuable upon exercise of outstanding warrants, at a weighted average
exercise price of $12.65 per share. See "Management--Equity Incentive
Plans," "Description of Capital Stock--Warrants" and Note 7 of Notes to
Financial Statements.
(2) See the Financial Statements and Note 7 of Notes to Financial Statements
for descriptions of the authorized, issued and outstanding shares,
liquidation preferences and conversion features of the individual classes
of Preferred Stock.
(3) Pro forma to give effect to (i) the conversion of all issued and
outstanding shares of Preferred Stock into 6,042,263 shares of Common
Stock upon the completion of this offering and (ii) the sale of 333,333
shares of Common Stock to Warner-Lambert at an assumed price of $15.00 per
share.
(4) As adjusted to give effect to the sale of 2,500,000 shares of Common Stock
offered hereby at the assumed initial public offering price of $12.00 per
share. See "Use of Proceeds."
20
<PAGE>
DILUTION
The pro forma unaudited net tangible book value of the Company as of March
31, 1998, was $8,639,099 or $1.23 per share of Common Stock. The pro forma
unaudited net tangible book value per share represents the amount of the
Company's total tangible assets less total liabilities, divided by the number
of shares of Common Stock outstanding after giving effect to the Reverse Split
and the conversion of all outstanding shares of Preferred Stock into Common
Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this offering and the net tangible book value per share of the Common
Stock immediately after completion of this offering. After giving effect to
the sale of 333,333 shares of Common Stock to Warner-Lambert at an assumed
offering price of $15.00 per share, the sale by the Company of 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share and after deducting estimated underwriting discounts
and commissions and offering expenses payable by the Company, and assuming no
other changes in the net tangible book value after March 31, 1998, the
Company's pro forma net tangible book value as of March 31, 1998, would have
been $40,639,099 or $4.12 per share. This represents an immediate increase in
pro forma net tangible book value of $2.89 per share to existing stockholders
and an immediate dilution in pro forma net tangible book value of $7.88 per
share to new purchasers of Common Stock in this offering, as illustrated by
the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Pro forma net tangible book value per share as of March 31,
1998....................................................... $1.23
Increase attributable to Warner-Lambert transaction......... .62
Increase attributable to new investors...................... 2.27
-----
Pro forma net tangible book value per share after the offering
as of March 31, 1998......................................... 4.12
------
Dilution per share to new investors........................... $ 7.88
======
</TABLE>
The following table sets forth on a pro forma basis, as of March 31, 1998,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing holders of Common Stock, by Warner-Lambert and by the new
investors, before deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 7,024,451 71.3% $34,881,824 49.9% $ 4.97
New investors........... 2,500,000 25.4% $30,000,000 42.9% $12.00
Warner-Lambert.......... 333,333 3.3% $ 5,000,000 7.2% $15.00
--------- ------ ----------- ------
Total................. 9,857,784 100.0% $69,881,824 100.0%
========= ====== =========== ======
</TABLE>
- --------
(1) Gives effect to the conversion of all outstanding shares of Preferred
Stock into 6,042,263 shares of Common Stock upon the closing of this
offering.
The calculation of net tangible book value and other computations above
assume no exercise of outstanding options and warrants. As of March 31, 1998,
1,426,371 shares of Common Stock were subject to outstanding options and
warrants at a weighted average price of $4.36 per share. To the extent
additional shares are purchased pursuant to the exercise of outstanding
options and warrants, there will be further dilution to new investors. See
"Management--Equity Incentive Plans," "Description of Capital Stock--
Warrants" and Note 7 of Notes to Financial Statements.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and Notes thereto included
elsewhere in the Prospectus. The statement of operations data for the years
ended December 31, 1995, 1996 and 1997, and the balance sheet data at December
31, 1996 and 1997, are derived from the financial statements of the Company
included elsewhere in this Prospectus which have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included elsewhere
in this Prospectus. The statement of operations data for the years ended
December 31, 1993 and 1994, and the balance sheet data as of December 31,
1993, 1994 and 1995, are derived from financial statements audited by KPMG
Peat Marwick LLP, which are not included herein. Financial data as of March
31, 1998, and for the three month periods ended March 31, 1997 and 1998, are
derived from unaudited financial statements included elsewhere herein, and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of its financial position and results of operations for such
periods. The results for the interim periods are not necessarily indicative of
results to be expected for any future period. The Company has not declared or
paid cash dividends on its Common Stock since inception and does not intend to
pay any cash dividends in the foreseeable future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ----------- -------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 750 $ 1,000 $ 1,005 $ 698 $ 10,188 $ -- $ 3,688
Expenses:
Research and
development........... 2,888 5,646 6,500 6,355 8,986 1,614 3,093
General and
administrative........ 1,040 1,605 2,025 2,947 2,720 550 739
Purchase of in-process
technology............ -- 2,581 442 -- -- -- --
------- -------- -------- -------- -------- -------- -------
Total Expenses........ 3,928 9,832 8,967 9,302 11,706 2,164 3,832
------- -------- -------- -------- -------- -------- -------
Loss from operations... (3,178) (8,832) (7,962) (8,604) (1,518) (2,164) (144)
Other income, net...... 136 139 413 496 263 74 115
------- -------- -------- -------- -------- -------- -------
Net loss............... $(3,042) $ (8,693) $ (7,549) $ (8,108) $ (1,255) $ (2,090) $ (29)
======= ======== ======== ======== ======== ======== =======
Pro forma basic net
loss per share (1).... $ (0.18) $ (0.01)
======== =======
Shares used in
computing basic
net loss per share
(1)................... 6,999 7,019
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
------- -------- -------- -------- -------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents and short-
term investments...... $ 6,040 $ 9,037 $ 13,880 $ 7,725 $ 9,364 $ 7,262
Total assets........... 6,738 9,965 15,226 8,638 10,547 10,692
Capital lease
obligations (2)....... -- 799 889 572 221 158
Accumulated deficit.... (3,254) (11,947) (19,496) (27,605) (28,860) (28,889)
Total stockholders'
equity................ 6,107 8,483 13,691 6,864 8,644 8,639
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements for a description of the
computation of the pro forma basic net loss per share.
(2) Includes current portion.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. Actual events and results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
GenVec was incorporated under the laws of the state of Delaware on December
7, 1992. GenVec focuses on the development and commercialization of novel gene
therapy products for major disease markets. GenVec's lead product candidate,
BIOBYPASS angiogen, is currently in Phase I/II clinical trials for the
treatment of CAD. GenVec also intends to initiate a Phase I/II clinical trial
in patients with PVD in May 1998. The Company is developing BIOBYPASS angiogen
as part of its collaboration with Warner-Lambert, under which the Company
could receive payments totaling over $100 million in milestone payments,
research funding, equity purchases and technology access fees, upon the
achievement of specified milestones. As of April 20, 1998, Warner-Lambert had
paid to the Company $13.5 million under this collaboration. The Company is
also pursuing research and development programs in the areas of vascular
damage, oncology and neurology. GenVec has also entered into corporate
collaborations with Varian and Fuso in certain areas of oncology. See
"Business--Strategic Alliances--Corporate Collaborations."
The Company has incurred operating losses each year since inception and, as
of March 31, 1998, had an accumulated deficit of approximately $28.9 million.
The Company's losses have resulted principally from costs incurred in research
and development and from general and administrative costs associated with the
Company's operations. The Company expects to incur substantial additional
operating losses for at least the next few years as a result of increases in
its expenses for research and development capabilities.
The Company's future profitability will depend in part on the successful
development and marketing of its BIOBYPASS angiogen and other products, and
the continued establishment of corporate collaborations. Payments from
corporate collaborators and interest income are expected to be the Company's
only sources of revenue for several years. These payments will include
licensing payments, milestone payments and research and development funding.
Milestone payments under strategic alliances will be subject to significant
fluctuation in both timing and amount, and therefore the Company's results of
operations for any period may not be comparable to the results of operations
for any other period. Royalties or other revenues from commercial sales of
products are not expected for at least several years, if at all. If revenues
in a particular period do not meet expectations, the Company may not be able
to adjust significantly its level of expenditures in such period, which would
have an adverse effect on the Company's operating results. The Company
believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and March 31, 1997
Revenues
Revenues were approximately $3.7 million for the three months ended March
31, 1998. For the same period in 1997, the Company received no revenues.
Revenues recognized for the three month period in 1998 were attributable to
$187,500 received under the Company's research and development agreement with
Fuso and the remainder to payments received under the Company's collaboration
agreement with Warner-Lambert. Revenues from Warner-Lambert included a $2.0
million milestone payment as a result of the Company's investigational new
drug application ("IND") filing with the FDA for PVD.
23
<PAGE>
Operating Expenses
Research and development expenses were approximately $3.1 million and $1.6
million for the three months ended March 31, 1998 and 1997, respectively.
Research and development expenses increased approximately 92% primarily as a
result of the Company's therapeutic angiogenesis product development
activities. License payments constituted approximately one-half of such
increase, and the remainder of the increase was due to increased intellectual
property expenses and expenses related to the Phase I/II trial for CAD.
General and administrative expenses were approximately $739,000 and $550,000
for the three months ended March 31, 1998 and 1997, respectively. The 34%
increase was primarily attributable to increased payroll of approximately
$76,000 and personnel of approximately $118,000 in support of the Company's
collaborations.
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $115,000 and $74,000 for the three months ended
March 31, 1998 and 1997, respectively. The 54% growth in other income was due
to an increase in the Company's cash balances during this period.
As of March 31, 1998, the Company had an accumulated deficit of $28.9
million, and had carried an accumulated deficit since inception, and therefore
had not paid any federal income taxes. Realization of deferred tax assets is
dependent on future earnings, if any, the timing and amount of which is
uncertain. See Note 8 of Notes to Financial Statements.
Years Ended December 31, 1997 and 1996
Revenues
Revenues were approximately $10.2 million and $698,000 in 1997 and 1996,
respectively. Revenues in 1997 were attributable to $187,500 received under
the Company's research and development agreement with Fuso, and the remainder
to milestone payments, research funding and technology access fees received
under the Company's collaboration agreement with Warner-Lambert. Revenues in
1996 were attributable to research and development funding from a prior
collaboration agreement with Genentech.
Operating Expenses
Research and development expenses were approximately $9.0 million and $6.4
million in 1997 and 1996, respectively. Research and development expenses
increased 41.4% from 1996 to 1997 primarily as a result of the Company's
therapeutic angiogenesis product development activities. Approximately 75% of
such increase was due to license payments, as well as increased intellectual
property expenses and acquisitions of technology, and the remainder of such
increase was due to increased payments for sponsored research and outside
consultants, and increased facility costs due to the expansion of research and
development facilities. The Company expects research and development expenses
to increase as the Company continues to expand its product development
programs.
General and administrative expenses were approximately $2.7 million and $2.9
million in 1997 and 1996, respectively. The 7.7% decrease from 1996 to 1997
was primarily attributable to the one-time expense of $270,000 associated with
a termination agreement in 1996 with a former officer of the Company. The
Company expects that general and administrative expenses will increase
slightly in 1998 due to increased personnel in late 1997 and anticipated
administrative hiring in 1998, potentially including a Chief Financial
Officer.
24
<PAGE>
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $263,000 and $496,000 in 1997 and 1996,
respectively. The 47.0% decrease from 1996 to 1997 was due to variations in
the Company's cash balances during this period.
Years ended December 31, 1996 and 1995
Revenues
Revenues were approximately $698,000 and $1.0 million in 1996 and 1995,
respectively. Revenues in 1996 and 1995 were attributable to research and
development funding from a prior collaboration agreement with Genentech.
Operating Expenses
Research and development expenses were approximately $6.4 million and $6.5
million in 1996 and 1995, respectively. Research and development expenses for
1995 and 1996 remained essentially flat as the Company shifted its research
and development efforts to therapeutic angiogenesis product opportunities.
General and administrative expenses were approximately $2.9 million and $2.0
million in 1996 and 1995, respectively. The 45.5% increase from 1995 to 1996
was primarily attributable to increased payroll of approximately $145,000,
personnel and professional fees of approximately $371,000 in connection with
the expansion of the Company's business development efforts and operations, as
well as a one-time expense of $270,000 in connection with the termination
agreement in September 1996 with a former officer of the Company.
The in-process technology expense of approximately $442,000 in 1995 was a
partial charge resulting from the issuance of capital stock in connection with
the acquisition of Theragen, Inc. in 1994. See Note 4 of Notes to Financial
Statements.
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $496,000 and $413,000 in 1996 and 1995,
respectively. The 20.1% increase from 1995 to 1996 was due to variations in
the Company's cash balances during the period as a result of the private
placement of equity securities in late 1994 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1998, the Company financed its operations
through the private placement of equity securities, payments from corporate
collaborators and capital leases. As of March 31, 1998, the Company had
received aggregate gross proceeds of approximately $34.5 million through the
private placement of equity securities, approximately $17.3 million in
research and development funding and milestone payments from corporate
collaborators and approximately $1.4 million of equipment capital lease
financing. As of March 31, 1998, the Company had approximately $7.3 million in
cash and cash equivalents and short-term investments.
Net cash used in operating activities was approximately $484,000, $6.9
million and $6.9 million in 1997, 1996 and 1995, respectively. The decrease in
1997 resulted from research and milestone revenue received from the Warner-
Lambert collaboration. Expenditures for acquisition of property and equipment
were approximately $476,000, $86,000 and $235,000 in 1997, 1996 and 1995,
respectively. The decrease in 1996 took place during the Company's shift in
research focus to therapeutic angiogenesis, while the increase in late 1997
was in connection with the Warner-Lambert collaboration. Cash flow from
financing activities was approximately $2.6 million, $860,000 and $12.0
million in 1997, 1996 and 1995, respectively. Financing cash
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flows related to private equity financing in 1995 and equity purchases in
connection with license and corporate collaboration agreements in 1996 and
1997, offset by payments under capital equipment lease obligations.
The Company anticipates that annual expenditures for research and
development, clinical trials, product development, preclinical studies and
general and administrative activities will increase significantly in future
years. However, the Company's actual capital requirements may change depending
on numerous factors, including, without limitation, the progress of the
Company's research and development programs, the scope and results of
preclinical and clinical studies, the number and nature of the indications the
Company pursues in clinical studies, the timing of regulatory approvals,
technological advances, shifts in the Company's product development efforts
and the status of competitive products. In addition, expenditures may be
dependent on the establishment and maintenance of collaboration relationships
with other companies, the availability of financing and other factors.
The Company believes that the net proceeds from this offering and the sale
of shares to Warner-Lambert, existing cash and short-term investments and
anticipated cash flow from its current corporate collaborators will be
sufficient to support the Company's operations at least through 1999. The
Company expects that it will require significant additional financing in the
future, which it may seek to raise through public or private equity offerings,
debt financing, additional strategic alliance and licensing arrangements or
some combination of these financing alternatives. No assurance can be given
that any such additional financing will be available when needed, if at all,
or that it will be obtained on terms favorable to the Company or its
stockholders. To the extent that the Company raises additional capital by
issuing equity or convertible securities, ownership dilution to stockholders
will result. If adequate financing is not available when needed, the Company
may be required to curtail significantly one or more of its research and
development programs or to obtain funds through agreements with corporate
collaborators or others that may require the Company to relinquish rights to
certain of its technologies or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company uses a number of computer software programs and operating
systems in its internal operations, including applications used in financial
business systems and various administration functions. To the extent that
these software applications, and the software applications of the Company's
vendors, suppliers, financial institutions and service providers, contain
source code that is unable to appropriately interpret the upcoming calendar
year "2000," some level of modification or even possibly replacement of such
source code or applications will be necessary. The Company is in the process
of identifying the software applications that are not "Year 2000" compliant
and it will be communicating with its vendors, suppliers, financial
institutions and service providers regarding their "Year 2000" compliance.
Given the information known at this time about the Company's systems, coupled
with the Company's ongoing efforts to upgrade or replace business critical
systems as necessary, it is currently not anticipated that these "Year 2000"
costs will have a material adverse impact on the Company's business, financial
condition and results of operations. However, the Company is still analyzing
its software applications and, to the extent they are not fully "Year 2000"
compliant, there can be no assurance that the costs necessary to update
software or potential systems interruptions would not have a material adverse
effect on the Company's business, financial condition and results of
operations.
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BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
GenVec focuses on the development and commercialization of novel gene
therapy products for major disease markets. GenVec's lead product candidate,
BIOBYPASS angiogen, is designed to induce angiogenesis, or new blood vessel
formation, in tissues with inadequate blood flow. BIOBYPASS angiogen uses an
adenovirus vector to deliver and express the gene for VEGF/121/. BIOBYPASS
angiogen is being developed for the treatment of CAD and PVD, and is intended
to be used either alone or as an adjunct to existing surgical procedures. In
December 1997, the Company initiated a Phase I/II clinical trial with its
BIOBYPASS angiogen for direct injection into the hearts of patients with CAD
who are undergoing CABG surgery. The Company also intends to commence a Phase
I/II clinical trial in patients with PVD in May 1998. The Company has entered
into a collaboration with Warner-Lambert to develop and commercialize
BIOBYPASS angiogen and other gene therapy products for therapeutic
angiogenesis. Under the terms of the collaboration, Warner-Lambert may pay to
the Company a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. As of April 20, 1998, Warner-Lambert had paid to the Company
$13.5 million under this collaboration, and had purchased $2.0 million of the
Company's stock.
Additionally, GenVec is developing product candidates and vector technology
in the areas of cardiovascular disease, oncology and neurology. For the
treatment of restenosis associated with angioplasty and vascular damage
associated with A-V grafts, GenVec is developing Ad.iNOS, an adenovirus vector
containing the iNOS gene. In oncology, GenVec is developing Ad.TNFa under a
collaboration agreement with Varian. Ad.TNFa, an adenovirus vector containing
the TNFa gene, is designed to enhance the effectiveness of radiation therapy
without increasing toxicity to normal tissue. In collaboration with Fuso,
GenVec is developing Ad.CD and is conducting research on immunotherapy of
cancer based on the delivery of tumor antigen genes. Ad.CD, an adenovirus
vector containing the CD gene, is designed to convert a nontoxic precursor
drug into fluorouracil to effect tumor destruction, either alone or in
combination with radiation therapy. In neurology, GenVec intends to develop
product candidates through the application of its HSV vector technology.
To customize gene therapy products for specific medical needs, GenVec is
developing vectors for cell-specific gene delivery and promoters which
regulate the level and duration of gene expression. GenVec's technology
portfolio includes: (i) therapeutic genes such as VEGF/121/, iNOS, TNFa
and CD; (ii) vector systems such as adenovirus and HSV; (iii) receptor
mediated targeting technology and (iv) tissue-specific and inducible
promoters.
GenVec was incorporated in Delaware in 1992. In August 1994, the Company
acquired Theragen, Inc. through a merger of Theragen, Inc. with and into the
Company. In 1996, the Company began to focus its efforts on the development of
product candidates in the field of therapeutic angiogenesis.
GENVEC STRATEGY
The Company's objective is to be a leader in the development and
commercialization of gene therapy products. To achieve this objective, GenVec
intends to:
. Enhance Leadership in Therapeutic Angiogenesis. GenVec's primary focus is
on the development of its lead product candidate, BIOBYPASS angiogen, for
the treatment of CAD and PVD. The Company also seeks to develop new
therapeutic angiogenesis products in these and other disease indications.
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. Expand Its Portfolio of Products under Development. The Company intends
to expand its existing portfolio of product candidates for the treatment
of cardiovascular disease and cancer. The Company will also pursue
product candidates in new therapeutic areas, including neurological
disorders using its HSV vector technology. GenVec focuses its new product
development efforts in areas where gene therapy has potential benefits
over currently available therapies. GenVec takes into account market
attractiveness, technical feasibility, the potential to develop a
proprietary position and the predictiveness of animal models in choosing
among new product development opportunities.
. Broaden Its Technology Platform. The Company plans to broaden its
portfolio of genes, vectors, promoters and other technologies to develop
new products and attract corporate and academic collaborators. GenVec
intends to accomplish this through internal and sponsored research, in-
licensing and technology acquisitions.
. Strengthen Product Development through Corporate Collaborations. GenVec
establishes corporate collaborations to enhance the development,
manufacture and commercialization of its product candidates. The Company
intends to participate in the manufacture and commercialization of select
product opportunities by retaining certain rights in these areas.
. Maintain and Expand Intellectual Property Strength. The Company seeks to
enable and protect its product opportunities by pursuing patents either
alone or with corporate or academic collaborators or by seeking licenses
from third parties. As of March 31, 1998, the Company held or had
licenses to 154 issued, allowed or pending patents worldwide, of which 28
are issued or allowed in the U.S.
GENE THERAPY RATIONALE AND PRODUCT COMPONENTS
Rationale. Gene therapy seeks to treat a broad range of diseases by
intervening at the genetic level to modify the activity of the body's cells.
Gene therapies provide the body's cells with information in the form of
segments of deoxyribonucleic acid ("DNA"). These DNA segments contain sets of
instructions that direct the body's cells to synthesize specific proteins to
perform basic biochemical and physiological functions. Gene therapy, by adding
or modifying DNA in the body's cells, can cause these cells to augment the
production of proteins already being produced by the body or to produce
proteins not currently present in the target tissue. These proteins can either
be secreted or remain within the target cell. The development of gene therapy
is generally focused on diseases where the specific molecular pathways are
well characterized. The goal of many gene therapies is the local production of
a therapeutic protein, potentially resulting in a more efficacious treatment
alternative with fewer side effects than conventional approaches.
Product Components. A gene therapy product requires several key components
in order to produce a therapeutic effect. A specific gene which encodes a
therapeutic protein must be identified. In addition, regulatory sequences of
DNA, including a promoter, are combined with the gene to regulate production
of the therapeutic protein. A gene therapy product also requires delivery of
the specific gene and its regulatory sequences to the target cell. Typically,
the regulatory and therapeutic gene sequences are inserted into a vector that
can bind to the target cell. After binding to the cell surface, the vector is
internalized and transported to the cellular nucleus where the therapeutic
gene is used for protein expression. This overall process is known as
transfection. The residual vector protein is degraded.
GENVEC PRODUCT DEVELOPMENT PROGRAMS
GenVec's product development activities are focused on diseases that it
believes are well suited for therapeutic intervention using currently
available gene therapy technologies. The Company's current programs focus on
cardiovascular disease, oncology and neurology. The Company's lead product
candidate, BIOBYPASS angiogen, is designed to treat CAD and PVD. BIOBYPASS
angiogen uses an adenovirus vector to deliver the VEGF/121/ gene directly to
tissues with inadequate blood flow to stimulate new blood vessel formation.
GenVec has spent a total of approximately $6.5 million, $6.4 million and $9.0
million for the years ended December 31, 1995, 1996 and 1997, respectively, and
approximately $1.6 million and $3.1 million for the three months ended March 31,
1997 and March 31, 1998 for research and development related to these and other
products.
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GenVec's product development programs are summarized below:
<TABLE>
<CAPTION>
DEVELOPMENT CORPORATE
PRODUCT DEVELOPMENT PROGRAM THERAPEUTIC GENE VECTOR STATUS (1) COLLABORATOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CARDIOVASCULAR
Ischemic Tissue Disease
Warner-
CAD (BIOBYPASS angiogen) VEGF/121/ Adenovirus Phase I/II Lambert
Warner-
PVD (BIOBYPASS angiogen) VEGF/121/ Adenovirus Phase I/II Lambert
Vascular Damage
Restenosis iNOS Adenovirus Preclinical --
Arteriovenous Graft iNOS Adenovirus Preclinical --
ONCOLOGY
Radiation Therapy TNFa Adenovirus Preclinical Varian
Phase
CD Adenovirus I/II (2) Fuso
Immunotherapy -- Adenovirus Research Fuso
Herpes simplex
NEUROLOGY -- virus Research --
</TABLE>
(1) Product candidates in research are in the early stages of development.
During the preclinical stage, laboratory and animal studies are conducted
to evaluate the therapeutic efficacy of a product candidate. Phase I/II
clinical trials are designed to assess the safety and efficacy of a
product candidate in volunteer patients with the targeted disease.
(2) The Company has initiated a Phase I/II trial with Ad.CD in patients with
colorectal cancer metastatic to the liver to assess the safety of Ad.CD.
These trials do not involve radiation. The Company is currently conducting
preclinical trials of Ad.CD used in combination with radiation therapy and
intends to conduct further studies in this area.
Cardiovascular
Ischemic Tissue Disease
Recent estimates indicate that over 55 million Americans have one or more
types of cardiovascular disease. Cardiovascular disease is the leading cause
of death in the United States and many other developed countries. A major
contributing factor to cardiovascular disease is atherosclerosis, or the
hardening of the arteries due to plaque formation. As atherosclerosis
progresses, the blood vessels narrow, and may close entirely. As a result,
ischemia, or inadequate blood flow to tissues, can result and damage the
affected tissue. In patients with CAD, ischemia in the heart can lead to
severe rest pain, impaired cardiac function or, if very severe, heart attacks.
PVD involves ischemia in the extremities and can lead to intermittent pain
("claudication"), and in severe cases, chronic pain while at rest. In some PVD
cases, amputation of a limb may be required.
Coronary Artery Disease. Approximately 50% of deaths attributable to
cardiovascular disease are due to CAD. Treatment alternatives for CAD range
from risk factor modification and exercise programs in patients with limited
disease to major surgical procedures in severe disease. Drug therapy is a
mainstay of treatment for CAD and many different pharmacologic agents are
available. In patients with severe disease, surgical intervention such as
angioplasty is often used to open occluded vessels. Angioplasty procedures
typically use an inflatable balloon catheter to physically open a narrowed
blood vessel. In 1995, more than 400,000 patients in the U.S. underwent this
procedure. Studies have shown that within seven months following angioplasty,
the artery narrows again, or undergoes restenosis, 30% to 40% of the time. The
procedure is difficult or impossible to perform on certain patients with
multiple vessel disease, diffuse disease, calcified vessels or vessels that
are too small to access. The average cost of angioplasty in the U.S. was
approximately $20,000 in 1995.
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Another surgical option for CAD is CABG, the replacement of the diseased
artery with a new vessel. In 1995, approximately 360,000 patients in the U.S.
underwent CABG. During the CABG procedure, a blocked coronary artery is
replaced with a vessel harvested from another location in the body. The
conventional CABG procedure requires cutting through the sternum of the chest
and placing the patient on cardiopulmonary bypass, both of which involve
significant risk of morbidity and mortality. In addition, it is difficult or
impossible to perform CABG on certain patients with diffuse atherosclerotic
disease or severe small vessel disease or patients who have previously
undergone a CABG. The average cost of CABG was approximately $45,000 in 1995.
The Company believes there is a need for products that can provide longer
lasting, improved therapeutic outcomes and reduced morbidity in patients
undergoing surgical procedures. For patients whose blocked arteries cannot be
opened by angioplasty or replaced by CABG, new treatments are necessary.
Peripheral Vascular Disease. Current data suggests approximately one million
Americans suffer from intermittent claudication in their lower extremities, a
key symptom of PVD. Current therapies for PVD are similar to those for CAD.
Treatment options range from risk factor modification and exercise programs
for patients with mild disease, to angioplasty or artery bypass grafting in
patients with severe disease. However, progression of disease and recurrence
of symptoms after these treatments is typical and ongoing medical management
of the underlying disease process is often necessary. In addition, PVD
patients who have diffuse disease, calcified vessels or vessels that are too
small to access tend to be poor candidates for angioplasty or vascular grafts.
A lack of adequate pharmacological therapy further emphasizes the need for new
treatment strategies for PVD.
Rationale for Therapeutic Angiogenesis. GenVec believes that restoring blood
flow to areas of ischemia through angiogenesis, the formation of new blood
vessels, offers one of the most promising therapeutic options for CAD and PVD.
Angiogenesis is the body's natural response to ischemia. It also occurs as a
normal physiological process during periods of tissue growth, such as an
increase in muscle or fat and during the menstrual cycle and pregnancy.
Angiogenesis may also occur in certain pathological conditions either as a
natural response to the underlying disease (as in inflammation, wound healing
and rheumatoid arthritis) or as a contributing factor to disease progression
(as in tumor growth).
The angiogenesis process is well understood, and a number of genes involved
in the process have been identified. It is believed that under ischemic
conditions, expression of these genes leads to the production of growth
factors and other proteins involved in angiogenesis. The endothelial cells
which line blood vessels contain receptors which bind to growth factors.
Binding of the growth factors to these cell surface receptors triggers a
complex series of events, including the replication and migration of
endothelial cells to ischemic sites, as well as their formation into new blood
vessels. However, in ischemic conditions, the growth factor genes often may
not produce sufficient amounts of the corresponding proteins to generate an
adequate number of new blood vessels. A logical therapeutic approach to this
problem is to enhance the body's own response by temporarily providing higher
concentrations of growth factors at the site of disease.
BIOBYPASS Angiogen. GenVec's lead product candidate, BIOBYPASS angiogen, is
intended to induce angiogenesis in tissue with inadequate blood flow.
BIOBYPASS angiogen uses an adenovirus vector to deliver and express the
VEGF/121/ gene, GenVec's proprietary form of the VEGF gene. The Company is
developing BIOBYPASS angiogen to be used alone and as an adjunct to existing
surgical procedures for the treatment of CAD and PVD.
VEGF is a protein which induces angiogenesis and is an important mediator of
the normal angiogenic response to ischemia. VEGF has a high degree of
specificity for endothelial cells, unlike many other angiogenic factors that
can cause proliferation of additional cell types, such as smooth muscle cells
or fibroblasts. However, VEGF is rapidly cleared from the circulation, making
it difficult to sustain high concentrations of VEGF in the blood. Furthermore,
systemic administration of VEGF can lead to hypotension. In contrast to direct
administration of proteins, gene therapy has the advantage of achieving
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localized, sustained production of the therapeutic protein in tissue with
inadequate blood flow. GenVec has accomplished this by administering BIOBYPASS
angiogen directly to the target tissue.
GenVec believes the adenovirus vector is well suited for therapeutic
angiogenesis because it induces expression of VEGF in tissues for about a
week. This period of expression has been shown to cause the formation of new
blood vessels, but does not appear to cause toxicity. In addition, adenovirus
vectors efficiently transfer genes to the heart so only small amounts of the
vector are needed. Adenovirus vectors have been used in many gene therapy
clinical trials and appear to be well tolerated. In the Company's current CAD
clinical trial, BIOBYPASS angiogen is being administered by direct injection
into the heart using a standard syringe. The Company believes that other
delivery modalities, including endocardial catheters and intraarterial
catheters, may be used in the future and is evaluating various delivery
devices that are currently available or in development by third parties.
GenVec and its collaborators have demonstrated the therapeutic potential of
BIOBYPASS angiogen in animal models of CAD and PVD. A pig model of cardiac
ischemia was used to evaluate the effects of BIOBYPASS angiogen in CAD.
Administration of BIOBYPASS angiogen to the heart increased the number of
blood vessels, improved blood flow and restored cardiac contractility to
normal. The parameters used in this preclinical study are the endpoints
typically used to assess improvement in patients with CAD. In a PVD
preclinical model of hind limb ischemia, BIOBYPASS angiogen increased the
number of blood vessels and the amount of blood flow in the ischemic limb.
The Company initiated a Phase I/II clinical trial with BIOBYPASS angiogen in
December 1997, for patients who are undergoing CABG and also have areas of
diffuse CAD that are not amenable to surgical treatment. BIOBYPASS angiogen is
directly injected into the ischemic regions of the heart that are not amenable
to bypass grafts. In April 1998, the FDA approved the Company's IND for a
Phase I/II clinical trial in PVD, and in May 1998, the Company initiated this
trial in PVD patients with intermittent claudication and for patients with
rest pain.
In July 1997, the Company entered into a collaborative agreement with
Warner-Lambert to develop and commercialize gene therapy products
incorporating the VEGF gene for therapeutic angiogenesis. As part of this
corporate collaboration, Warner-Lambert has primary responsibility for
clinical development and commercialization of BIOBYPASS angiogen and related
VEGF gene therapies. Under the terms of the collaboration, the Company may
receive a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. As of April 20, 1998, Warner-Lambert had paid to the Company an
aggregate of $13.5 million, and had purchased $2.0 million of the Company's
capital stock. See "--Strategic Alliances--Corporate Collaborations--Warner-
Lambert Company."
Vascular Damage
Vascular damage can result from a variety of procedures which mechanically
disturb blood vessel walls. It occurs in several medical conditions, including
restenosis following angioplasty procedures in patients with CAD and PVD, and
the closing ("stenosis") of A-V grafts which are used for vascular access in
patients with renal disease who require dialysis. In these conditions,
vascular damage causes local biological responses such as the proliferation of
smooth muscle cells and the inhibition of endothelial cell layer regrowth,
both of which contribute to vessel narrowing. The local concentration of
nitric oxide, an important regulator of blood vessel function, declines when
there is damage to the endothelial cell layer. Studies suggest that increasing
levels of nitric oxide can inhibit smooth muscle cell proliferation and help
prevent the biological processes that lead to narrowing of blood vessels at
the site of damage.
Restenosis Following Angioplasty. Severe cases of CAD and PVD are often
treated by angioplasty. The damage caused by the angioplasty procedure leads
to restenosis in 30% to 40% of patients within seven months of the procedure.
Current techniques to prevent restenosis involve insertion of a stent, a small
metallic
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scaffold, to prop open the blood vessel at the site of angioplasty. However,
even following stent replacement, 20% to 30% of angioplasty patients still
suffer restenosis within seven months after stent placement. Restenosis rates
of over 50% have been observed for certain high risk patients who have
received a stent. Sales of coronary stents have been estimated to exceed $1.0
billion worldwide in 1997.
Stenosis of Arteriovenous Grafts. In 1995, approximately 700,000 patients
suffered end-stage renal disease worldwide. In the U.S. alone, in 1995 more
than 200,000 patients with end-stage renal disease received dialysis to
cleanse the blood. Dialysis requires long-term, repetitive access to the
patient's vasculature so as to facilitate the insertion of dialysis needles.
The most common form of access site is an A-V graft, which is constructed by
directly connecting an artery of the arm to a large vein or by using a
synthetic graft. This graft then serves as a high blood flow site into which
dialysis needles can be repetitively placed. However, placing the A-V graft
can cause vascular damage that frequently leads to stenosis, limiting its
useful life to about one to three years. Currently, there are no effective
therapies for the treatment of stenosis in A-V grafts.
iNOS Gene Therapy Rationale. The Company believes local production of nitric
oxide by gene therapy has the potential to reduce stenosis and restenosis.
Nitric oxide, a molecule that inhibits smooth muscle cell proliferation and
promotes endothelial cell layer regrowth following vessel damage, is difficult
to administer systemically due to its toxicity and short half-life. To achieve
the local production of nitric oxide, the Company utilizes gene therapy to
deliver the iNOS gene to the site of vascular damage. iNOS catalyzes the
conversion of L-arginine, a common amino acid, to nitric oxide. GenVec and its
collaborators have shown in large animal efficacy models that Ad.iNOS, the
Company's gene therapy product candidate, inhibits the narrowing of damaged
blood vessels.
Ad.iNOS. Ad.iNOS, an adenovirus vector containing the iNOS gene, is intended
for use in combination with stent placement and A-V grafts to prevent
stenosis. This product candidate is designed to enhance the physical
attributes of a stent with locally produced nitric oxide to inhibit
restenosis. Ad.iNOS is in preclinical development for use with stent placement
in CAD and PVD patients following angioplasty. Ad.iNOS is also in preclinical
development to block stenosis which commonly occurs in A-V grafts of renal
dialysis patients. The therapeutic objectives are to mitigate the medical
complications due to vascular damage arising from A-V grafts and to extend the
useful life of the grafts.
GenVec is conducting additional research to evaluate iNOS gene therapies for
other uses, including organ transplants and wound healing. GenVec intends to
establish corporate collaborations to assist in the development and
commercialization of iNOS gene therapy products.
Oncology
Cancer is the second leading cause of death in the U.S. More than a million
newly diagnosed cases of cancer and 500,000 deaths due to cancer are
anticipated this year. Surgery and radiation therapy are typically used to
control localized disease, whereas chemotherapy is often used in patients with
metastatic cancer. Although new treatments of certain cancers have improved
clinical outcomes, many tumors remain refractory to aggressive surgical,
radiological and chemotherapeutic approaches.
Radiation Therapy
Approximately 60% of all cancer patients in the U.S. receive radiation
therapy each year. Even though radiation therapy can be delivered to a
localized area, its therapeutic benefit is often limited by the radiation
damage to surrounding normal tissue. GenVec believes that a potential solution
to this major problem is the use of gene therapy to deliver therapeutic
proteins to the tumor to enhance the antitumor activity of radiation therapy
without increasing toxicity to normal tissue.
Ad.TNFa. TNFa is a potent, immune regulatory protein with demonstrated
clinical antitumor activity. TNFa exerts its effects by binding to receptors
on the surface of cells, including tumor cells and cells of the
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immune system. The clinical utility of TNFa has been limited because systemic
exposure to TNFa causes considerable toxicity. The Company's TNFa-based gene
therapy product candidate, Ad.TNFa is intended to address this problem by
producing high concentrations of TNFa in the target tumor while minimizing
systemic exposure to TNFa. Ad.TNFa is an adenovirus vector that contains the
TNFa gene and a radiation responsive promoter. Ad.TNFa will be injected
directly into the tumor in order to localize production of TNFa at the site of
disease. Since TNFa is a secreted protein, transfection of only a portion of
the tumor cells may be sufficient to produce therapeutic concentrations of
TNFa in the tumor.
The Company expects to develop Ad.TNFa for use in combination with radiation
therapy for the treatment of cancer. GenVec and its collaborators have shown
that Ad.TNFa enhances the antitumor activity of radiation in several animal
models of human cancer. For example, in a human head and neck cancer model,
animals receiving both Ad.TNFa and radiation were observed to have 90% greater
tumor shrinkage than animals receiving either radiation or Ad.TNFa alone.
Although the precise mechanism accounting for the marked increase in
therapeutic effect of radiation is not known, it appears that disruption of
the tumor vasculature is involved. Damage to the blood vessels and rapid
necrosis was evident in the tumors but not in the surrounding normal tissues.
To further enhance the usefulness of Ad.TNFa, a proprietary promoter was
inserted to increase the expression of the TNFa gene during radiation therapy.
The Company licensed rights to the TNFa gene for use in gene therapy in the
United States from Asahi Chemical Industry Co., Ltd. ("Asahi"). GenVec entered
into a corporate collaboration with Varian, a provider of radiation therapy
equipment in the U.S., to enhance the clinical development of Ad.TNFa. The
Company anticipates filing an IND for Ad.TNFa in 1999.
Ad.CD. The toxicity produced following the systemic administration of many
antitumor agents, such as fluorouracil, often limits the amount of drug that
can be administered and, consequently, limits the clinical benefit. Selective
delivery of such drugs to tumors should enhance their effectiveness and reduce
side effects. A strategy to accomplish this is to treat the patient with an
inactive drug that can be activated preferentially in the tumor.
Fluorocytosine is a relatively nontoxic precursor of fluorouracil that can be
converted to fluorouracil by the enzyme CD. Since CD is not normally present
in the body, local delivery of CD to tumors by gene therapy may provide a
method to selectively produce fluorouracil at the tumor sites. GenVec and its
collaborators have shown that injection of Ad.CD, an adenovirus vector
containing the CD gene, into tumors can inhibit their growth if the animal is
also administered fluorocytosine. GenVec has initiated a Phase I/II clinical
study in patients with colorectal cancer metastatic to the liver in which
Ad.CD is injected into the tumor and fluorocytosine is given orally. Since
fluorouracil can sensitize tumors to the therapeutic effects of radiation,
GenVec also intends to evaluate Ad.CD in combination with radiation therapy.
GenVec entered into a license agreement with the National Institutes of Health
for certain gene therapy applications of the CD gene, including the treatment
of cancer using replication deficient viral and synthetic vectors. The Company
is conducting research and development of Ad.CD as part of its corporate
collaboration with Fuso.
Immunotherapy
The Company has entered into a corporate collaboration with Fuso to develop
new gene therapy products for the treatment of human cancer. One of the goals
of this research program is the development of gene therapies that can be used
to treat metastatic cancer by stimulating the body's immune system to seek
out, recognize and kill tumor cells. Gene therapy has the potential to
stimulate specific cells of the immune system, such as dendritic cells, to
recognize tumor antigens. These cells appear to play an important role in
generating a robust antitumor response. Delivery of specific tumor antigens to
the dendritic cells by gene transfer has been shown by the Company's
collaborators to enhance an antitumor immune response. Fuso, GenVec and their
collaborators are conducting a research program aimed at identifying new
product possibilities for the immunotherapy of cancer.
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Neurology
Neurological disorders represent an area of major medical need. Current
treatments often have limited effectiveness, and the complex etiology of these
diseases has slowed the development of new treatments. Additionally, changing
demographics are expected to result in significant increases in the elderly
population in whom certain neurological disorders are most prevalent.
Recent scientific advances have led to the discovery of a number of proteins
and corresponding genes implicated in neurological disorders. As the list of
such therapeutic proteins continues to expand, effective delivery of these
proteins to the specific sites of action may be required to optimize
therapeutic utility. As for other indications, gene therapy offers the
potential advantage of providing protein production at the target site for the
treatment of neurological disorders, while minimizing complications due to
systemic exposure.
GenVec intends to develop products for the treatment of neurological disease
based on the use of HSV vectors. Replication-deficient HSV vectors are
attractive for use in gene therapy because of their ability to enter and
persist in tissues of the nervous system. HSV vectors have an additional
advantage of accommodating larger DNA sequences than most other vectors. The
Company believes medical applications may include the treatment of chronic
pain, spinal cord injury and Parkinson's disease.
GenVec, through sponsored research at the University of Pittsburgh and the
University of Glasgow/Medical Research Council's Institute of Virology, has
engineered HSV vectors for the potential treatment of neurological disorders
and created specialized cell lines for the production of such vectors. GenVec
intends to further develop HSV vectors for the treatment of neurological
disorders.
GENVEC CORE TECHNOLOGIES
Gene therapy products are complex entities comprised of vectors, promoters
and therapeutic genes. Targeting therapeutic genes to specific cell types and
regulating the level and duration of gene expression may be possible with the
appropriate combination of technology. Toward this end, GenVec has established
a portfolio of proprietary technology, including therapeutic genes, advanced
adenovirus and HSV vectors, receptor mediated vector targeting capability and
promoters. The Company seeks to expand product development opportunities by
broadening its technology portfolio through internal research and technology
acquisitions.
Technology Portfolio
GenVec's portfolio of technologies includes genes, vectors, receptor
mediated targeting and promoters.
Genes
VEGF. VEGF is a protein which potently induces angiogenesis and is an
important mediator of the normal angiogenic response to ischemia. VEGF has a
high degree of specificity for endothelial cells. In ischemic conditions, VEGF
binds to receptors found on the endothelial cells which line blood vessels.
This binding triggers a complex series of events, including the replication
and migration of endothelial cells to ischemic sites, as well as their
formation into new blood vessels. The Company has an exclusive license for all
gene therapy applications of the VEGF/121/ gene.
iNOS. iNOS catalyzes the conversion of L-arginine to nitric oxide, a short-
lived molecule with a range of cardiovascular actions, including inhibition of
smooth muscle cell proliferation and promotion of endothelial cell layer
regrowth following vessel damage. The Company believes that the local
production of nitric oxide resulting from iNOS gene therapy has the potential
to be used for multiple vascular damage applications, including the reduction
of restenosis after an angioplasty procedure and stenosis of A-V grafts which
are often used for dialysis in patients with renal disease. The Company has an
exclusive license for all gene therapy applications of the iNOS gene.
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TNFa. TNFa is a potent immune regulatory protein with demonstrated clinical
antitumor activity. It exerts its effects by binding to receptors on the
surface of cells, including tumor cells and cells of the immune system. Since
TNFa is a secreted protein, transfection of only a portion of the tumor cells
may be sufficient to produce therapeutic concentrations of TNFa in the tumor.
GenVec and its collaborators have shown that Ad.TNFa enhances the antitumor
activity of radiation. The Company has a license to all gene therapy
applications of the TNFa gene in the U.S.
CD. CD is an enzyme that converts the relatively nontoxic fluorocytosine to
fluorouracil, an active antitumor agent. In addition, fluorouracil can
sensitize tumors to the therapeutic effects of radiation. The Company has an
exclusive license for certain gene therapy applications of the CD gene,
including the treatment of cancer using replication-deficient viral and
synthetic vectors.
Vectors
Vectors typically serve as the delivery system for carrying the DNA
sequences of therapeutic genes and their corresponding regulatory elements to
cells. These DNA sequences are inserted into a vector that can bind to the
target cell. After binding to the cell surface, the vector is internalized and
transported to the cellular nucleus where the therapeutic gene is used for
protein expression. A variety of vector types with different characteristics
have been developed over the years in an attempt to optimize the outcome of
this gene transfer process. Vectors can be viral or non-viral based, and the
choice of vector type depends on many parameters including the specific
disease, the organ and tissue type involved and the therapeutic gene used.
Each vector has its own set of advantages and disadvantages.
For viral vectors, a number of DNA and RNA viruses (including adenovirus and
HSV) have been developed as potential candidates for safe gene transfer. The
Company believes that in most cases, it is undesirable for these viruses to
freely infect and replicate within the target cell. For this reason, viruses
have been modified through the deletion of certain essential genes to render
them replication-deficient. For non-viral approaches, various synthetic
vectors have been designed using components such as lipids, proteins and DNA
in order to enhance the uptake of genes into cells.
GenVec is currently developing gene therapy products using adenovirus and
HSV as vectors. In addition to the development of technologies which could
improve these viral vectors with regard to safety, efficiency, duration of
gene expression and ease of manufacture, the Company routinely evaluates other
viral and non-viral approaches.
Adenovirus Vectors. Adenoviruses are common DNA viruses that can cause upper
respiratory infections, such as the common cold, in humans. The adenovirus DNA
can be manipulated by standard technology to remove DNA necessary for viral
replication. Therapeutic genes can then be inserted into the modified vector
and efficient gene expression can occur in the absence of viral replication.
Adenovirus vectors have several important features which make them
potentially useful in gene therapy. These vectors can be produced in the high
concentrations necessary for commercial production. In addition, they can
transfer genes to both dividing and non-dividing cells. Adenovirus vectors
have been used for gene transfer in many clinical trials and have an excellent
safety profile. Adenovirus vectors do not integrate into the human DNA,
reducing the risk of toxicity.
After transfection, adenovirus vectors typically express the therapeutic
gene for a few days or weeks, but long-term expression is not usually
observed. This feature is well suited for many applications where acute
expression is desired, such as therapeutic angiogenesis. The Company is
further modifying its adenovirus vectors, as well as evaluating other gene
delivery systems, for use when long-term expression is desired.
GenVec's adenovirus vector development has centered on removing essential
DNA from the adenovirus to alter performance and improve vector manufacture.
In order to produce replication-deficient adenovirus
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vectors, special cell lines must be constructed that contain information
necessary for vector production. These new vectors and cell lines provide the
manufacturing platform from which vectors can be produced for gene therapy
products. Vectors that are deficient in multiple viral genes have an increased
capacity to carry larger therapeutic genes, multiple therapeutic genes or
promoters. By eliminating regions of the adenovirus DNA necessary for viral
replication, as exemplified by GenVec's GV10 and GV11 vectors, potential
safety, production and efficacy advantages may be realized. The expression
profile of a therapeutic gene can be altered using different vectors or
promoters. A goal of GenVec's research program is to develop vectors in which
the expression of a therapeutic gene can be tailored to a specific medical
need.
Herpes Simplex Virus Vectors. HSV readily infects cells of the nervous
system and then persists in a quiescent state in these cells. Because of these
characteristics, the Company is conducting research on the use of these
vectors for the treatment of neurological disease. GenVec has developed novel,
proprietary vectors derived from genetically engineered herpes simplex virus
type I. The strategy for HSV vector development is similar to that for
adenovirus vectors, including the deletion of genes required for viral
replication. The modified HSV vectors are produced in special cell lines that
have been engineered to contain the information needed for vector production.
GenVec has developed a family of proprietary, non-replicating HSV vectors
with different gene expression characteristics and will evaluate these vectors
for a variety of applications, with an initial focus on the treatment of
neurological disorders. Persistent gene expression has also been demonstrated
using certain of the HSV vectors, suggesting that they may have utility when
chronic expression of the therapeutic gene is desired. This technology has
been developed through arrangements with the Universities of Pittsburgh,
Michigan and Glasgow.
Receptor Mediated Targeting
The goal of the Company's receptor mediated targeting program is to develop
vectors that are more efficient and can target specific cell types more
selectively than currently available vectors. The Company believes such
vectors will have significant safety, efficacy and cost advantages.
A number of clinically relevant cells and tissues have been found to express
few or no adenovirus receptors, including skeletal muscle, vascular smooth
muscle, certain endothelial cells and multiple types of tumor cells.
Consequently, these cell types are not as efficiently transfected by
adenovirus vectors as cells which express high levels of adenovirus receptors.
The Company is developing adenovirus vectors with enhanced efficiency and
targeting features by improving their ability to bind to alternative cellular
receptors. For example, binding structures have been incorporated into
adenovirus coat proteins for attachment to specific cellular receptors. Using
this approach, GenVec has developed a vector to bind to specific integrin
receptors present on endothelial cells that has potential for improved
specificity and efficiency when delivered through a vascular route. The
Company has also created certain vectors which have been shown by the Company
and its collaborators to increase transfection to vascular smooth muscle cells
in a porcine restenosis model by over 40-fold. The Company believes that these
and other vectors may have application in the Company's therapeutic
angiogenesis, vascular damage and oncology programs.
Promoters
The goal of GenVec's promoter program is to tailor gene expression to the
specific needs of its potential products. Promoters strongly influence the
level and duration of therapeutic gene expression induced by gene therapy
vectors. GenVec believes its promoter technology will be important in matching
therapeutic gene expression to the desired actions of the corresponding
therapeutic protein. For example, promoters that restrict expression of the
therapeutic gene to a target tissue, such as the heart, may be useful in the
treatment of cardiovascular disease.
GenVec is using its proprietary radiation-induced promoter technology to
increase the expression of the TNFa gene in tumors receiving radiation
therapy. In normal tissues that do not receive exposure to radiation,
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expression of TNFa would not be induced. This approach is intended to enhance
the efficacy of the Ad.TNFa product candidate while reducing the likelihood of
side effects. GenVec is also developing promoters for use in HSV vectors that
produce long-term gene expression in cells of the nervous system for potential
use in products for the treatment of neurological disorders. By combining the
appropriate vector, promoter and therapeutic gene, GenVec believes products
with improved therapeutic effects can be developed.
STRATEGIC ALLIANCES
Corporate Collaborations
To enhance the evaluation, development and commercialization of product
opportunities, GenVec intends to continue to establish corporate
collaborations. These corporate collaborations may reduce financial risk to
the Company and provide for a continued stream of cash flow. The Company
strives to retain various rights in its corporate collaborations to
participate in the manufacturing and commercialization of products, as
appropriate. Over time, and as the Company establishes or acquires increased
internal capabilities, the Company may elect to work more independently with
respect to the development and commercialization of specific product
opportunities. There can be no assurance that any of the Company's corporate
collaborations will result in the successful development or commercialization
of any technologies or products or that the Company will receive any milestone
payments or royalties from any of these corporate collaborations.
Warner-Lambert Company
In July 1997, the Company entered into a collaboration agreement and stock
purchase agreement with Warner-Lambert to develop and commercialize gene
therapy products incorporating the VEGF gene for therapeutic angiogenesis
("Collaboration Products"). Under the terms of these agreements, the Company
may receive a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. Under the collaboration agreement, GenVec has the potential to
receive $25.0 million in research funding, of which $6.0 million, $6.0
million, $5.0 million, $4.0 million and $4.0 million will be paid in years 1,
2, 3, 4 and 5 of the collaboration, respectively. GenVec also has the
potential to receive $25.0 million in milestone payments related to the
development of Collaboration Products for each of CAD and PVD. Through April
20, 1998, Warner-Lambert had paid the Company $4.0 million with respect to
such milestone payments, of which the Company had recognized revenues of $2.0
million for the year ended December 31, 1997 and $2.0 million for the three
month period ended March 31, 1998. Additional milestone payments will be paid
to the Company upon the achievement of events related to the conduct of
pivotal clinical studies, and filing for and receiving regulatory approvals to
market Collaboration Products. In the aggregate, Warner-Lambert had paid to
the Company $9.5 million in technology access fees, and research funding
through April 20, 1998, of which the Company recognized revenues of $8.0
million for the year ended December 31, 1997 and $1.5 million for the three
month period ended March 31, 1998. Pursuant to the stock purchase agreement,
Warner-Lambert purchased $2.0 million of the Company's capital stock in
December 1997, has agreed to purchase $5.0 million of the Company's Common
Stock in a private transaction concurrent with this offering, and is required
to purchase, at the election of the Company, up to an additional $18.0 million
of the Company's capital stock upon the achievement of certain milestones. The
purchase price for all of these equity investments is 125% of the fair market
value of the securities. Upon the closing of this offering and the concurrent
private transaction, Warner-Lambert will own approximately 6.9% of the
Company's Common Stock.
The focus of the initial research and development effort is on any potential
application of the Collaboration Products, including CAD and PVD. Prior to
July 1999, Warner-Lambert may elect to retain indications in addition to CAD
and PVD. In that event, GenVec would receive additional research and
development funding, and the structure of any royalty and milestone payments
would be essentially the same as that covering the initial indications.
Under the collaboration agreement, GenVec granted to Warner-Lambert an
exclusive, royalty-bearing license to sell Collaboration Products worldwide,
excluding Asia, subject to the Company's right to co-promote. Warner-Lambert
is responsible for the costs of developing and commercializing any
Collaboration Products worldwide, excluding Asia, provided the Company will be
responsible for certain expenses if it elects
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to exercise its co-promotion right. GenVec retains the right to co-promote
Collaboration Products for any indications other than PVD in the United States
and Canada. In addition, the Company has retained all rights to develop and
commercialize Collaboration Products discovered outside of the designated
fields of research, as well as the option to manufacture bulk quantities of
Collaboration Products. Neither party may sell or commercialize any product
with the same mechanism of action as BIOBYPASS angiogen that would compete
with a Collaboration Product. Between July 1999 and July 2000, Warner-Lambert
has certain negotiation rights with regard to the development and
commercialization of VEGF gene therapy products not retained by Warner-
Lambert.
Warner-Lambert's research and development funding obligations extend through
2002, although Warner-Lambert may terminate the research program under the
collaboration agreement with six months written notice after July 21, 2000.
Both parties have the right to terminate the collaboration agreement for
breach. The collaboration agreement expires on a Collaboration Product-by-
Collaboration Product and country-by-country basis until neither party has any
remaining royalty obligations. The stock purchase agreement terminates upon
the termination of the collaboration agreement. An Executive Committee
comprising of three representatives from each of the Company and Warner-
Lambert oversees and manages the collaboration.
Fuso Pharmaceuticals Industries, Ltd.
In September 1997, GenVec and Fuso established a collaboration to conduct
research and to identify, evaluate and develop gene therapy products for the
treatment of cancer. If the research program continues for its full term, Fuso
is required to provide $1.0 million in research funding annually for five
years, of which $750,000 will be paid to the Company each year. Fuso has the
right to terminate the collaboration after the second anniversary of the
collaboration upon 90 days prior written notice. In connection with
establishment of the collaboration, Fuso purchased 75,329 shares of the
Company's Class E Convertible Preferred Stock for an aggregate purchase price
of approximately $1.0 million.
As part of the collaboration, GenVec granted Fuso an exclusive, royalty-
bearing license to develop and commercialize products developed under the
collaboration for the treatment of cancer in Japan and at Fuso's option, Korea
and Taiwan. Fuso will be responsible for the development and commercialization
of any products in its territory. GenVec will receive additional payments for
the achievement by Fuso of specified product development and regulatory
milestones, with the earliest of such payments not expected in the near term.
The Company will also receive royalties on the sale of any such products
commercialized by Fuso. GenVec has retained all rights to develop and
commercialize such products for the treatment of cancer in the rest of the
world, and for all other uses worldwide, subject to certain restrictions,
independently and with third parties.
Varian Associates, Inc.
In March 1998, the Company and Varian entered into a three-year
collaborative agreement in the field of radiation and gene therapy. Under the
agreement, the parties will collaborate on the preclinical and clinical
research and development of specific products and technology, with the goal of
developing novel, improved therapies based on the combined use of radiation
therapy and gene therapy products. Varian will have primary responsibility for
the development of equipment and software for delivery of targeted radiation
therapy, and the Company will have primary responsibility for developing gene
therapy products. The Company and Varian are responsible for their respective
costs in conducting collaborative activities and have no other monetary
obligations under the agreement. In addition, the Company and Varian each
retain the right to develop and commercialize their respective products and
technologies independently or with third parties.
Selected Academic Collaborations and Technology Licenses
GenVec's objective is to create multiple innovative products that meet major
medical needs. To accomplish this objective, the Company combines its core
technology development activities with acquisitions and licensing of its
business technologies, including therapeutic genes, from various sources. In
addition to
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the contractual arrangements described below, the Company funds research in
laboratories of leading authorities at several academic institutions for the
development of new technologies and the conduct of preclinical and clinical
activities. The Company generally establishes exclusive license agreements
with these and other institutions to obtain the benefits of any intellectual
property invented in connection with such funded activities. There can be no
assurance that the Company's academic collaborations will result in the
successful development or commercialization of any technologies or products.
Cornell University
In May 1993, the Company entered into a five-year sponsored research
agreement with Cornell University for activities to be conducted in the
laboratory of Dr. Ronald G. Crystal at the Cornell Medical Center.
Upon expiration in March 1998 of the May 1993 agreement, the Company and
Cornell University entered into a new, four-year sponsored research agreement
for the conduct of preclinical and clinical research in the laboratory of Dr.
Crystal. Under the terms of the new agreement and subject to certain
termination rights, GenVec has committed to pay approximately $3.6 million in
sponsored research during an initial two and a half year period. The Company
retains the option to exclusively license inventions arising from the
sponsored research activities.
The University of Pittsburgh
In June 1996, GenVec signed an agreement with the University of Pittsburgh
providing the Company with an exclusive, worldwide license to all gene therapy
applications of the human iNOS gene. The Company will make future payments
based on the achievement of specified regulatory milestones and will share
with the University of Pittsburgh certain profits the Company realizes from
the research, development and commercialization of products incorporating the
iNOS gene. GenVec has agreed to provide a minimum royalty on the sale of these
products, which royalties are creditable against the profits to be shared. In
addition, the Company granted the University of Pittsburgh a warrant to
purchase 101,694 shares of the Company's Common Stock, which shall vest upon
the earlier of the achievement of specified product development and regulatory
milestone events or certain dates. In June 1996, GenVec also entered into a
two-year sponsored research agreement to fund the research of iNOS in Dr.
Timothy Billiar's laboratory at the University of Pittsburgh School of
Medicine.
In addition, the Company has separate sponsored research arrangements and a
license agreement with the University of Pittsburgh relating to HSV vector
technology.
Scios, Inc.
In May 1996, the Company entered into an exclusive, worldwide license
agreement with Scios for rights to all gene therapy applications of its
proprietary form of the VEGF gene. The parties will share in certain profits
the Company realizes from the research, development and commercialization of
products incorporating the VEGF gene. GenVec has agreed to provide a minimum
royalty on revenues generated from the development of these products, which
are creditable against the profits to be shared. In connection with the
license agreement, Scios purchased 96,852 shares of the Company's Class D
Convertible Preferred Stock for an aggregate purchase price of $1.0 million.
In addition, the Company granted Scios a warrant to purchase 211,864 shares of
the Company's Common Stock at an exercise price of $13.275 per share. The
warrant is subject to vesting as follows: 75% of the shares subject to the
warrant have vested as of March 31, 1998 and the remainder will vest by June
30, 1999 or earlier upon achievement of specified product development
milestone events. The warrant remains outstanding as of March 31, 1998.
Asahi Chemical Corporation
In February 1998, the Company entered into a license agreement with Asahi
for the rights in the United States to all gene therapy applications of the
TNFa gene. The Company paid Asahi a fee upon the execution of the agreement,
and will make future payments of up to an aggregate of $300,000 based upon the
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achievement of specified product development and regulatory milestones. Under
the agreement, the Company will also pay to Asahi royalties on sales of
products in the United States incorporating the TNFa gene.
INTELLECTUAL PROPERTY
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. In addition, patent law, and particularly patent
law relating to the gene therapy field, is still evolving. Development and
commercialization of the Company's product candidates and any potential
products will require, among other things, the integration of genes, vectors
and promoters with a delivery mechanism and the development of commercially
viable manufacturing processes. The Company's commercial success will be
dependent in part upon achieving such integration and development without
infringing the proprietary rights of others and upon obtaining intellectual
property protection that will give the Company's products an exclusive market
position.
The Company and its licensors have obtained patents and continue to seek
patent protection for technologies which may relate to the Company's product
candidates and potential products, as well as technologies which may prove
useful for future products, including technologies related to the VEGF/121/
gene, the iNOS gene, the TNFa gene, the CD gene, adenovirus and HSV vector
components, cell lines, viral targeting technology and promoters. As of March
31, 1998, the Company held or had licenses to 154 issued, allowed or pending
patents worldwide, of which 28 are issued or allowed in the U.S. Of those
patents, the Company has been granted an exclusive license for all gene therapy
applications under two United States patents relating to the VEGF/121/ gene and
the use thereof, an exclusive license in the field of gene therapy under two
United States patents relating to the human iNOS gene and the use thereof, and
an exclusive license in the field of gene therapy for the treatment of cancer
and restenosis, but excluding applications which utilize viral-based delivery
systems which are replication competent, under two United States patents
relating to the CD gene and the use thereof. The Company has also been granted a
nonexclusive license under the U.S. patent relating to the TNFa gene and the use
thereof. In addition, the Company and its licensors have patent applications
pending in Europe, Japan and other countries. In furtherance of its current and
prospective business, the Company anticipates that it and its current and future
licensors will continue to seek to improve existing technologies and to develop
new technologies and, when possible, secure patent protection for such
improvements and new technologies.
Certain intellectual property components used in developing gene therapy
products, such as certain vectors and promoters used by the Company and
others, are in the public domain. As a result, the Company is unable to obtain
patent protection with respect to such components and third parties can freely
use such components. There can be no assurance that third parties will not
develop products using such components that compete with the Company's
potential products.
There can be no assurance that any of the pending patent applications owned
or licensed by the Company contain patentable and enforceable claims or will
result in valid issued patents, that the claims of any issued patents or any
patents issued in the future are valid and enforceable and will provide
meaningful protection, that the Company or its collaborators will develop
additional proprietary technologies that are patentable, or that any patents
now or in the future licensed or issued to the Company or its collaborators
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
licensed or issued to the Company, design around or otherwise circumvent the
patented technologies or other intellectual property licensed to or developed
by the Company. For example, while the Company has an exclusive license under
two United States patents relating to the VEGF/121/ gene and the use thereof for
gene therapy applications, third parties have patents for other forms of the
VEGF gene and such third parties or their licensees may develop products using
such other forms of the VEGF gene. There can be no assurance that products based
on such other forms of the VEGF gene or based upon other growth factors will not
be functionally equivalent to or better than the Company's proposed products, or
that such other products will not be more commercially
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successful than any products commercialized by the Company or its
collaborators for other reasons, such as superior marketing or lower costs.
Similarly, other parties hold patents for other nitric oxide synthase, tumor
necrosis factor and CD genes. Patents and patent applications of the Company,
its collaborators and its licensors may become involved in interferences,
oppositions or similar proceedings and there can be no assurance that such
patents and patent applications will survive, in whole or in part, such
proceedings. No assurance can be given that patents issued to the Company, its
collaborators or its licensors, if any, will not be contested, narrowed,
revoked or invalidated. Academic collaborators and the U.S. government may
retain certain rights in intellectual property, including patents and patent
applications, developed by such academic collaborators.
While the Company has not conducted freedom to use patent searches on
aspects of its product candidates and potential products and may therefore be
unaware of relevant patents and patent applications of third parties, the
Company is aware of several United States patents and patent applications and
foreign patents and patent applications owned by third parties relating to
gene therapy, promoters, cell lines, vectors and delivery mechanisms which do
or may cover aspects of the Company's product candidates and potential
products or their use or manufacture, including BIOBYPASS angiogen, as well as
other aspects of the Company's technology. Because patent applications are
maintained in secrecy in the United States, the Company cannot be certain that
third parties have not filed applications relating to technology being
developed by the Company or its collaborators or technology covered by patents
or patent applications of the Company, its collaborators or its licensors.
Certain third-party patent applications contain broad claims, and it is not
possible to determine whether or not such claims will be narrowed during
prosecution or will issue as patents, even if the claims appear to encompass
prior art or have other defects. The Company, its collaborators or its
licensors may choose to oppose or challenge third-party patents and patent
applications and such an opposition or challenge can be expensive and time
consuming. There can be no assurance that any opposition or challenge will be
successful. There can also be no assurance that the development, manufacture,
use, offer for sale, sale or importation of the Company's product candidates
and potential products by the Company or its collaborators will not infringe
claims of these or other issued patents, or claims that may issue from these
or other applications or that a third party will not threaten or file an
infringement action.
If the Company or one of its collaborators brings a patent infringement
action or otherwise brings an action to protect proprietary rights against
third parties or is required to defend against a charge of patent infringement
or a charge of infringement of other intellectual property rights, substantial
costs could be incurred and such actions could result in a significant
diversion of management's time and attention. In addition to being a potential
party to patent infringement litigation, the Company is involved in an
interference proceeding relating to a pending patent application pertaining to
the treatment of blood vessel injury licensed by the Company from the NIH and
a pending patent application of the University of Michigan. An adverse
resolution of such interference proceeding would restrict or eliminate the
scope of the license granted by NIH to GenVec, which the Company believes
would not have a material adverse effect on the Company's current product
candidates. The Company believes it will become involved in additional
interference proceedings declared by the United States Patent and Trademark
Office or opposition proceedings in a foreign patent office. The adverse
resolution of potential proceedings could have a material adverse effect on
the Company's product candidates. The Company intends to provoke interference
proceedings where it believes such actions to be necessary to protect its
intellectual property rights. There can be no assurance that the Company will
be successful in provoking such proceedings or that the Company will achieve a
favorable outcome. Patent infringement actions and other intellectual property
litigation, as well as participation in interference or opposition
proceedings, can be expensive and time-consuming, even in those instances in
which the outcome is favorable to the Company. There can be no assurance that
the Company or its collaborators will prevail in any such litigation or
proceedings. The Company and its licensors obtain intellectual property,
including biological material and know-how, from third parties pursuant to
various agreements and arrangements. Third parties may challenge the
intellectual property rights of the Company or its licensors or claim
ownership of intellectual property developed by the Company or its
collaborators. The Company could incur substantial expenses in contesting such
claims, whether successful or not.
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The Company has certain licenses and believes that it or its collaborators
will be required to obtain additional licenses under third-party patents and
patent applications to continue research and development and to commercialize
the Company's product candidates and potential products, and there can be no
assurance that any such license will be made available on commercially viable
terms, if at all. If the Company is unable to obtain a license it may be
required to use an alternate technology or product and this may result in a
delay in FDA approval. In addition, licensors may terminate existing or future
license agreements, or terminate the exclusive nature of such agreements, if
the Company fails to meet specified milestones or other events. Any
termination of a license, or any failure of the Company or its collaborators
to obtain any required license on reasonable terms or at all, or the failure
to maintain the exclusivity of the Company's exclusive licenses, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's product candidates and potential products
will require several components that may each be the subject of a license
agreement. The cumulative license fees and royalties for these components may
make the commercialization of such product candidates and potential products
uneconomical.
The Company may rely on trade secret protection and confidentiality
agreements to protect its interests. It is the Company's policy to require its
employees, consultants, contractors, manufacturers, collaborators and other
advisors to execute confidentiality agreements upon the commencement of
employment, consulting or collaborative relationship with the Company. The
Company also requires signed confidentiality agreements from any entity that
is to receive confidential data. In the case of employees, consultants and
contractors, the agreements generally provide that all inventions made by the
individual while rendering individual services to the Company shall be
assigned to the Company as the property of the Company. Nevertheless, there
can be no assurance that proprietary information will not be disclosed, that
others will not independently develop substantially equivalent proprietary
information or otherwise gain access to the Company's trade secrets, or that
the Company can meaningfully protect its trade secrets. In the case of a
collaborative arrangement which requires the sharing of information, the
Company's policy is to make available to its collaborator only such
information as is relevant to the arrangement, under controlled circumstances,
and only during the contractual term of the collaborative arrangement, and
subject to a duty of confidentiality on the part of its collaborator. There
can be no assurance, however, that such measures will adequately protect the
Company's information. Any material leak of confidential information into the
public domain or to third parties may have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Intellectual Property."
SCIENTIFIC ADVISERS
The Company has established a select group of scientists and clinicians as
its Scientific Advisory Board ("SAB") to advise the Company on scientific and
technical matters. The Company also consults with teams of scientists and
clinicians on scientific and technical matters for each of the Company's
anticipated product areas. The scientific advisers are generally compensated
by retainer or on a time and expense basis, and certain of them have received
shares of or options to purchase the Company's Common Stock. The Company has
entered into consulting agreements with a number of the scientific advisers.
Scientific Advisory Board
The SAB includes:
Jan L. Breslow, M.D., Frederick Henry Leonhardt Professor, The Rockefeller
University, New York. Dr. Breslow is a member of the National Academy of
Sciences and a former President of the American Heart Association. Dr. Breslow
received his M.D. from Harvard Medical School.
Ronald G. Crystal, M.D., Bruce Webster Professor of Internal Medicine at
Cornell University Medical College, Chief of the Division of Pulmonary and
Critical Care Medicine at The New York Hospital-Cornell Medical Center and
Director of the Gene Therapy Core Facility at Cornell University Medical
College. Dr. Crystal is the Chairman of the SAB and a founder of the Company.
Dr. Crystal received his M.D. from the University of Pennsylvania.
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<PAGE>
Joseph C. Glorioso III, Ph.D., William S. McEllroy Professor of Biochemistry
and Chairman, Department of Molecular Genetics and Biochemistry, University of
Pittsburgh School of Medicine, Director of the Pittsburgh Human Gene Therapy
Center, Founding Board Member and Treasurer of the American Society of Gene
Therapy and the U.S. Editor for Gene Therapy. Dr. Glorioso received his Ph.D.
in Microbiology from Louisiana State University.
Samuel Hellman, M.D., A.N. Pritzker Distinguished Service Professor,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Hellman was formerly Dean for the Medical Center and Physician-in-Chief of the
Memorial Sloan-Kettering Cancer Center. Dr. Hellman received his M.D. from the
State University of New York, College of Medicine at Syracuse.
Cardiovascular Medicine
Timothy R. Billiar, M.D., Watson Professor of Surgery, University of
Pittsburgh School of Medicine. Dr. Billiar received his M.D. from the
University of Chicago.
Jan L. Breslow, M.D., Frederick Henry Leonhardt Professor, The Rockefeller
University, New York. Dr. Breslow is a member of the National Academy of
Sciences and a former President of the American Heart Association. Dr. Breslow
received his M.D. from Harvard Medical School.
Maurizio C. Capogrossi, M.D., Chief, Laboratory of Vascular Pathology,
Instituto Dermopatico dell'Immacolata, Rome, Italy. Dr. Capogrossi received
his M.D. from the Universita Statale "La Sapienza" in Rome, Italy.
Delos M. Cosgrove, M.D., Chairman of the Department of Thoracic and
Cardiovascular Surgery, The Cleveland Clinic Foundation, Cleveland, Ohio. Dr.
Cosgrove received his M.D. from the University of Virginia School of Medicine.
Todd K. Rosengart, M.D., Associate Professor of Cardiothoracic Surgery,
Cornell University Medical College, New York. Dr. Rosengart received his M.D.
from Northwestern University.
Eric J. Topol, M.D., Chairman of the Department of Cardiology and Director,
Joseph J. Jacobs Center for Thrombosis and Vascular Biology, The Cleveland
Clinic Foundation, Cleveland, Ohio. Dr. Topol received his M.D. from the
University of Rochester School of Medicine and Dentistry, Rochester, New York.
Jeffrey D. Trachtenberg, M.D., Attending Assistant Professor of Surgery,
University of Pittsburgh School of Medicine. Dr. Trachtenberg received his
M.D. from the State University of New York. His general surgery and vascular
surgery training were conducted at Washington University, St. Louis, Missouri.
Oncology
Albert B. Deisseroth, M.D., Ph.D., Ensign Professor of Medicine, Chief of
Medical Oncology, Yale University School of Medicine, New Haven, Connecticut.
Dr. Deisseroth received his M.D. and Ph.D. from the University of Rochester
School of Medicine and Dentistry, Rochester, New York.
Samuel Hellman, M.D., A.N. Pritzker Distinguished Service Professor,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Hellman was formerly Dean for the Medical Center and Physician-in-Chief of the
Memorial Sloan-Kettering Cancer Center. Dr. Hellman received his M.D. from the
State University of New York, College of Medicine at Syracuse.
Donald W. Kufe, M.D., Professor of Medicine, Harvard Medical School, Chief,
Cancer Pharmacology, Department of Adult Oncology, Dana-Farber Cancer
Institute and Deputy Director of the Dana-Farber Cancer Center, Boston,
Massachusetts.
Tsuneya Ohno, M.D., Ph.D., Jikei University School of Medicine, Tokyo, Japan
and Chairman, the Study Group for Gene Therapy in Japan. Dr. Ohno received his
M.D. from the Jikei University School of Medicine in Tokyo, Japan and his
Ph.D. in Molecular Biology from Keio University in Tokyo, Japan.
43
<PAGE>
Ralph R. Weichselbaum, M.D., Harold H. Hines, Jr. Professor and Chairman,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Weichselbaum is a member of the Institute of Medicine of the National Academy
of Sciences. Dr. Weichselbaum received his M.D. from the University of
Illinois.
Herpes Virus Vectors
Neal A. DeLuca, Ph.D., Professor, Department of Molecular Genetics and
Biochemistry, University of Pittsburgh. Dr. DeLuca received his Ph.D. in
Biophysics from the Pennsylvania State University.
David J. Fink, M.D., Professor of Neurology and Professor of Molecular
Genetics and Biochemistry, the University of Pittsburgh Medical School. Dr.
Fink received his M.D. from Harvard Medical School.
Joseph C. Glorioso III, Ph.D., William S. McEllroy Professor of Biochemistry
and Chairman, Department of Molecular Genetics and Biochemistry, University of
Pittsburgh School of Medicine, Director of the Pittsburgh Human Gene Therapy
Center, Founding Board Member and Treasurer of the American Society of Gene
Therapy and the U.S. Editor for Gene Therapy. Dr. Glorioso received his Ph.D.
in Microbiology from Louisiana State University.
Christopher Preston, Ph.D., Band 2 Scientist, Non-Clinical Scientific Staff
at the Institute of Virology, Glasgow. Dr. Preston received his Ph.D. in
Biochemistry at the University of Cambridge.
Adenovirus Vectors
Min Li, Ph.D., Assistant Professor of Neuroscience, John Hopkins University
School of Medicine. Dr. Li received his Ph.D. in Molecular Biology and
Genetics from the John Hopkins University School of Medicine.
Charles S. H. Young, D.Phil., Professor of Microbiology, Columbia
University. Dr. Young received his D.Phil. in Yeast Genetics from Oxford
University.
COMPETITION
Competition among entities attempting to identify and develop new therapies
is intense. The Company faces, and will continue to face, competition from
pharmaceutical and biotechnology companies, academic and research institutions
and government agencies, both in the United States and abroad. Many of the
Company's competitors have substantially greater capital resources, research
and development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than the Company. Future competition
will likely come from existing competitors (including competitors with rights
to proprietary forms of the VEGF gene and other genes the Company currently
uses in its product candidates), as well as other companies seeking to develop
new treatments. Competitors or their academic collaborators may identify
important genes or delivery mechanisms before the Company, or develop gene
therapies that are more effective than those developed by the Company or its
corporate collaborators, or obtain regulatory approvals of their drugs more
rapidly than the Company or its corporate collaborators. Moreover, there can
be no assurance that the Company's competitors will not obtain patent
protection or other intellectual property rights that would limit the
Company's or its collaborators' ability to use the Company's gene therapy
technologies. Any of these events could materially and adversely affect the
Company's business, financial condition and results of operations.
The Company will rely on its corporate collaborators for support of certain
of its enabling technologies and intends to rely on its corporate
collaborators for preclinical and clinical development of related potential
products and the manufacturing and marketing of such products. Generally, the
Company's strategic alliance agreements do not preclude the corporate
collaborator from pursuing development efforts utilizing approaches distinct
from that which is the subject of the alliance. Product candidates of the
Company, therefore, may be subject to competition with a potential product
under development by a corporate collaborator. See "Risk Factors--Reliance on
Warner-Lambert and Other Corporate Collaborators."
44
<PAGE>
Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers
development expenses. Products developed by the Company could be made obsolete
by less expensive or more effective technologies, even technologies unrelated
to gene therapy. For example, competitors may also develop small molecule,
protein, antisense or other therapeutic or surgical approaches that may
compete with or obviate the need for the Company's products. There can be no
assurance that the Company will be able to make the enhancements to its
technology necessary to compete successfully with existing or newly emerging
technologies. See "Risk Factors--Intense Competition."
MANUFACTURING
The Company has limited experience in manufacturing and currently lacks the
resources or capability to manufacture any of its product candidates on a
commercial scale. It currently has a research facility for the production of
its product candidates for preclinical purposes and relies on third-party
manufacturers of its product candidates for clinical purposes. For the
Company's lead product, BIOBYPASS angiogen, Warner-Lambert has the right to
fill and finish the final product. However, production of BIOBYPASS angiogen
for future clinical trials and possible commercialization is currently
intended to be performed primarily through a third-party manufacturer. The
Company currently intends to rely primarily on corporate collaborators and
third-party manufacturers for clinical and commercial purposes. If a third-
party manufacturer cancels or terminates an existing relationship or if the
Company is unable to contract for or obtain a sufficient supply of its product
candidates on acceptable terms, there could be significant reductions in sales
and delays in bringing the Company's product candidates to market, as well as
delays in the Company's clinical testing schedule, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, it is anticipated that production of the
Company's product candidates will be based in part on proprietary technology
of the Company. Successful technology transfer will be necessary. There can be
no assurance that manufacturers will abide by any limitations or
confidentiality restrictions on licenses with the Company. In addition, any
such manufacturer may develop process technology related to the manufacture of
the Company's compounds that such manufacturer owns either independently or
jointly with the Company. This would increase the Company's reliance on such
manufacturer or require the Company to obtain a license from such manufacturer
in order to have its products manufactured. There can be no assurance that any
such license would be available on terms acceptable to the Company, if at all.
Further, there can be no assurance that the arrangements with third-party
manufacturers will be successful.
Successful large-scale manufacturing of gene therapy products has yet to be
demonstrated by any third party, and it is anticipated that significant
process development changes will be necessary for the commercial process. For
example, changes in the current production process will be required for any
commercial manufacture of BIOBYPASS angiogen. There can be no assurance that
the Company or any third party will be able to manufacture commercial-scale
quantities of gene therapy products, or receive appropriate governmental
approvals on a timely basis or at all. Failure to manufacture successfully or
to obtain appropriate government approvals on a timely basis would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, the Company intends to continue to develop its own
manufacturing capability, which will require significant resources and will be
subject to ongoing government approval and oversight. There can be no
assurance that the Company's efforts in this regard will be successful. See
"Risk Factors--Manufacturing Limitations" and "Risk Factors--Government
Regulation; No Assurance of Regulatory Approval."
GOVERNMENT REGULATION
Prior to marketing, any products developed by the Company or its corporate
collaborators must undergo an extensive regulatory approval process in the
United States and other countries. This regulatory process, which includes
preclinical studies and clinical trials, and may include post-marketing
surveillance of each compound to establish its safety and efficacy, can take
many years and require the expenditure of substantial
resources. Data obtained from preclinical studies and clinical trials are
subject to varying interpretations that
45
<PAGE>
could delay, limit or prevent regulatory approval. Delays or rejections may
also be encountered based upon changes in FDA policies for drug approval
during the period of product development and FDA regulatory review. Similar
delays may also be encountered in obtaining regulatory approval in foreign
countries. Delays in obtaining regulatory approvals could adversely affect the
marketing of any drugs developed by the Company or its corporate
collaborators, impose costly procedures upon the Company's or its corporate
collaborators' activities, diminish any competitive advantages that the
Company or its corporate collaborators may attain and adversely affect the
Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for products developed by the Company or its
corporate collaborators. Furthermore, regulatory approval may entail
limitations on the indicated uses of a proposed product. Because certain of
the Company's product candidates involve the application of new technologies
and may be based upon a new therapeutic approach, such products may be subject
to substantial additional review by various government regulatory authorities,
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon more conventional technologies. The Company's product
candidates may require a delivery device and such product and device may be
subject to separate regulatory review, which could also delay regulatory
approval.
The Company believes that the commercial uses of its products will be
regulated as biologics by the FDA and comparable regulatory bodies of other
countries. Gene therapy is, however, a relatively new technology, and the
regulatory requirements governing gene therapy products are uncertain. This
uncertainty may result in excessive costs or extensive delays in the
regulatory approval process, adding to the already lengthy review process for
human therapeutic products in general. The Company is not aware of any gene
therapy products that have received marketing approval from the FDA or any
comparable regulatory body of any other country. The regulation of the
Company's products and its ongoing research is subject to change, and future
legislative or administrative acts in the United States or other countries
could have a material adverse effect on the Company's business, financial
condition and results of operations. Regulatory requirements ultimately
imposed could adversely affect the ability of the Company's corporate
collaborators to clinically test, manufacture or market products, and could
significantly delay or reduce the milestone or royalty payments payable to the
Company.
In order to obtain FDA approval of a new biological product, the Company
must submit substantial evidence of safety, purity, potency and efficacy.
The FDA approval process for a new biological drug involves completion of
pre-clinical studies which include laboratory tests and animal studies to
assess safety and effectiveness of the drug. Among other things, the results
of these studies as well as how the product will be manufactured are submitted
to the FDA as part of an IND application and, unless the FDA objects, the IND
becomes effective 30 days following receipt by the FDA. Human clinical trials
may then be conducted. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials or that approval
of an IND will result in subsequent approval of the drug. The results of the
clinical trials are submitted to the FDA as part of a BLA. Product sales may
only commence if the BLA is approved. Regulatory requirements for obtaining
FDA approval are rigorous and there can be no assurance that such approvals
will be obtained on a timely basis or at all.
Human clinical trials are typically conducted in three sequential phases,
but the phases may overlap. Phase I trials consist of testing the product in a
small number of patients primarily for safety at one or more dosage levels. In
Phase II, in addition to safety, the efficacy of the product is typically
evaluated in a patient population slightly larger than is used in Phase I
trials, and appropriate dosage is established. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
patient population at geographically dispersed test sites, and with the dosage
that will be submitted for approval. A clinical plan, or "protocol,"
accompanied by the approval of the institutional review board at the
institution participating in the trials, and patient-informed consent forms
must be submitted to and approval by the FDA prior to commencement of each
clinical trial. The FDA may order the temporary or permanent discontinuation
of a clinical trial at any time if it believes patient safety is at risk. The
Company's regulatory strategy is to seek input from the FDA at all stages of
clinical testing and manufacturing process development.
The results of the pre-clinical and clinical studies on biological drugs are
submitted to the FDA in the form of a BLA for approval to commence commercial
sales. After completion of the FDA's preliminary review
46
<PAGE>
of the BLA submission, the submission is sent to an FDA selected scientific
advisory panel composed of physicians and scientists with expertise in the
particular field. The FDA scientific advisory panel issues a recommendation to
the FDA that may include conditions for approval of the BLA. Although the
recommendation is not binding, the FDA generally follows an advisory panel's
advice. Toward the end of the BLA review process, the FDA will conduct an
inspection of the manufacturer's facilities to ensure that they are in
compliance with the applicable cGMPs requirements. If the FDA evaluation of
the manufacturing facilities contained in the BLA application are favorable,
the FDA will issue an approval letter, which usually contains a number of
conditions which must be met in order to secure final approval. In responding
to the BLA, the FDA may grant marketing approval, require additional testing
or information, or deny the application. Governmental approval of products
developed by the Company may entail limitations on the indicated uses for
which such products may be marketed. Continued compliance with all FDA
requirements and the conditions in an approved application, including product
specification, manufacturing process, labeling and promotional material and
record keeping and reporting requirements, is necessary for all products.
Failure to comply, or the occurrence of unanticipated adverse effects during
commercial marketing, could lead to the need for product recall or other FDA-
initiated action, which could delay further marketing until the products are
brought into compliance.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, and could have a material adverse effect on the Company's business,
financial condition and results of operations. Violations of regulatory
requirements at any stage during the regulatory process, including preclinical
studies and clinical trials, the approval process, post-approval or in GMP,
may result in various adverse consequences to the Company, including the FDA's
delay in approval or refusal to approve a product, withdrawal of an approved
product from the market or the imposition of criminal penalties against the
manufacturer and license holder. There can be no assurance that the Company or
its corporate collaborators will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Further, the terms of approval of any marketing application,
including the labeling content, may be more restrictive than the Company
desires and could affect the marketability of the Company's proposed products.
Failure to obtain required governmental approvals will delay or preclude the
Company or its corporate collaborators from marketing products or limit the
commercial use of such products and could have a material adverse effect on
the Company's business, financial condition and results of operations. The
President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the biologic
provisions of the FDC Act. The Company cannot predict how or what effect the
changes will have on the regulation of the Company's products. There can be no
assurance that the new legislation will not impose additional costs or
lengthen review times for the Company's products. See "Risk Factors--
Government Regulation; No Assurance of Regulatory Approval."
EMPLOYEES
As of March 31, 1998, the Company had a total of 54 employees, 16 of whom
hold M.D. or Ph.D. degrees and 15 of whom hold other advanced degrees. Of
these, 38 were engaged in research and development and 16 were engaged in
business development, finance and general administration. The Company's future
success depends in significant part upon the continued service of its key
scientific, technical and senior management personnel and its continuing
ability to attract and retain highly qualified technical and management
personnel. None of the Company's employees is represented by a labor union or
covered by a collective bargaining agreement. The Company has not experienced
any work stoppages and considers its relations with its employees to be good.
FACILITIES
The Company's facilities are located in Rockville, Maryland. The Company
leases approximately 14,000 square feet of laboratory and office space on a
month-to-month basis. The Company may terminate this lease by giving notice
for each of five defined areas, one at a time, over a period that, in the
aggregate, would total at least 210 days. In addition, the Company leases
approximately 9,000 square feet of office space under a lease which expires in
April 2000. The Company believes that these facilities will be adequate for
its current and near-term needs but is in the process of identifying new
facilities for expansion.
47
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers as of April 28, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ------------------------------------------------
<S> <C> <C>
Herbert J. Conrad (1)(2).. 65 Chairman of the Board of Directors
Paul H. Fischer, Ph.D.
(1)...................... 48 President, Chief Executive Officer and Director
Thomas E. Smart........... 34 Vice President, Corporate Development, Corporate
Secretary and Treasurer
Imre Kovesdi, Ph.D........ 51 Vice President, Discovery Research
Grant Yonehiro............ 34 Vice President, Product Management
Hal S. Broderson, M.D.
(2)(3)................... 40 Director
Harry T. Rein (1)......... 53 Director
Wendell Wierenga Ph.D..... 50 Director
Gregory F. Zaic (3)....... 50 Director
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Herbert J. Conrad has served as Chairman of the Board of Directors of the
Company since September 1996, and as a director of the Company since August
1994. From September 1996 to November 1996, he was the President and Chief
Executive Officer of the Company. From September 1993 to August 1994, he was a
director of Theragen, Inc., which merged into the Company in August 1994. He
served as President of the Pharmaceuticals Division and Senior Vice President
of Hoffmann-LaRoche, Inc. ("Roche") from 1982 until his retirement in 1993.
Mr. Conrad joined Roche in 1960 and held various positions, including Senior
Vice President of the Pharmaceuticals Division, Chairman of the Board of Medi-
Physics, Inc., and Vice President, Public Affairs and Planning Division. Mr.
Conrad is a director of Gensia Sicor Inc., Bio-Technology General Corp.,
UroCor, Inc. and Dura Pharmaceuticals, Inc.
Paul H. Fischer, Ph.D. has served as President, Chief Executive Officer, and
as a director of the Company since November 1996, and in various positions
with the Company since March 1995. From May 1992 to April 1995, he was
Executive Vice President of Research and Development with Oncologix, Inc., a
biotechnology company. From September 1987 to May 1992, he served as Manager,
Cancer Research at Pfizer, Inc., a pharmaceutical company. Dr. Fischer
received his B.S. in Biology from the University of Denver, his Ph.D. in
Pharmacology from the University of California at San Francisco and performed
post-doctoral research in Pharmacology at Yale University School of Medicine.
Thomas E. Smart has served as Vice President of Corporate Development of the
Company since July 1996. From March 1995 to June 1996, he was Executive
Director of Corporate Development of the Company. From August 1991 to March
1995, he was with Cell Genesys, Inc., a biotechnology company, most recently
as Director of Business Development. From July 1990 to July 1991, Mr. Smart
was with G.D. Searle & Co., a pharmaceutical company, most recently as a
Policy Planning Associate, Corporate Strategic Planning. Mr. Smart received
his B.S. in biological sciences from Cornell University and his M.B.A. from
the University of Chicago Graduate School of Business.
Imre Kovesdi, Ph.D. has served as Vice President of Discovery Research of
the Company since September 1995, and as Director of Vector Biology of the
Company from July 1993 to September 1995. From
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1992 to 1993, he led projects in eukaryotic gene expression and neurotrophic
factors at Lederle Laboratories. From 1990 to 1993, he was Adjunct Assistant
Professor of Microbiology and Immunology at the New York Medical College. Dr.
Kovesdi received his B.A.Sc. in Electrical Engineering from the University of
British Columbia and his Ph.D. in Molecular Biology from Simon Fraser
University.
Grant Yonehiro has served as Vice President of Product Management of the
Company since September, 1997, as Director of Corporate Development from May
1997 to September 1997, and as Associate Director of Corporate Development
from March 1996 to May 1997. From January 1994 to March 1996, he was at Cell
Genesys, Inc., a biotechnology company, most recently as Manager of Business
Development. From June 1992 to December 1993, he was a Research Analyst for
Focus Advisors, Inc., an equity research organization focusing on health care.
Mr. Yonehiro received his Bachelor of Individualized Studies from the
University of Minnesota and his M.B.A. from the University of California at
Berkeley.
Hal S. Broderson, M.D. has served as a director of the Company since
inception. From December 1992 to September 1993, he was the Company's
President. From 1988 to the present, he has been a general partner of Cashon
Biomedical Associates, L.P., which is the managing general partner of the
Hillman Medical Ventures Partnerships. These venture capital funds focus on
early stage medical technology. Dr. Broderson is currently President of Rock
Hill Ventures, Inc., a venture capital and management firm. Dr. Broderson
received his B.A. in Biology from Indiana University, his M.D. from the
University of Kentucky College of Medicine and his M.B.A. from the Wharton
School at the University of Pennsylvania.
Harry T. Rein has served as a director of the Company since September 1995.
From 1987 to the present, he has been Managing General Partner of Canaan
Partners, a venture capital firm. Mr. Rein received his A.B. from Ogelthorpe
College and his M.B.A. from the University of Virginia. Mr. Rein is also a
director of Anadigics, Inc. and Perception, Inc.
Wendell Wierenga, Ph.D. has served as a director of the Company since April
1998. From 1990 to the present, he has been with the Parke-Davis
Pharmaceutical Research division of the Warner-Lambert Company, most recently
as Senior Vice President of Worldwide Preclinical Research, Development and
Technologies. From 1997 to the present he has been Adjunct Professor in the
Department of Chemistry at the University of Michigan. Dr. Wierenga received
his B.A. in Chemistry from Hope College and his Ph.D. in Chemistry from
Stanford University. Dr. Wierenga is also a director of Onyx Pharmaceuticals,
Inc.
Gregory F. Zaic has served as a director of the Company since inception.
From May 1993 to September 1993, Mr. Zaic was Chief Executive Officer of the
Company and from May 1993 to September 1996, he was Chairman of the Board of
Directors of the Company. From 1987 to the present, he has been a general
partner of Prince Ventures, L.P., a venture capital firm. Mr. Zaic received
his B.S. in Aerospace and Mechanical Engineering from Princeton University and
his M.S. in Mechanical Engineering and his M.S. in Management from the
Massachusetts Institute of Technology. Mr. Zaic is also a director of Aronex
Pharmaceuticals, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee comprises Dr. Fischer, Mr. Conrad and Mr. Rein. The
Executive Committee exercises all powers and authority of the Board with
certain exceptions as provided under Delaware law.
The Compensation Committee comprises Mr. Conrad and Dr. Broderson. The
Compensation Committee makes recommendations regarding the Company's Amended
and Restated 1993 Stock Incentive Plan, the 1998 Director Option Plan and the
1998 Employee Stock Purchase Plan, determines salaries for the executive
officers and incentive compensation for employees and consultants of the
Company, and reviews certain other compensation matters.
The Audit Committee comprises Mr. Zaic and Dr. Broderson. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the
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<PAGE>
results and scope of the audit and other services provided by the Company's
independent auditors and reviews and evaluates the Company's audit and control
functions.
DIRECTOR COMPENSATION
The Company's Outside Directors (as defined below) currently receive $1,000
per Board meeting attended, $500 per Committee meeting attended and $1,250 per
quarter as a retainer. All Directors receive reimbursement for travel expenses
from the Company for their service as members of the Board of Directors. Under
the 1998 Director Option Plan, each New Outside Director (as defined below)
automatically receives an option to purchase 10,000 shares of Common Stock
upon the later of (i) the effective date of this offering and (ii) the date
such Outside Director joins the Board of Directors. Each Outside Director who
has served on the Board of Directors for at least six months shall receive an
option to acquire 5,000 shares of Common Stock on (i) the effective date of
this offering and (ii) the date of each of the Company's annual meetings of
stockholders, provided such Outside Director is re-elected. Each option
granted under the 1998 Director Option Plan will become exercisable ratably
over a four-year period. The term "Outside Directors" refers to directors who
are not employees of the Company, and the term "New Outside Directors" refers
to Outside Directors who join the Board after March 31, 1998. See "Certain
Transactions" for a description of the Company's Consulting Agreement with Mr.
Conrad.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth summary
information concerning compensation paid by the Company during the fiscal year
ended December 31, 1997, to the Company's Chief Executive Officer and the
three other most highly compensated executive officers who earned in excess of
$100,000 in salary and bonus during the fiscal year ended December 31, 1997
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ----------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($) (1) BONUS ($) UNDERLYING OPTIONS (2)
- --------------------------- ---- -------------- --------- ----------------------
<S> <C> <C> <C> <C>
Paul H. Fischer, Ph.D...... 1997 $205,000 $25,000 38,135
President, Chief Executive
Officer and Director
Thomas E. Smart............ 1997 132,900 15,000 27,118
Vice President, Corporate
Development, Corporate
Secretary and Treasurer
Grant Yonehiro............. 1997 105,784 7,500 50,846
Vice President, Product
Management
Imre Kovesdi, Ph.D......... 1997 159,120 -- --
Vice President, Discovery
Research
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), the compensation described in this table does not
include medical, group life insurance or other benefits received by the
Named Executive Officers that are available generally to all salaried
employees of the Company, and certain perquisites and other personal
benefits received by the Named Executive Officers that do not exceed the
lesser of $50,000 or 10% of any such officer's salary and bonus disclosed
in this table.
(2) Issued pursuant to the Amended and Restated 1993 Stock Incentive Plan.
50
<PAGE>
STOCK OPTION GRANTS
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted during the fiscal year ended December 31, 1997, to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL 1997 (%)(1) ($/SH) (2) DATE 5% ($) 10% ($)
---- ----------- ------------------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Fischer, Ph.D... 38,135(4) 24% $4.13 09/17/2007 $ 99,049 $ 251,010
Thomas E. Smart......... 27,118(5) 17 4.13 09/17/2007 70,434 178,494
Grant Yonehiro.......... 23,728(6) 15 3.54 06/30/2007 52,825 133,869
27,118(7) 17 4.13 10/20/2007 70,434 178,494
Imre Kovesdi, Ph.D...... -- -- -- -- -- --
</TABLE>
- --------
(1) Based on options to purchase 158,476 shares granted to employees in fiscal
1997, including the Named Executive Officers. The options were granted
under the Company's Amended and Restated 1993 Stock Incentive Plan.
(2) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years) and the per-share market price at
the time of the grant. It is calculated assuming that the stock price on
the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the Commission, and do not reflect the
Company's estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock.
(4) Of the 38,135 shares granted, 6/48ths of the shares are exercisable on
March 17, 1998 and 1/48th of the shares are exercisable each month
thereafter.
(5) Of the 27,118 shares granted, 6/48ths of the shares are exercisable on
March 17, 1998 and 1/48th of the shares are exercisable each month
thereafter.
(6) Of the 23,728 shares granted, 6/48ths of the shares are exercisable on
November 17, 1997 and 1/48th of the shares are exercisable each month
thereafter.
(7) Of the 27,118 shares granted, 6/48ths of the shares are exercisable on
April 1, 1998 and 1/48th of the shares are exercisable each month
thereafter.
51
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth, with respect to each of the Named Executive
Officers, information regarding the number and value of securities underlying
unexercised options held by the named Executive Officers as of December 31,
1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Fischer, Ph.D... -- -- 98,248 143,269 $1,077,262 $1,393,456
Thomas E. Smart......... -- -- 15,025 61,238 160,500 583,666
Grant Yonehiro.......... -- -- 3,460 50,775 29,272 423,555
Imre Kovesdi, Ph.D...... -- -- 30,964 26,039 353,300 297,104
</TABLE>
- --------
(1) Based on the assumed initial public offering price of $12.00 per share,
less the exercise price.
EMPLOYMENT AGREEMENTS
On March 9, 1995, Paul H. Fischer, the President, Chief Executive Officer
and a director and stockholder of the Company, entered into an employment
agreement with the Company. Dr. Fischer is entitled to a salary of at least
$170,000 per year pursuant to the employment agreement. Dr. Fischer's salary
for the fiscal year ended December 31, 1997 was $205,000. Should Dr. Fischer's
employment be terminated for any reason other than for cause, his salary will
continue to be paid for nine months from the effective date of such
termination. These salary payments will cease if Dr. Fischer becomes
permanently employed at the same or a greater salary during the nine-month
period.
On March 9, 1995, Thomas E. Smart, the Vice President of Corporate
Development, entered into an employment agreement with the Company. Mr. Smart
is entitled to a salary of at least $110,000 per year pursuant to the
employment agreement. Mr. Smart's salary for the fiscal year ended December
31, 1997 was $132,900. The employment agreement provided for the payment of
bonuses in cash and in options to purchase shares of the Company's Common
Stock upon the consummation of certain corporate collaborations. Should Mr.
Smart's employment be terminated for any reason other than for cause, his
salary will continue to be paid for six months from the effective date of such
termination. These salary payments will cease if Mr. Smart becomes permanently
employed at the same or greater salary during the six-month period. Mr.
Smart's unvested options to purchase the Company's Common Stock will fully
vest on the date of approval of a liquidation or change of control of the
Company. Mr. Smart has received all options and bonuses granted under his
employment agreement, and no further options or bonuses are due under his
employment agreement.
On June 6, 1993, Imre Kovesdi, the Vice President of Discovery Research,
entered into an employment agreement with the Company. Dr. Kovesdi is entitled
to a salary of at least $100,000 per year pursuant to the employment
agreement. Dr. Kovesdi's salary for the fiscal year ended December 31, 1997
was $159,120. Should Dr. Kovesdi's employment be terminated for any reason
other than for cause, his salary will continue to be paid for one year from
the effective date of such termination. These salary payments will cease if
Dr. Kovesdi becomes permanently employed at the same or greater salary during
the one-year period.
EQUITY INCENTIVE PLANS
Amended and Restated 1993 Stock Incentive Plan
The Company adopted its 1993 Stock Incentive Plan (the "Stock Plan") in
October 1993, and amended and restated the Stock Plan in October 1997 and
April 1998. An aggregate of 1,846,218 shares of the Common Stock has been
reserved for issuance, which number will be increased each year on the date of
the annual stockholder meeting, by a number of shares equal to (i) the number
of shares needed to restore the maximum
52
<PAGE>
aggregate number of shares reserved for issuance under the Stock Plan to
1,846,218 or (ii) a lesser amount determined by the Board of Directors. The
purposes of the Stock Plan are to attract and retain the best available
personnel to serve the Company and to provide additional incentive to the
Company's key personnel. The Stock Plan will continue in effect for a term of
ten years, unless it is sooner terminated by the Board.
The Stock Plan permits the grant of options intended to qualify as incentive
stock options ("ISOs") under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to employees (including officers and employee
directors), options that do not so qualify ("NSOs," and together with ISOs,
the "Options") to employees (including officers and employee directors) and
consultants (including non-employee directors) and awards of restricted stock.
The Stock Plan is administered by the Board or a committee appointed by the
Board. Subject to limitations set forth in the Stock Plan, the Board has
authority to select the persons to whom Options will be granted, the number of
shares to be converted by each Option, when Options will be granted, and other
terms of Options granted. Options currently granted under the Stock Plan
generally become exercisable at the rate of 12.5% of the shares six months
from the vesting commencement date and approximately 1/48th of the shares
monthly thereafter, such that the Option is fully exercisable four years from
the vesting commencement date.
The maximum term for ISOs granted under the Stock Plan is ten years, except
that if, at the time of the grant, the optionee possesses more than ten
percent of the combined voting power of the Company or of an affiliate (as
defined in the Code) of the Company the maximum term of the ISO is five years.
The exercise price of ISOs must be at least 100% of the fair market value of
the shares subject to the Option on the date of the grant; provided, however,
that if an ISO is granted to a ten percent stockholder, then the exercise
price must be at least 110% of the fair market value of the stock subject to
the Option on the date of the grant. Options granted under the Stock Plan
generally are non-transferrable and expire three months after the termination
of an optionee's service to the Company.
In addition, in the event of a Change of Control (as defined below), Options
held by employees, advisors or consultants of the Company or members of the
Board of Directors at the time of a Change of Control become immediately
exercisable in full and the restrictions applicable to restricted stock of
employees, advisors or consultants of the Company or members of the Board of
Directors at the time of a change of control lapse immediately. Upon a Change
of Control, the Board of Directors may take whatever action it deems desirable
with respect to outstanding Options, including accelerating the expiration or
termination date no earlier than 30 days after notice of such acceleration is
given to the optionees. A "Change of Control" is deemed to have occurred upon
the earliest to occur of the following events: (i) the date the stockholders
of the Company (or the Board of Directors, if stockholder action is not
required) approve a plan or other arrangement pursuant to which the Company
will be dissolved or liquidated; (ii) the date the stockholders of the Company
(or the Board of Directors, if stockholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company; (iii) the date the stockholders of the Company (or the
Board of Directors, if stockholder action is not required) and the
stockholders of the other constituent corporation (or its board of directors
if stockholder action is not required) have approved a definitive agreement to
merge or consolidate the Company with or into such other corporation, other
than, in either case, a merger or consolidation of the Company in which
holders of shares of the Company's Common Stock immediately prior to the
merger or consolidation will have at least a majority of the ownership of
common stock of the surviving corporation (and, if one class of common stock
is not the only class of voting securities entitled to vote on the election of
directors of the surviving corporation, a majority of the voting power of the
surviving corporation's voting securities) immediately after the merger or
consolidation, which common stock (and, if applicable, voting securities) is
to be held in the same proportion as such holders' ownership of Common Stock
of the Company immediately before the merger or consolidation; (iv) the date
any entity, person or group, within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended, other than the
Company or any of its subsidiaries or any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries, or
any person who
53
<PAGE>
does not conduct any active trade or business shall have become the beneficial
owner of, or shall have obtained voting control over, more than fifty percent
(50%) of the outstanding shares of the Company's Common Stock; or (v) the date
that fewer than a majority of the Board of Directors are Incumbent Directors
(as defined below). "Incumbent Directors" means directors who either (x) are
directors of the Company as of the effective date of the Stock Plan or (y) are
elected, or nominated for election to the Board of Directors with the
affirmative votes of at least a majority of those directors whose election or
nomination was not in connection with any transaction described in subsection
(i) to (iv) or in connection with an actual or threatened proxy contest
relating to the election of directors of the Company.
1998 Employee Stock Purchase Plan
In April 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 350,000 shares of Common Stock.
The number of shares reserved will be increased automatically each year on the
date of the Company's annual stockholder meeting by an amount equal to (i) the
number of shares needed to restore the maximum number of shares reserved for
issuance under the Purchase Plan to 350,000 shares or (ii) a lesser amount
determined by the Board of Directors. The Purchase Plan is intended to qualify
as an employee stock purchase plan within the meaning of Section 423 of the
Code. Under the Purchase Plan, the Board may authorize participation by
eligible employees, including officers, in periodic offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase
Plan will commence on the date of this Prospectus and terminate on April 30,
2000.
Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company or a
subsidiary of the Company designated by the Board for at least 20 hours per
week and are customarily employed by the Company or a subsidiary of the
Company designated by the Board for at least five months per calendar year.
Employees who participate in a offering may have up to ten percent of their
earnings withheld pursuant to the Purchase Plan. The amount withheld is then
used to purchase shares of the Common Stock on specified dates determined by
Board. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock at the
commencement date of each offering or the relevant purchase date. Employees
may end their participation in this offering at any time during this offering,
and participation ends automatically on termination of employment with the
Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has the discretion to provide that each right
to purchase Common Stock will be assumed or an equivalent right substituted by
the successor corporation or the Board may shorten this offering, and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase Common
Stock.
1998 Director Option Plan
In April 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Director Plan is 130,000. Each New Outside Director
is automatically granted on the later of (i) the effective date of this
offering and (ii) the date such Outside Director joins the Board of Directors
an option to purchase 10,000 shares of Common Stock. In addition, each Outside
Director who has served on the Board of Directors for at least six months
shall receive an option to purchase 5,000 shares of Common Stock on (i) the
effective date of this offering and (ii) the date of each of the Company's
annual meetings of stockholders, provided such Outside Director is re-elected
as a director at such meeting. Each option granted under the Director Plan has
a term of ten years. The options vest over a four-year period, with an
exercise
54
<PAGE>
price per share equal to 100% of the fair market value per share on the date
of the grant. Options granted under the Director Plan are generally non-
transferrable. Unless otherwise terminated by the Board of Directors, the
Director Plan terminates automatically in April 2008. On the effective date of
this offering, options to purchase an aggregate of 30,000 shares of Common
Stock will be granted under the Director Plan, with an exercise price equal to
the initial public offering price per share. Upon a Change of Control (as
defined in the Stock Plan), options held by directors shall become immediately
exercisable in full.
401(K) PLAN
The Company has established a tax-qualified employee savings and retirement
plan. Employees must be 21 years old to participate and are eligible on the
first day of the quarter following six months as an employee of the Company.
All amounts contributed by employee participants and earnings on these
contributions are fully vested at all times. Employee participants may elect
to invest their contributions in various established funds.
LIMITATIONS OF DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND
INDEMNIFICATION
The Company's Restated Certificate provides that directors of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a Director, except to the extent
that such exemption from liability or limitation thereof is not permitted by
the Delaware General Corporation Law as currently in effect or as the same as
subsequently amended. Such limitation of liability does not apply to
liabilities arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Amended and Restated Bylaws empower the Company to indemnify
its directors, officers, employees and agents to the fullest extent permitted
by law. Pursuant to this provision, the Company has entered into
indemnification agreements with each of its Directors and Executive Officers.
55
<PAGE>
CERTAIN TRANSACTIONS
CERTAIN TRANSACTIONS
In September 1995, the Company entered a Second Class C Preferred Stock
Purchase Agreement with Canaan S.B.I.C., L.P., Canaan Capital Limited
Partnership, Canaan Capital Offshore L.P., C.V. (collectively, the "Canaan
Entities") and The CIT Group/Venture Capital, Inc. ("The CIT Group"), among
others, pursuant to which the Canaan Entities purchased 305,084 shares of
Class C Preferred Stock for $1.8 million, and The CIT Group purchased 338,983
shares of Class C Preferred Stock for $2.0 million. Harry T. Rein, a director
of the Company, is a general partner of each of the Canaan Entities. Bruce
Schackman, a former director of the Company, is a Managing Director of the CIT
Group.
Each series of the Company's Preferred Stock has certain conversion rights
and protection against certain dilutive issuances of securities by the
Company. Each holder of Preferred Stock is entitled to one vote for each share
held. Holders of Preferred Stock are also entitled to certain preferences over
holders of Common Stock with respect to dividends and in certain liquidation
events. Certain holders of Common Stock and Preferred Stock are entitled to
certain registration rights with respect to such Common Stock and shares of
Common Stock issued upon the conversion thereof. See "Description of Capital
Stock--Registration Rights."
In July 1997, the Company and Warner-Lambert entered a Stock Purchase
Agreement pursuant to which Warner-Lambert is obligated to purchase up to an
aggregate of $25.0 million of the Company's securities. Concurrently, the
Company and Warner-Lambert entered a Research, Development and Collaboration
Agreement. Wendell Wierenga, a director of the Company, is the Senior Vice
President of Worldwide Preclinical Research, Development and Technologies for
the Parke-Davis Pharmaceuticals Research division of Warner-Lambert. See
"Business--Strategic Alliances--Corporate Collaborations--Warner-Lambert
Company."
The Company has entered employment agreements with certain of its executive
officers. See "Management--Employment Agreements" for a description of the
employment agreements with Dr. Fischer, Mr. Smart and Dr. Kovesdi.
The Company entered a consulting agreement with Mr. Conrad, Chairman of the
Company's Board of Directors, on April 28, 1998. Pursuant to the agreement,
Mr. Conrad will be available to the Company for a minimum of five and up to
ten business days per month, and in exchange will receive $1,500 per day. The
agreement has a one-year term, and is renewable.
The Company has granted options to certain of its directors and executive
officers. The Company has also entered into an indemnification agreement with
each of its directors and executive officers.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors and will continue to be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of March 31, 1998, and as
adjusted to reflect the sale of Common Stock offered by the Company hereby for
(i) each person who is known by the Company to own beneficially more than five
percent of the Common Stock; (ii) each of the Company's directors; (iii) each
Named Executive Officer and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS (1) OWNED(2) OFFERING OFFERING
-------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Hillman Medical Ventures
Partnerships (3)................. 1,101,693 15.68% 11.18%
c/o Rock Hill Ventures, Inc.
One Tower Bridge, Suite 1350
100 Front Street
West Conshohocken, PA 19428
Attention: Hal S. Broderson, M.D.
Biotech Growth SA................. 847,457 12.06 8.60
Bellevue Asset Management, AG
Grasenweg 4
Zug/Postach, Zug-6301
Switzerland
Attention: Andreas Bremer, Ph.D.
Genentech, Inc.................... 734,576 10.46 7.45
One DNA Way
South San Francisco, CA 94080
Prince Venture Partners, III,
L.P.............................. 550,846 7.84 5.59
25 Ford Road
Westport, CT 06880
Attention: Gregory Zaic
Sierra Ventures, III, L.P. (4).... 550,846 7.84 5.59
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Attention: Petri Vainio, M.D.,
Ph.D.
Warner-Lambert Company............ 349,853 4.98 6.93 (5)
201 Tabor Road
Morris Plains, NJ 07950
Herbert J. Conrad (6)............. 33,929 * *
Ronald J. Brenner, Ph.D. (7)...... 1,101,693 15.68 11.18
Hal S. Broderson, M.D. (7)........ 1,101,693 15.68 11.18
Thomas S. Porter (8).............. 286,397 4.08 2.91
Harry T. Rein (9)................. 305,084 4.34 3.09
Gregory F. Zaic (10).............. 550,846 7.84 5.59
Paul H. Fischer, Ph.D. (11)....... 137,176 1.92 1.37
Thomas E. Smart (12).............. 65,448 * *
Imre Kovesdi, Ph.D. (13).......... 60,872 * *
Grant Yonehiro (14)............... 16,665 * *
All directors and executive
officers as a group (11 persons)
(15)............................. 2,558,110 35.30% 25.38%
</TABLE>
57
<PAGE>
- --------
* Represents beneficial ownership of less than one percent.
(1) Unless otherwise indicated, the address of each of the named individuals
is: c/o GenVec, Inc., 12111 Parklawn Drive, Rockville, Maryland 20852.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 7,024,451 shares of Common Stock outstanding as of
March 31, 1998, and 9,857,784 shares of Common Stock after completion of
this offering including 333,333 shares to issued to Warner-Lambert upon
closing of this offering. Amounts shown in the above table and the
following notes include shares issuable within the 60-day period
following March 31, 1998, pursuant to the exercise of options.
(3) Includes 84,745 shares owned by Hillman Medical Ventures 1992 L.P.,
508,474 shares owned by Hillman Medical Ventures 1993 L.P., and 508,474
shares owned by Hillman Medical Ventures 1994 L.P. The general partners
of the Hillman Medical Ventures partnerships are Cashon Biomedical
Associates L.P. ("Cashon") and Hillman/Dover Limited Partnership
('"Hillman/Dover"). The general partners of Cashon are Hal S. Broderson,
Ronald J. Brenner and Charles G. Hadley (the "Cashon General Partners").
The general partner of Hillman/Dover is a wholly-owned subsidiary of The
Hillman Company, a firm engaged in diversified investments and
operations. The Hillman Company is controlled by Henry L. Hillman, Elsie
Hilliard Hillman and C.G. Grefenstette, Trustees (the "Trustees") of the
Henry L. Hillman Trust. The Cashon General Partners and the Trustees may
be deemed to be the beneficial owners of the 1,101,693 shares owned by
the Hillman Medical Ventures partnerships.
(4) Includes 21,207 shares held by Sierra Ventures International IV, L.P. and
529,639 shares held by Sierra Ventures IV, L.P.
(5) Adjusted to reflect the sale of 333,333 additional shares to Warner-
Lambert concurrently with the closing of this offering.
(6) Includes 28,528 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(7) Includes 84,745 shares owned by Hillman Medical Ventures 1992 L.P.,
508,474 shares owned by Hillman Medical Ventures 1993 L.P. and 508,474
shares owned by Hillman Medical Ventures 1994 L.P. The general partners
of the Hillman Medical Ventures partnerships are Cashon Biomedical
Associates L.P. ("Cashon") and Hillman/Dover Limited Partnership
("Hillman/Dover"). The general partners of Cashon are Hal S. Broderson,
Ronald J. Brenner and Charles G. Hadley (the "Cashon General Partners").
The general partner of Hillman/Dover is a wholly-owned subsidiary of The
Hillman Company, a firm engaged in diversified investments and
operations. The Hillman Company is controlled by Henry L. Hillman, Elsie
Hillard Hillman and C.G. Grefenstette, Trustees (the "Trustees") of the
Henry L. Hillman Trust. The Cashon General Partners and the Trustees may
be deemed to be the beneficial owners of the 1,101,693 shares owned by
the Hillman Medical Ventures partnerships.
(8) Includes 286,397 shares held by Enterprise Development Fund, L.P., as to
which Mr. Porter disclaims beneficial ownership.
(9) Includes 16,322 shares held by Canaan Capital, L.P., 136,220 shares held
by Canaan Capital Offshore L.P., C.V. and 152,542 shares held by Canaan
S.B.I.C., L.P., as to which Mr. Rein disclaims beneficial ownership.
(10) Includes 550,846 shares held by Prince Venture Partners III, L.P., as to
which Mr. Zaic disclaims beneficial ownership.
(11) Includes 124,465 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(12) Includes 23,076 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 4,837 shares subject to repurchase
by the Company within such period.
(13) Includes 37,373 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(14) Includes 9,886 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 1,271 shares subject to repurchase
by the Company within such period.
(15) Includes 223,328 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 6,108 shares subject to repurchase
by the Company within such period.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 50,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock after giving
effect to the Reverse Split, the conversion of all outstanding shares of
Preferred Stock into Common Stock and the restatement of the Company's
Certificate of Incorporation upon the closing of this offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated
Certificate which is included as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of March 31, 1998, there were 7,024,451 shares of Common Stock
outstanding which were held of record by 82 stockholders, on a pro forma basis
to reflect the Reverse Split and the conversion of all outstanding shares of
Preferred Stock which will occur upon the closing of this offering.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and non-assessable, and the shares of Common Stock to be issued
upon the closing of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock, none of which will
be outstanding upon the closing of this offering. The Board of Directors will
have the authority, without further action by the stockholders, to issue the
undesignated Preferred Stock in one or more series, to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock and to fix the number of
shares constituting any series and the designation of such series.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of and the voting and other rights of the holders of Common Stock. At
present, the Company has no plans to issue any of the Preferred Stock.
WARRANTS
As of March 31, 1998, the Company had outstanding (i) a warrant to purchase
211,864 shares of Common Stock at $13.28 per share expiring in May 2001, or,
if the Company has not effected an initial public offering by May 31, 1998,
upon the fifth anniversary of the initial public offering, but not later than
May 31, 2006; (ii) a warrant to purchase 67,796 shares of Common Stock at
$14.75 per share expiring in May 2001, or, if the Company has not effected an
initial public offering by June 30, 1998, on the third anniversary of the
initial public offering but not later than June 30, 2006; (iii) a warrant to
purchase 16,949 shares of Common Stock at $5.90 per share expiring in
September 2006 and (iv) warrants to purchase 23,807 shares of Common Stock at
$5.90 per share expiring upon the later of October 17, 2005 and five years
from the effective date of the
59
<PAGE>
Company's initial public offering. The shares underlying certain of these
warrants are entitled to registration rights.
REGISTRATION RIGHTS
The holders of 6,375,891 shares of Common Stock and warrants to purchase
211,864 shares of Common Stock (the "Registrable Securities") or certain of
their transferees are entitled to certain rights with respect to the
registration of the Registrable Securities under the Securities Act. These
rights are provided under the terms of an agreement between the Company and
the holders of Registrable Securities. Subject to certain limitations in the
agreement, the holders of the Registrable Securities may require, on three
occasions beginning 180 days following the date of this Prospectus, that the
Company use its best efforts to register the Registrable Securities for public
resale. If the Company registers any of its Common Stock either for its own
account or for the account of other security holders, the holders of
Registrable Securities and holders of an additional 505,809 shares of the
Common Stock are entitled to include their shares of Common Stock in the
registration, subject to the ability of the underwriters to limit the number
of shares included in the offering. Certain holders of Registrable Securities
may also require the Company to register all or a portion of their Registrable
Securities on Form S-3 when use of such form becomes available to the Company.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a public Delaware corporation from
engaging in "business combinations" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
or other transactions resulting in a financial benefit to a stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates owns (or within three years, did own) 15% or more of the
corporation's voting stock. The existence of this provision would be expected
to have anti-takeover effects with respect to transactions not approved in
advance by the Board of Directors, such as discouraging takeover attempts that
might result in a premium over the market price of the Common Stock.
Certain provisions of the Company's Restated Certificate and Amended and
Restated Bylaws may have the effect of preventing, discouraging or delaying a
change in the control of the Company and may maintain the incumbency of the
Board of Directors and management. The authorization of undesignated Preferred
Stock makes it possible for the Board of Directors to issue Preferred Stock
with voting or other rights or preferences that could impede the success of
any attempt to change control of the Company. In addition, the Company's
Amended and Restated Bylaws limit the ability of stockholders of the Company
to raise matters at a meeting of stockholders without giving advance notice.
The Restated Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Amended and Restated Bylaws provide that,
except as otherwise required by law, special meetings of the stockholders can
only be called by the Board of Directors, by the President of the Company, or
by stockholders holding a majority of the shares outstanding and entitled to
vote.
The Amended and Restated Bylaws establish an advance notice procedure for
stockholder proposal to be brought before an annual meeting of stockholders of
the Company, including proposed nominations of persons for election to the
Board of Directors. Stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the Board of Directors or by a
stockholder who was a stockholder of record on the record date for the
meeting, who is entitled to vote at the meeting and who has given to the
Company's Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although
the Amended and Restated Bylaws do not give the Board of Directors the power
to approve or disapprove stockholder
60
<PAGE>
nominations of candidates or proposals regarding other business to be
conducted at a special or annual meeting, the Amended and Restated Bylaws may
have the effect of precluding the conduct of certain business at a meeting if
the proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services, L.L.C.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
the offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of Common Stock of the Company
in the public market after restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon completion of the offering, the Company will have 9,857,784 shares of
Common Stock outstanding, assuming no exercise of currently outstanding
options. Of these shares, the 2,500,000 shares sold in this offering (plus any
additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act, unless they are held by "affiliates" of the Company as that term is used
under the Securities Act and the regulations promulgated thereunder
("Affiliates"). The remaining 7,357,784 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 of the Securities Act (the "Restricted Shares"). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act. As a result of contractual restrictions and the provisions of Rules 144
and 701, additional shares will be available for sale in the public market as
follows: (i) 49,748 Restricted Shares will be eligible for immediate sale on
the date of this Prospectus; (ii) 76,658 Restricted Shares will be eligible
for sale 90 days after the date of this Prospectus and (iii) 7,231,378
Restricted Shares will be eligible for sale 180 days from the date of this
Prospectus upon expiration of their respective holding periods under Rule 144.
In addition, 10,751 shares will be eligible for immediate sale on the date of
this Prospectus upon exercise of vested stock options, and 765,639 shares will
be issuable upon exercise of vested stock options 180 days after the effective
date of this offering upon the expiration of lock-up agreements.
The holders of 6,375,891 shares of Common Stock and the holders of warrants
to purchase 211,864 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning 180 days from the date of
this Prospectus. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders and holders of an
additional 505,809 shares of Common Stock pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse affect on the
Company's ability to raise new capital.
In addition, the Company expects to file a registration statement on Form S-
8 registering a total of 2,326,218 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the Company's equity
incentive plans. The Form S-8 registration statement is expected to be filed
and to become effective 180 days following the effective date of this
offering. Shares registered under such registration statement will be
available for sale in the open market, subject to Rule 144 value limitations
applicable to Affiliates, unless such shares are subject to vesting
restrictions with the Company.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the offering, an Affiliate of the Company or person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares (as defined under Rule 144) for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which the notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to the manner of sale, notice, and availability of current public
information about the Company. A person (or persons whose shares are
aggregated) who is not an Affiliate of the Company at any time during the 90
days immediately preceding the sale, and who has beneficially owned restricted
shares for
62
<PAGE>
at least two years is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above.
An employee, officer or director of the Company or a consultant to the
Company who purchased or was awarded shares or options to purchase shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701 of the Securities Act, which permit Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
holding period restrictions of Rule 144, in each case commencing 90 days after
the date of this Prospectus. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.
63
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, J.P. Morgan Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock
set forth opposite their respective names below. The Underwriters are
committed to purchase and pay for all such shares, if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
BancAmerica Robertson Stephens................................
J.P. Morgan Securities Inc....................................
Donaldson, Lufkin & Jenrette Securities Corporation...........
---------
Total....................................................... 2,500,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession of not more than $ per
share, of which $ per share may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and
reallowances to dealers may be reduced by the Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 375,000 shares of Common Stock at the same price per share as the
Company will receive for the 2,500,000 shares that the Underwriters have
agreed to purchase. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
Common Stock to be purchased by it shown in the above table represents as a
percentage of 2,500,000 shares offered hereby. If purchased, such additional
shares will be sold by the Underwriters on the same terms as those on which
the 2,500,000 shares are being sold. The Company will be obligated, pursuant
to such option, to sell shares to the Underwriters to the extent such option
is exercised. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer and director of the Company and certain stockholders, together
holding approximately 98.3% of the shares of Common Stock outstanding
immediately prior to the closing of the offering, have agreed with the
Representatives that, until 180 days from the date of this Prospectus, subject
to certain limited exceptions, they will not, directly or indirectly, sell,
offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of any shares of Common Stock (or any securities convertible into, or
exchangeable for, or any rights to purchase or acquire, shares of Common
Stock), held by such holders, acquired by such holder after the date hereof or
which may be deemed to be beneficially owned by such holder, without the prior
written consent of BancAmerica Robertson Stephens. Approximately 7,231,378 of
such shares will be eligible for immediate public sale following expiration of
the lock-up period and their respective holding periods under Rule 144.
BancAmerica Robertson Stephens may, in its sole discretion without notice,
release all or any portion of the securities subject to the lock-up
agreements. In addition, the Company has agreed that, until 180 days from the
date of this Prospectus, the Company will not, without the prior written
consent of
64
<PAGE>
BancAmerica Robertson Stephens, subject to certain limited exceptions, sell or
otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock) other than the
Company's sale of shares in this offering, the issuance of Common Stock upon
the exercise of outstanding options, or the Company's grant of options and
issuance of stock under existing stock option or stock purchase plans, or the
shares to be sold to Warner-Lambert concurrent with this offering or otherwise
pursuant to the Company's existing agreement with Warner-Lambert. See "Shares
Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with this offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed
by such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations between the Company and the
Representatives. The material factors to be considered in such negotiations
are prevailing market conditions, certain financial information of the Company
in recent periods, market valuations of other companies that the Company and
the Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover of this
preliminary prospectus is subject to change as a result of market conditions
and other factors. There can be no assurance that an active or orderly trading
market will develop for the Common Stock or that the Common Stock will trade
in the public market subsequent to this offering at or above the initial
trading price. See "Risk Factors--No Prior Public Market for the Common Stock;
Potential Volatility of Stock Price" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
65
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997,
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
Certain statements included in this Prospectus under the captions "Risk
Factors--Intellectual Property", "Business--GenVec Strategy", and "Business--
Intellectual Property" have been reviewed and approved by Leydig, Voit &
Mayer, Ltd., patent counsel for the Company, as experts on such matters.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus, which is a part of the Registration Statement, omits certain
information, exhibits, schedules and undertakings set forth in the
Registration Statement. For further information pertaining to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents or provisions of any contract or other document
referred to herein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. In addition, registration statements and certain other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's web
site on the Internet's World Wide Web, located at http://www.sec.gov. The
Registration Statement, including all exhibits thereto and amendments thereof,
has been filed with the Commission through EDGAR.
66
<PAGE>
GENVEC, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors..................... F-2
Balance Sheets at December 31, 1996 and 1997 and March 31, 1998
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-4
Statements of Stockholders' Equity for the three years in the period ended
December 31, 1997 and the three months ended March 31, 1998 (unaudited).. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GenVec, Inc.:
We have audited the accompanying balance sheets of GenVec, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GenVec, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
McLean, Virginia
March 6, 1998, except for Note 10
which is as of June 2, 1998
F-2
<PAGE>
GENVEC, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- PRO FORMA
1996 1997 MARCH 31, 1998 MARCH 31, 1998
------------ ----------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 5,146,226 $ 6,786,390 $ 4,694,205 $ 4,694,205
Short-term investments
(note 3)................ 2,579,124 2,577,990 2,567,866 2,567,866
Accounts receivable...... -- -- 2,000,000 2,000,000
Prepaid expenses......... 164,928 410,826 341,388 341,388
Other current assets..... 103,712 135,715 293,379 293,379
------------ ----------- ----------- -----------
Total current assets.... 7,993,990 9,910,921 9,896,838 9,896,838
------------ ----------- ----------- -----------
Property and equipment
(note 6):
Equipment................ 1,566,091 1,995,004 2,240,553 2,240,553
Leasehold improvements... 176,311 198,933 226,744 226,744
Furniture and fixtures... 58,256 82,481 90,814 90,814
------------ ----------- ----------- -----------
1,800,658 2,276,418 2,558,111 2,558,111
Less: accumulated
depreciation and
amortization............ (1,194,228) (1,678,562) (1,800,612) (1,800,612)
------------ ----------- ----------- -----------
Net property and
equipment.............. 606,430 597,856 757,499 757,499
------------ ----------- ----------- -----------
Other assets.............. 37,950 37,950 37,950 37,950
------------ ----------- ----------- -----------
Total assets............ $ 8,638,370 $10,546,727 $10,692,287 $10,692,287
============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 264,011 $ 387,150 $ 193,622 $ 193,622
Accrued expenses......... 252,509 252,891 419,396 419,396
Accrued technological
license and
intellectual property
expenses................ 439,466 920,484 1,177,478 1,177,478
Accrued payroll and
related expenses........ 245,843 94,341 91,783 91,783
Current portion of
capital lease
obligation (note 6)..... 414,529 174,611 131,386 131,386
------------ ----------- ----------- -----------
Total current
liabilities............ 1,616,358 1,829,477 2,013,665 2,013,665
------------ ----------- ----------- -----------
Capital lease obligation,
less current portion
(note 6).................... 157,729 46,563 26,273 26,273
Other non-current
liabilities.............. -- 26,500 13,250 13,250
------------ ----------- ----------- -----------
Total non-current
liabilities............ 157,729 73,063 39,523 39,523
------------ ----------- ----------- -----------
Commitments (note 6)
Stockholders' equity
(notes 5 and 7):
Convertible preferred
stock, $.001 par value:
Class A, 226,099 shares
authorized, issued and
outstanding
(liquidation preference
of $667,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 226 226 226 --
Class B, 2,000,079
shares authorized, and
1,918,688 shares issued
and outstanding
(liquidation preference
of $11,320,314) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 1,919 1,919 1,919 --
Class C, 3,570,332
shares authorized,
issued and outstanding
(liquidation preference
of $21,065,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 3,570 3,570 3,570 --
Class D, 338,983 shares
authorized, and 96,852
shares issued and
outstanding
(liquidation preference
of $1,000,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 97 97 97 --
Class E, 75,329 shares
authorized, issued and
outstanding
(liquidation preference
$1,000,000) at December
31, 1997 and March 31,
1998 (no shares
authorized, issued and
outstanding pro forma) -- 75 75 --
Class E1, 154,963 shares
authorized, issued and
outstanding
(liquidation preference
$2,000,000) at December
31, 1997 and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. -- 155 155 --
------------ ----------- ----------- -----------
Total convertible
preferred stock....... 5,812 6,042 6,042 --
------------ ----------- ----------- -----------
Preferred stock, $0.001
par value, no shares
authorized, issued and
outstanding at December
31, 1996 and 1997, and
March 31, 1998,
(5,000,000 shares
authorized, no shares
issued and outstanding
pro forma).............. -- -- -- --
Common stock, $0.001 par
value, 8,814,423,
9,553,191 and 9,553,191
shares authorized at
December 31, 1996 and
1997, and March 31,
1998; 987,419,
1,021,013 and 1,029,488
shares issued and
outstanding at December
31, 1996 and 1997, and
March 31, 1998,
respectively,
(50,000,000 shares
authorized, 7,071,751
shares issued and
outstanding pro
forma).................. 987 1,021 1,030 7,072
Additional paid-in
capital................. 34,462,121 37,497,019 37,521,010 37,521,010
Accumulated deficit...... (27,604,590) (28,859,848) (28,888,936) (28,888,936)
Treasury stock, at cost,
47,300 common shares.... (47) (47) (47) (47)
------------ ----------- ----------- -----------
Total stockholders'
equity................. 6,864,283 8,644,187 8,639,099 8,639,099
------------ ----------- ----------- -----------
Total liabilities and
stockholders' equity... $ 8,638,370 $10,546,727 $10,692,287 $10,692,287
============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GENVEC, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues (note 5):
Research revenues..... $ 1,005,000 $ 698,370 $ 3,187,500 $ -- $1,687,500
Milestone revenues.... -- -- 7,000,000 -- 2,000,000
----------- ----------- ----------- ----------- ----------
Total revenues...... 1,005,000 698,370 10,187,500 -- 3,687,500
----------- ----------- ----------- ----------- ----------
Operating expenses:
Research and
development.......... 6,499,830 6,355,333 8,985,625 1,613,790 3,093,068
General and
administrative....... 2,025,131 2,947,165 2,720,101 550,460 738,487
Purchase of in-process
technology (note 4).. 442,078 -- -- -- --
----------- ----------- ----------- ----------- ----------
Total operating
expenses........... 8,967,039 9,302,498 11,705,726 2,164,250 3,831,555
----------- ----------- ----------- ----------- ----------
Loss from operations.. (7,962,039) (8,604,128) (1,518,226) (2,164,250) (144,055)
----------- ----------- ----------- ----------- ----------
Interest income....... 486,435 571,239 319,538 87,481 117,299
Interest expense...... (73,568) (75,272) (56,570) (12,901) (2,332)
----------- ----------- ----------- ----------- ----------
Net interest
income............. 412,867 495,967 262,968 74,580 114,967
----------- ----------- ----------- ----------- ----------
Net loss............ $(7,549,172) $(8,108,161) $(1,255,258) $(2,089,670) $ (29,088)
=========== =========== =========== =========== ==========
Pro forma basic net
loss per share
(note 2)........... $ (0.18) $ (0.01)
=========== ==========
Shares used in
computing pro forma
basic net loss per
share (note 2)..... 6,999,119 7,018,628
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
GENVEC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D CLASS E
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------- ------------------ ------------------ ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------ ---------- ------ ---------- ------ -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994............ 226,099 $ 226 1,850,109 $1,850 1,474,569 $1,475 -- $ -- -- $ --
Issuance of
Class C
convertible
preferred
shares, net of
issuance costs
of $53,698 (note
7).............. -- -- -- -- 2,095,763 2,095 -- -- -- --
Issuance of
common stock.... -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Issuance of
stock for
Theragen
contingent
shares, net of
issuance costs
of $13,335 (note
4).............. -- -- 68,579 69 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1995............ 226,099 226 1,918,688 1,919 3,570,332 3,570 -- -- -- --
Issuance of
Class D
convertible
preferred
shares, net of
issuance costs
of $8,683
(note 7)........ -- -- -- -- -- -- 96,852 97 -- --
Purchase of
47,300 common
shares (note
7).............. -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1996............ 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 -- --
Issuance of
Class E
convertible
preferred
shares, net of
issuance costs
of $3,215
(note 7)........ -- -- -- -- -- -- -- -- 75,329 75
Issuance of
Class E1
convertible
preferred
shares, net of
issuance costs
of $68,842 (note
7).............. -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1997............ 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 75,329 75
Exercise of
options
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Stock option
compensation
expense
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance, March
31, 1998
(unaudited)..... 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 75,329 75
Pro forma
conversion of
preferred stock
to common stock
(unaudited)..... (226,099) (226) (1,918,688) (1,919) (3,570,332) (3,570) (96,852) (97) (75,329) (75)
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Pro forma
balance at March
31, 1998
(unaudited)..... -- $ -- -- $ -- -- $ -- -- $ -- -- $ --
======== ===== ========== ====== ========== ====== ======== ====== ======== ======
<CAPTION>
CLASS E1 TREASURY
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
----------------- ---------------- PAID-IN ACCUMULATED --------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT AMOUNT TOTAL
--------- ------- --------- ------ ------------ ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994............ -- $ -- 532,480 $ 533 $20,425,958 $(11,947,257) $ -- $8,482,785
Issuance of
Class C
convertible
preferred
shares, net of
issuance costs
of $53,698 (note
7).............. -- -- -- -- 12,309,207 -- -- 12,311,302
Issuance of
common stock.... -- -- 20,424 20 12,030 -- -- 12,050
Exercise of
options......... -- -- 7,812 8 5,030 -- -- 5,038
Issuance of
stock for
Theragen
contingent
shares, net of
issuance costs
of $13,335 (note
4).............. -- -- 63,492 63 428,611 -- -- 428,743
Net loss........ -- -- -- -- -- (7,549,172) -- (7,549,172)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1995............ -- -- 624,208 624 33,180,836 (19,496,429) -- 13,690,746
Issuance of
Class D
convertible
preferred
shares, net of
issuance costs
of $8,683
(note 7)........ -- -- -- -- 991,220 -- -- 991,317
Purchase of
47,300 common
shares (note
7).............. -- -- -- -- (27,860) -- (47) (27,907)
Exercise of
options......... -- -- 363,211 363 212,865 -- -- 213,228
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- 105,060 -- -- 105,060
Net loss........ -- -- -- -- -- (8,108,161) -- (8,108,161)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1996............ -- -- 987,419 987 34,462,121 (27,604,590) (47) 6,864,283
Issuance of
Class E
convertible
preferred
shares, net of
issuance costs
of $3,215
(note 7)........ -- -- -- -- 996,712 -- -- 996,787
Issuance of
Class E1
convertible
preferred
shares, net of
issuance costs
of $68,842 (note
7).............. 154,963 155 -- -- 1,931,002 -- -- 1,931,157
Exercise of
options......... -- -- 33,594 34 22,286 -- -- 22,320
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- 84,898 -- -- 84,898
Net loss........ -- -- -- -- -- (1,255,258) -- (1,255,258)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1997............ 154,963 155 1,021,013 1,021 37,497,019 (28,859,848) (47) 8,644,187
Exercise of
options
(unaudited)..... -- -- 8,475 9 4,991 -- -- 5,000
Stock option
compensation
expense
(unaudited)..... -- -- -- -- 19,000 -- -- 19,000
Net loss
(unaudited)..... -- -- -- -- -- (29,088) -- (29,088)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance, March
31, 1998
(unaudited)..... 154,963 155 1,029,488 1,030 37,521,010 (28,888,936) (47) 8,639,099
Pro forma
conversion of
preferred stock
to common stock
(unaudited)..... (154,963) (155) 6,042,263 6,042 -- -- -- --
--------- ------- --------- ------ ------------ ------------- -------- -----------
Pro forma
balance at March
31, 1998
(unaudited)..... -- $ -- 7,071,751 $7,072 $37,521,010 $(28,888,936) $(47) $8,639,099
========= ======= ========= ====== ============ ============= ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GENVEC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(7,549,172) $(8,108,161) $(1,255,258) $(2,089,670) $ (29,088)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization
expense............. 387,045 503,285 484,334 119,916 132,174
Stock option and
warrant compensation
expense (note 7).... -- 105,060 84,898 -- 19,000
Non-cash purchase of
in-process
technology (note
4).................. 442,078 -- -- -- --
(Increase) decrease
in other current
assets.............. (3,276) (66,669) (32,003) 39,736 (157,664)
(Increase) decrease
in other assets..... (4,696) 514 -- -- --
(Increase) in
accounts
receivable.......... -- -- -- -- (2,000,000)
(Increase) decrease
in prepaid
expenses............ (170,684) 82,718 (245,897) 4,347 69,438
Increase (decrease)
in accounts
payable............. (84,148) (334,736) 123,139 (29,501) (193,528)
Increase (decrease)
in accrued
expenses............ 37,344 459,634 (151,121) 20,321 297,597
Increase (decrease)
in accrued
technological
license and
intellectual
property expenses... 9,211 430,344 481,018 (292,987) 123,344
Increase (decrease)
in other non-current
liabilities......... -- -- 26,500 -- (13,250)
----------- ----------- ----------- ----------- ----------
Net cash used in
operating
activities......... (6,936,298) (6,928,011) (484,390) (2,227,838) (1,751,977)
----------- ----------- ----------- ----------- ----------
Cash flows from
investing activities:
Purchase of property
and equipment........ (235,053) (86,387) (475,760) (64,040) (281,693)
Purchases of
investments.......... -- (8,769,124) (4,361,879) (1,783,889) --
Proceeds from
maturities of
investments.......... -- 6,190,000 4,363,013 2,094,412 --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) investing
activities......... (235,053) (2,665,511) (474,626) 246,483 (281,693)
----------- ----------- ----------- ----------- ----------
Cash flows from
financing activities:
Proceeds from issuance
of common stock...... 5,038 213,228 22,320 3,618 5,000
Proceeds from issuance
of preferred stock,
net of issuance
costs................ 12,311,302 991,317 2,927,944 -- --
Purchase of treasury
stock................ -- (27,907) -- -- --
Payments under capital
lease obligation..... (302,020) (433,191) (351,084) (104,707) (63,515)
Sale of property and
equipment............ -- 116,555 -- -- --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities......... 12,014,320 860,002 2,599,180 (101,089) (58,515)
----------- ----------- ----------- ----------- ----------
Increase (decrease) in
cash and cash
equivalents........... 4,842,969 (8,733,520) 1,640,164 (2,082,444) (2,092,185)
Cash and cash
equivalents, beginning
of period............. 9,036,777 13,879,746 5,146,226 5,146,226 6,786,390
----------- ----------- ----------- ----------- ----------
Cash and cash
equivalents, end of
period................ $13,879,746 $ 5,146,226 $ 6,786,390 $ 3,063,782 $4,694,205
=========== =========== =========== =========== ==========
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for interest.. $ 73,568 $ 75,272 $ 36,158 $ 12,901 $ 2,332
=========== =========== =========== =========== ==========
Supplemental schedule
of non-cash investing
and financing
activities:
Capital stock issued
for the purchase of
Theragen, Inc.
(note 4)............. $ 428,743 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
Assets acquired under
capital lease (note
6)................... $ 391,678 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
Issuance of stock in
payment of accrued
expenses............. $ 12,050 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) ORGANIZATION AND BUSINESS DESCRIPTION
GenVec, Inc. ("GenVec" or the "Company") was incorporated under the laws of
the state of Delaware on December 7, 1992. GenVec focuses on the development
and commercialization of novel gene therapy products for major disease
markets. GenVec's lead product candidate, BIOBYPASS angiogen, is currently in
Phase I/II clinical trials for the treatment of coronary artery disease.
GenVec also intends to initiate a Phase I/II clinical trial in patients with
peripheral vascular disease in May 1998. The Company is developing BIOBYPASS
angiogen as part of its collaboration with the Warner-Lambert Company
("Warner-Lambert"), under which the Company could receive payments totaling
over $100 million in milestone payments, research funding, equity purchases
and technology access fees, upon the achievement of specified milestones. As
of April 20, 1998, Warner-Lambert had paid to the Company $13.5 million under
this collaboration. The Company is also pursuing research and development
programs in the areas of vascular damage, oncology and neurology. GenVec has
entered into corporate collaborations with Varian Associates, Inc. ("Varian")
and Fuso Pharmaceutical Industries, Ltd. ("Fuso") in certain areas of
oncology.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The interim financial statements of the Company for the three months ended
March 31, 1997 and 1998, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements. In the opinion
of management, the accompanying unaudited interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at March 31, 1997 and
1998, and the results of its operations and its cash flows for the three
months ended March 31, 1997 and 1998.
Revenue Recognition
Revenue from research and development contracts is recognized when
performance obligations are met as defined under the terms of the respective
contracts. Revenue from milestone events is recognized when the milestone is
achieved. Research and milestone revenue recognized in the accompanying
statements of operations is not subject to repayment.
Research and Development
Research and development costs are charged to operations as incurred. Such
costs include proprietary research and development activities and expenses
associated with collaborative research agreements.
Technological License and Intellectual Property
Technological license and intellectual property costs consist of payments
associated with license agreements and legal costs associated with the
acquisition and development of intellectual property. Costs associated with
the acquisition and development of intellectual property are expensed when
incurred.
F-7
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Property and Equipment
Property and equipment are stated at cost. Capitalized lease assets are
stated at the lower of the present value of the future minimum lease payments
or fair value at the inception of the lease.
Property and equipment is depreciated over the estimated useful lives of
assets, generally three to seven years, using the straight-line method.
Income Taxes
Income taxes are accounted for in accordance with Statement 109, Accounting
for Income Taxes.
Under the asset and liability method of Statement 109, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less, and are recorded at amortized cost which
approximates fair value. Cash equivalents consist primarily of money market
funds, bonds and commercial paper.
Short-term Investments
The Company's short-term investments, consisting primarily of bonds and
commercial paper, are classified as held to maturity portfolio as the Company
has both the ability and intent to hold securities until maturity. The
portfolio is carried at amortized cost which approximates fair value.
Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share
The Company adopted Statement 128, Earnings Per Share, in 1997. Statement
128 requires the presentation of basic earnings (loss) per share and diluted
earnings (loss) per share, if more dilutive, for all periods presented.
In accordance with Statement 128, basic net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period. The Company has no nominal issued shares as defined in Securities
Exchange Commission Staff Accounting Bulletin No. 98.
Pro forma basic net loss per share as presented in the statement of
operations has been computed as described above and also gives effect to the
conversion of the convertible preferred stock that will occur upon completion
of the Company's initial public offering (using the as-if converted method
from the original date of issuance.)
F-8
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
A reconciliation of shares used in the calculation of basic and pro forma
basic net loss per share follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------ ENDED
1995 1996 1997 MARCH 31, 1998
-------- -------- ---------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Net loss....................... $ (7,549) $ (8,108) $ (1,255) $ (29)
======== ======== ========== ==========
Weighted average shares of
common stock outstanding
(shares used in computing
basic net loss per share)..... 561,319 801,769 956,856 976,365
Basic net loss per share....... $ (13.45) $ (10.11) $ (1.31) $ (0.03)
======== ======== ========== ==========
Shares used in computing basic
net loss per share............ 956,856 976,365
Adjustment to reflect the
effect of the assumed
conversion of preferred
stock......................... 6,042,263 6,042,263
---------- ----------
Shares used in computing pro
forma basic net loss per
share......................... 6,999,119 7,018,628
========== ==========
Pro forma basic net loss per
share......................... $ (0.18) $ (0.01)
========== ==========
</TABLE>
Had the Company been in a net income position, diluted earnings per share
would have been presented and would have included the shares used in the
computation of pro forma basic net loss per share as well as additional
potential common shares related to outstanding options and warrants. The
diluted EPS computation is not included, as all potential common shares are
antidilutive.
Pro Forma Balance Sheet (unaudited)
The unaudited pro forma balance sheet as of March 31, 1998, reflects the
conversion of the existing shares of convertible preferred stock into an
equivalent number of shares of common stock (adjusted for the common stock
reverse split), which conversion is contingent upon the closing of the
offering (see note 10).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, as reflected in
the accompanying balance sheets, approximate fair value. Financial instruments
consist of cash and cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued technological license and intellectual
property expenses, accrued expenses, accrued payroll and related expenses and
capital lease obligations.
Stock Option Plan
The Company accounts for its stock option plan in accordance with Statement
123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, Statement 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and provide pro forma
F-9
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
net income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method defined in Statement 123 had
been applied. Under APB Opinion No. 25, compensation expense would be recorded
on the date of grant only if the current market price of the underlying stock
exceeded the exercise price. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures of
Statement 123 for employee stock option grants. Non-employee stock option
grants (including options granted to members of the Scientific Advisory Board)
are recorded in accordance with the provisions of Statement 123.
(3) SHORT-TERM INVESTMENTS
The Company holds all securities to maturity. The amortized cost, gross
unrealized holding gains and losses and fair value for held-to-maturity
securities by major security type at December 31, 1996 and 1997 and March 31,
1998, are as follows:
<TABLE>
<CAPTION>
1996
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Corporate bonds...................... $1,686,350 $15,759 $1,702,109
Commercial paper..................... 892,774 (6,537) 886,237
---------- ------- ----------
$2,579,124 $ 9,222 $2,588,346
========== ======= ==========
Classified as cash equivalents:
Corporate bonds...................... $ 601,932 $ 37 $ 601,969
Commercial paper..................... 989,656 -- 989,656
---------- ------- ----------
$1,591,588 $ 37 $1,591,625
========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Tax exempt bonds..................... $ 499,191 $ 534 $ 499,725
Corporate bonds...................... 2,078,799 2,327 2,081,126
---------- ------ ----------
$2,577,990 $2,861 $2,580,851
========== ====== ==========
Classified as cash equivalents:
Corporate bonds...................... $1,998,589 $1,411 $2,000,000
Commercial paper..................... 1,286,427 -- 1,286,427
---------- ------ ----------
$3,285,016 $1,411 $3,286,427
========== ====== ==========
</TABLE>
F-10
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Tax exempt bonds..................... $ 499,591 $ 239 $ 499,830
Corporate bonds...................... 2,068,275 5,209 2,073,484
---------- ------ ----------
$2,567,866 $5,448 $2,573,314
========== ====== ==========
Classified as cash equivalents:
Commercial paper..................... $3,387,799 $ -- $3,387,799
---------- ------ ----------
$3,387,799 $ -- $3,387,799
========== ====== ==========
</TABLE>
(4) PURCHASE OF THERAGEN, INC.
Pursuant to an agreement effective August 8, 1994, the Company acquired
Theragen, Inc., ("Theragen") a gene therapy company incorporated under the
laws of the state of Michigan. This acquisition transferred all of Theragen's
technology, know-how and licenses to the Company. The purchase was effected
through an exchange of all shares of Theragen stock outstanding immediately
prior to the acquisition for up to 964,940 shares of the Company's capital
stock which was comprised of 304,486 shares of common stock, valued at $0.59
per share, 367,067 shares of Class B convertible preferred stock valued at
$5.90 per share, and options to purchase 39,455 shares of common stock at
$0.59 per share. This included contingent shares of 253,932 that were to be
issued or vested upon the achievement of certain milestones. The cost of the
acquisition was $2,580,798 in 1994, which consisted of the fair value as
determined by the Company's Board of Directors, of the Company's capital stock
contributed on the purchase date as well as other direct transaction-related
costs. These costs were recorded as purchase of in-process technology expense
since no capitalizable technology was purchased. The acquisition was accounted
for using the purchase method. Accordingly, the results of operations of the
acquired company were included with those of the Company for periods
subsequent to the date of acquisition.
In November 1995, the terms for the issuance or vesting of the contingent
shares were modified. Instead of issuing these shares upon the achievement of
certain milestones, shares and options were issued or vested in 1995 in an
amount equal to approximately 55.1% of the original issuable contingent shares
in lieu of all contingent rights of former Theragen stockholders. As a result,
68,579 shares of Class B convertible preferred stock were issued as $5.90 per
share and 63,492 shares of common stock were issued at $0.59 per share, while
options totaling 7,759 were vested, and 14,091 were canceled. Shares were
issued at fair value as determined by the Company's Board of Directors,. The
cost of the stock transaction is deemed to be part of the acquisition cost,
and is reflected in the accompanying statements of operations as purchase of
in-process technology expense.
(5) RESEARCH AND DEVELOPMENT AGREEMENTS
Fuso Pharmaceuticals Industries, Ltd.
In September 1997, the Company and Fuso established a collaboration to
conduct research and to identify, evaluate and develop gene therapy products
for the treatment of cancer. If the research program continues for its full
term, Fuso is required to provide $1.0 million in research funding annually
for five years, of which $750,000 will be paid to the Company each year. Fuso
has the right to terminate the collaboration after the second anniversary of
the collaboration upon 90 days prior written notice. In connection with
F-11
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
establishment of the collaboration, Fuso purchased $1.0 million of the
Company's capital stock consisting of 75,329 shares of the Company's Class E
convertible preferred stock for $13.28 per share. The Company recognized
contract revenues from Fuso of $187,500 for the year ended December 31, 1997
and $187,500 for the three months ended March 31, 1998.
As part of the collaboration, the Company granted Fuso an exclusive,
royalty-bearing license to develop and commercialize products developed under
the collaboration for the treatment of cancer in Japan and at Fuso's option,
Korea and Taiwan. Fuso will be responsible for the development and
commercialization of any products in its territory. The Company will receive
additional payments for the achievement by Fuso of specified product
development and regulatory milestones, and royalties on the sale of any such
products commercialized by Fuso. The Company has retained all rights to
develop and commercialize such products for the treatment of cancer in the
rest of the world, and for all other uses worldwide, subject to certain
restrictions, independently and with third parties.
Warner-Lambert Company
In July 1997, Warner-Lambert, a stockholder then owning 7,487 shares of the
Company's common stock and 187,405 shares of the Company's Class B preferred
stock, entered into a collaboration agreement and a stock purchase agreement
with the Company to develop and commercialize gene therapy products
incorporating the VEGF gene for therapeutic angiogenesis ("Collaboration
Products"). Under the agreements, the Company may receive more than $100
million in milestone payments, research funding, equity purchases and
technology access fees, if specified milestones are achieved. Under the
collaboration agreement, the Company has the potential to receive $25.0
million in research funding, of which $6.0 million, $6.0 million, $5.0
million, $4.0 million and $4.0 million will be paid in years 1, 2, 3, 4, and 5
of the collaboration, respectively. GenVec also has the potential to receive
$25.0 million in milestone payments related to the development of
Collaboration Products for each of coronary artery disease and peripheral
vascular disease. Through April 20, 1998, Warner-Lambert had paid the Company
$4.0 million with respect to such milestone payments of which the Company had
recognized revenues of $2.0 million for the year ended December 31, 1997 and
$2.0 million for the three month period ended March 31, 1998. Additional
milestone payments will be paid to the Company upon the achievement of events
related to the conduct of pivotal clinical studies, and filing for and
receiving regulatory approvals to market Collaboration Products. In the
aggregate, Warner-Lambert had paid to the Company $9.5 million in technology
access fees and research funding through April 20, 1998, of which the Company
recognized revenues of $8.0 million for the year ended December 31, 1997 and
$1.5 million for the three month period ended March 31, 1998.
Pursuant to the stock purchase agreement, Warner-Lambert purchased $2.0
million of the Company's capital stock in December 1997, consisting of 154,963
shares of the Company's Class E1 preferred stock at a price of approximately
$12.91 per share. In addition, Warner-Lambert has agreed to purchase $5.0
million of the Company's common stock in a private transaction concurrent with
an IPO at 125% of the price at which a share of common stock is sold to the
public.
Warner-Lambert's research and development funding obligations extend through
2002, although Warner-Lambert may terminate the research program under the
collaboration agreement with six months written notice after July 21, 2000.
Both parties have the right to terminate the collaboration agreement for
breach. The collaboration agreement expires on a Collaboration Product-by-
Collaboration Product and country-by-country basis until neither party has any
remaining royalty obligations. The stock purchase agreement terminates upon
the termination of the collaboration agreement.
F-12
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Genentech, Inc.
In May 1993, Genentech, Inc. ("Genentech"), a stockholder owning 56,610
shares of the Company's Class A preferred stock, and 338,983 shares each of
the Company's Class B and Class C convertible preferred stock as of December
31, 1997 and March 31, 1998, executed a research and development agreement
with the Company. Under this agreement, the Company performed research and
development activities with respect to gene therapy products for cystic
fibrosis. Genentech was required to make certain research and development
payments and certain milestone payments to the Company aggregating up to
$12.75 million, in exchange for the right to develop, manufacture, and sell
potential products in the cystic fibrosis field. Effective September 12, 1996,
the research and development agreement between the Company and Genentech
terminated due to a change in research focus. Contract revenues of $1,000,000,
$698,370 and $0 were recognized from Genentech in 1995, 1996 and 1997,
respectively.
Varian Associates, Inc.
In March 1998, the Company and Varian entered into a three-year
collaborative agreement in the field of radiation and gene therapy. Under the
agreement, the parties will collaborate on the preclinical and clinical
research and development of specific products and technology, with the goal of
developing novel, improved therapies based on the combined use of radiation
therapy and gene therapy products. Varian will have primary responsibility for
the development of equipment and software for delivery of targeted radiation
therapy, and the Company will have primary responsibility for developing gene
therapy products. The Company and Varian each retain the right to develop and
commercialize their respective products and technologies independently or with
third parties.
Scios, Inc.
In May 1996, the Company entered into an exclusive, worldwide license
agreement with Scios for rights to all gene therapy applications of its
proprietary form of the VEGF gene. The parties will share in certain profits
the Company realizes from the research, development and commercialization of
products incorporating the VEGF gene. The Company has agreed to provide a
minimum royalty on revenues generated from the development of these products,
which is creditable against the profits to be shared. In connection with the
license agreement, Scios purchased 96,852 shares of the Company's Class D
convertible preferred stock at a price of $10.33 per share. In addition, the
Company granted Scios a warrant to purchase shares of the Company's Common
Stock, which vests upon the earlier of the achievement of specified product
development milestone events or certain dates. The warrants remain outstanding
as of March 31, 1998.
(6) COMMITMENTS
Lease Agreements
In January 1994, the Company entered into a capital lease agreement allowing
it to fund the acquisition of up to $1.5 million of furniture and equipment
purchases. Lease terms of new purchases were 42 months with an interest rate
of 9.6%. In connection with this agreement, the Company granted the lessor
warrants to purchase approximately 23,800 shares of Class B convertible
preferred stock at a purchase price of approximately $5.90 per share. Pursuant
to this lease agreement, in May 1994, the Company entered into a sale lease-
back transaction whereby it sold and subsequently leased-back furniture and
equipment to which it held title. Additional equipment purchases have been
funded under extensions made to this agreement through 1996.
F-13
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Included in property and equipment at December 31, 1996 and 1997 and March
31, 1998, are assets recorded under this agreement of $1,404,620, $813,552 and
$732,155, respectively. Accumulated depreciation and amortization at December
31, 1996 and 1997 and March 31, 1998, includes amounts for the capital lease
of $906,311, $716,565 and $693,277, respectively.
Future minimum lease payments due under this capital lease at December 31,
1997, are as follows:
<TABLE>
<S> <C>
1998............................................................... $186,007
1999............................................................... 47,988
--------
Total minimum lease payments....................................... 233,995
Less amounts representing interest at 9.6%......................... 12,821
--------
Present value of minimum capital lease payments.................... 221,174
Less current installments.......................................... 174,611
--------
Obligations under capital lease, net of current installments....... $ 46,563
========
</TABLE>
During 1997, portions of the Company's capital lease expired. The Company
has continued leasing assets under the expired leases on a month-to-month
basis.
In addition to the aforementioned capital lease, the Company leases office
and laboratory space under month-to-month operating leases. The Company may
terminate the office and laboratory space leases, one at a time, over a
minimum period of 210 days. Rent expense under operating leases was
approximately $156,000, $167,000 and $240,000 for the years ended December 31,
1995, 1996 and 1997, and approximately $50,000 and $117,000 for the three
months ended March 31, 1997 and 1998, respectively.
Research and Development Agreements
The Company has agreed to provide grants for certain research projects under
agreements with several universities and research organizations. Under the
terms of these agreements, the Company has received exclusive licenses to the
resulting technology. Total grants paid by the Company were $2,598,000,
$2,277,000 and $2,734,000 for the years ended December 31, 1995, 1996 and
1997, and $711,000 and $608,000 for the three months ended March 31, 1997 and
1998, respectively. The Company has commitments to pay up to approximately
$2,064,000, $1,698,000, $1,425,000, $1,425,000 and $356,000 related to these
grants for the years ended 1998, 1999, 2000, 2001, and 2002, respectively .
(7) STOCKHOLDERS' EQUITY
Capital Changes
Effective in December 1995, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 7,848,321 shares
of common stock and 3,570,332 shares of Class C convertible preferred stock,
each having a par value of $0.001 per share.
Effective in June 1996, the Company restated its Certificate of
Incorporation which effected the authorization of a total of 8,814,423 shares
of common stock and 338,983 shares of Class D convertible preferred stock,
each having a par value of $0.001 per share.
F-14
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Effective in December 1997, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 9,553,191 shares
of common stock, 75,329 shares of Class E convertible preferred stock and
154,963 shares of Class E1 convertible preferred stock, each having a par
value of $0.001 per share.
Convertible Preferred Stock
In September 1995, the Company issued an additional 2,095,763 shares of
Class C convertible preferred stock in a private placement. In May 1996, the
Company issued 96,852 shares of Class D convertible preferred stock. In
December 1997, the Company issued 75,329 shares of Class E convertible
preferred stock and 154,963 shares of Class E1 convertible preferred stock.
Since its inception, the Company has issued 6,042,263 shares of convertible
preferred stock (Class A, B, C, D, E and E1) for aggregate cash consideration
of $34,482,000. Preferred stockholders participate in the dividends declared
to common stockholders, if any, in an amount proportionate to the number of
shares of common stock into which the preferred stock is convertible.
Preferred holders are entitled to one vote for each share of common stock into
which the preferred shares can be converted.
In the event of any voluntary or involuntary liquidation of the Company,
before any distribution can be made to the holders of common stock, the
preferred stockholders are entitled to receive payment of $2.95 for each share
of Class A convertible preferred stock, $5.90 for each share of Class B and C
convertible preferred stock, $10.33 for each share of Class D convertible
preferred stock, $13.28 for each share of Class E convertible preferred stock
and $12.91 for each share of Class E1 convertible preferred stock plus any
declared but unpaid dividends. No dividends were declared for the years ended
December 31, 1995, 1996 and 1997, or for the three months ended March 31,
1998.
Holders of Class A, B, C, D, E and E1 convertible preferred stock have the
right at any time, at their option, to convert without the payment of
additional consideration, each preferred stock share into an equivalent number
of common stock shares. Holders of Class A, B, C, D, E and E1 convertible
preferred stock convert at a one-for-one basis. The conversion rates of the
Class A, B and C convertible preferred stock are subject to certain
antidilution adjustments in the event of certain issuances of stock by the
Company at prices below the original purchase price of the stock. The Company
has reserved 6,042,263 shares of common stock for issuance upon conversion of
the Class A, B, C, D, E and E1 convertible preferred stock. Upon the
occurrence of an initial public offering of GenVec stock which yields the
Company at least $15 million, all preferred stock shares will convert to
common stock shares. The preferred stockholders have voting rights equal to
the common shares they would own upon conversion.
Treasury Stock
Outstanding shares of common stock totaling 47,300 were repurchased by the
Company in 1996 at $0.59 per share. The shares were purchased from two
employees who left the Company in 1996.
Restricted Common Stock
In 1993, the Company issued to a former officer a total of 185,939 shares of
restricted common stock at a purchase price equal to the fair market value on
the date of grant in 1993, and recorded notes receivable as a reducing
component of equity (reduction in additional paid-in capital). As of March 31,
1998, 135,092 shares are still restricted and the Company has a note
receivable with a former officer for $79,704 plus accrued interest of $27,760
related to this restricted common stock.
F-15
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Stock Incentive Plan
The Company adopted its 1993 Stock Incentive Plan (the "Stock Plan") in
October 1993. The Stock Plan was amended and restated in October 1997 and
April 1998. An aggregate of 1,846,218 shares of common stock has been reserved
for issuance, which number will be increased on each anniversary date of the
adoption of the Stock Plan, beginning in 1999, by a number of shares equal to
the number of shares needed to restore the maximum aggregate number of shares
reserved for issuance under the Stock Plan to 1,846,218 or a lesser amount
determined by the Board of Directors. The Stock Plan will continue in effect
for a term of ten years, unless terminated by the Board at an earlier date.
Options to purchase common stock under the Stock Plan are exercisable at the
rate of 12.5% of the shares six months from the vesting commencement date and
approximately 1/48th of the shares monthly thereafter, such that the option is
fully exercisable four years from the vesting commencement date.
The maximum term for options granted under the Stock Plan is ten years,
except that if, at the time of the grant, the optionee possesses more than ten
percent of the combined voting power of the Company, the maximum term of the
option is five years. Exercise prices of the options approximates fair value
on the date of grant, however, for options granted to a ten percent
stockholder, then the exercise price must be equal to at least 110% of the
fair value of the stock on the date of grant. Options granted under the Stock
Plan expire three months after the termination of an optionee's service to the
Company.
The Company applies Statement 123 for options granted to consultants. In
adopting Statement 123 for options granted to consultants, $105,060 and
$84,898 for the years ended December 31, 1996 and 1997, and $19,000 for the
three months ended March 31, 1998, was recognized for compensation expense to
consultants.
The Company applies APB Opinion No. 25 in accounting for its stock option
plan for options granted to employees and accordingly, no compensation expense
has been recognized in the financial statements. Had the Company determined
compensation expense based on the fair value at the grant date for its stock
options issued to employees under Statement 123, the Company's net loss would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
----------- ----------- ----------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss................ As reported $(7,549,172) $(8,108,161) $(1,255,258) $(29,088)
=========== =========== =========== ========
Pro forma (7,571,594) (8,179,600) (1,381,997) (29,088)
=========== =========== =========== ========
Basic net loss per
common share........... As reported $ (13.45) $ (10.11) $ (1.31) $ (0.03)
=========== =========== =========== ========
Pro forma (13.49) (10.20) (1.44) (0.03)
=========== =========== =========== ========
</TABLE>
Pro forma net loss reflects compensation expense under Statement 123 only
for options granted for the years ended December 31, 1995, 1996 and 1997, and
for the three months ended March 31, 1998. Therefore, the full impact of
calculating compensation expense for stock options under Statement 123 is not
reflected in the pro forma net loss amounts presented above because
compensation expense is reflected over the options' vesting period and
compensation expense for options granted prior to January 1, 1995, is not
considered.
F-16
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
---------- ---------- ---------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Dividend yield.............. -- -- -- --
Expected volatility......... 63% 63% 60% 60%
Risk free interest rate..... 5.8% 5.8% 5.78% 5.78%
Expected life............... 4.25 years 4.25 years 4.25 years 4.25 years
</TABLE>
A summary of the status of the Company's stock options as of December 31,
1995, 1996 and 1997 and March 31, 1998 and changes during the period ending on
those dates is presented below:
<TABLE>
<CAPTION>
1995 1996 1997 MARCH 31, 1998
---------------- ---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000)'S PRICE (000)'S PRICE (000)'S PRICE (000)'S PRICE
------- -------- ------- -------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 382 $0.59 863 $0.71 860 $1.06 1,114 $1.95
Granted................. 507 0.77 617 1.12 335 4.01 -- --
Cancelled............... (18) 0.18 (304) (0.59) (47) 0.53 -- --
Exercised............... (8) 0.65 (316) 0.59 (34) 0.65 (8) 0.59
--- ----- ---- ----- ----- ----- ----- -----
Outstanding at end of
period................. 863 $0.71 860 $1.06 1,114 $1.95 1,106 $1.95
Options exercisable at
end of period.......... 318 $0.59 326 $0.89 562 $1.18 614 $1.30
Weighted average fair
value of options
granted during the
period................. $0.30 $0.65 $2.18 $ --
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
RANGE WEIGHTED AVERAGE WEIGHTED WEIGHTED
OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- --------------- --------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$0.06 1,700 7.63 years $0.06 1,700 $0.06
0.59 570,377 6.89 0.59 418,353 0.59
0.65-1.00 8,648 6.25 1.00 8,648 0.94
1.48 90,672 8.25 1.48 50,957 1.48
3.54 193,209 8.59 3.54 101,945 3.54
4.13 238,129 9.50 4.13 28,979 4.13
5.90 3,220 7.08 5.90 3,220 5.90
---------- --------- ---- ----- ------- -----
$0.06-5.90 1,105,955 7.84 $1.95 613,802 $1.30
========= =======
</TABLE>
F-17
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Warrants
Warrants to purchase common and preferred stock are granted to organizations
and institutions in conjunction with certain research activities. The warrants
vest according to a combination of time and events as prescribed in the
agreements. The Company applies the provisions of APB Opinion No. 25 to
warrants issued prior to 1996. No warrants were granted during the year ended
December 31, 1997, or for the three months ended March 31, 1998. During the
year ended December 31, 1997, 33,898 warrants expired. At December 31, 1996
and 1997 and March 31, 1998, the Company had the following warrants
outstanding.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
EXERCISE ------------------ ------------------- -------------------
PRICE OUTSTANDING VESTED OUTSTANDING VESTED OUTSTANDING VESTED
-------- ----------- ------ ----------- ------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Class B preferred stock
warrants............... $ 5.90 40,756 23,807 40,756 23,807 40,756 23,807
====== ======= ====== ======= ======= ======= =======
Common stock warrants... $14.75 101,694 16,949 67,796 33,898 67,796 33,898
$13.28 211,864 -- 211,864 158,898 211,864 158,898
------ ------- ------ ------- ------- ------- -------
Total common stock
warrants............... 313,558 16,949 279,660 192,796 279,660 192,796
======= ====== ======= ======= ======= =======
</TABLE>
(8) INCOME TAXES
A reconciliation of tax credits computed at the statutory federal tax rate
on loss from operations before income taxes to the actual income tax expense
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -------------------
1995 1996 1997 1997 1998
----------- ----------- --------- --------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Tax provision computed
at the statutory rate.. $(2,642,000) $(2,838,000) $(439,300) $(731,400) $(10,200)
State income taxes, net
of federal income tax
provision.............. (284,000) (324,000) (50,200) (83,600) (1,200)
Purchase of in-process
technology............. 155,000 -- -- -- --
Book expenses not
deductible for tax
purposes............... 5,000 6,000 8,100 2,000 5,200
Research and
experimentation tax
credit................. (263,000) 41,000 (144,900) (36,200) (36,200)
Change in the beginning
of the period valuation
allowance for deferred
tax assets allocated to
tax expense............ 3,032,000 3,086,000 624,900 847,700 43,900
Other, net.............. (3,000) 29,000 1,400 1,500 (1,500)
----------- ----------- --------- --------- --------
Income tax expense...... $ -- $ -- $ -- $ -- $ --
=========== =========== ========= ========= ========
</TABLE>
F-18
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Deferred income taxes reflect the net effects of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax
assets as of December 31, 1996 and 1997 and March 31, 1998, are as follows:
<TABLE>
<CAPTION>
1996 1997 MARCH 31, 1998
----------- ----------- --------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.... $ 9,703,000 $10,031,000 $10,684,000
Research and experimentation tax
credit............................. 541,000 686,000 722,000
Cumulative effect of using cash
basis method of accounting for
income tax purposes................ 364,000 433,000 (229,000)
Property and equipment, principally
due to differences in
depreciation....................... 66,000 115,000 131,000
Other............................... 41,000 75,000 76,000
----------- ----------- -----------
Total deferred tax assets............. 10,715,000 11,340,000 11,384,000
Valuation allowance................... (10,715,000) (11,340,000) (11,384,000)
----------- ----------- -----------
Net deferred tax asset................ $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The valuation allowance for deferred tax assets increased approximately
$3,032,000, $3,086,000 and $625,000 for the years ended December 31, 1995,
1996 and 1997, respectively and increased approximately $44,000 for the three
months ended March 31, 1998.
At March 31, 1998, the Company has net operating loss carryforwards of
approximately $27.4 million for federal income tax purposes of which $25.7
million expire at various dates through 2012, and $1.7 million expire in 2018,
including $1,493,000 which were acquired from the purchase of Theragen (note
4). The Company also has research and experimentation tax credit carryforwards
of $722,000 at March 31, 1998, of which $686,000 expire through 2012 and
$36,000 expire in 2018. These carryforwards may be significantly limited under
the Internal Revenue Code as a result of ownership changes experienced by the
Company.
(9) DEFINED CONTRIBUTION PLAN--401(K)
The Company has a defined contribution plan (the "Plan") under Internal
Revenue Code Section 401(k) which became effective on January 1, 1995. All
full-time employees who have completed six months of service and are over age
21 are eligible for participation in the Plan. Participants may elect to have
up to 15% of compensation contributed to the Plan. Under the Plan, the
Company's contributions are discretionary. During the years ended December 31,
1995, 1996 and 1997, and for the three months ended March 31, 1998, no
discretionary contributions were made.
(10) SUBSEQUENT EVENTS
Reverse Stock Split
On June 2, 1998, the Company effected a 5.9 for 1 reverse stock split. All
common and preferred share, per share and pro forma amounts in the
accompanying financial statements have been retroactively adjusted for all
periods presented to reflect this reverse stock split for all periods
presented.
F-19
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Capital Changes
Effective in May 1998, the Company amended and restated its Certificate of
Incorporation which effected the authorization of a total of 50,000,000 shares
of common stock, 5,000,000 shares of undesignated preferred stock, 226,099
shares of Class A convertible preferred stock, 1,959,444 shares of Class B
convertible preferred stock, 3,570,332 shares of Class C convertible preferred
stock, 96,852 shares of Class D convertible preferred stock, 75,329 shares of
Class E convertible preferred stock and 154,963 of Class E-1 convertible
preferred stock, each having a par value of $0.001 per share.
Initial Public Offering (unaudited)
On April 27, 1998, the Board of Directors authorized the filing of a
registration statement for the offering with the Securities and Exchange
Commission for the sale of 2,500,000 shares of common stock. If the offering
is consummated under the terms presently anticipated, all 6,042,263 shares of
the convertible preferred stock outstanding as of the closing date of the
offering will be automatically converted into 6,042,263 shares of common stock
on a 1 for 1 basis. No dividends will be payable with respect to such
preferred stock. The deferred offering costs associated with the offering will
be recorded as a reduction of stockholders' equity if the offering is
consummated. If the offering is not consummated, the deferred offering costs
will be charged to operations.
1998 Employee Stock Purchase Plan
In April 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 350,000 shares of common stock.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase
Plan will commence on the effective date of the prospectus and terminate on
April 30, 2000.
Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company for
at least 20 hours per week and for at least five months per calendar year.
Employees who participate in an offering may have up to ten percent of their
earnings withheld pursuant to the Purchase Plan. The amount withheld is then
used to purchase shares of the common stock on specified dates determined by
the Board. The price of common stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering or the relevant purchase date. Employees
may end their participation in an offering at any time during the offering,
and participation ends automatically on termination of employment with the
Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has the discretion to provide that each right
to purchase common stock will be assumed or an equivalent right substituted by
the successor corporation or the Board may shorten this offering, and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase common
stock.
1998 Director Option Plan
In April 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") to provide for the automatic grant of options to purchase
shares of common stock to non-employee directors of the Company.
F-20
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
DECEMBER 31, 1997 AND 1996
The maximum number of shares of common stock that may be issued pursuant to
options granted under the Director Plan is 130,000 shares. Each person who
becomes an outside director is automatically granted, on the date of such
person's election or appointment, an option to purchase 10,000 shares of
common stock. In addition, each outside director shall be granted an option to
purchase 5,000 shares of common stock on (i) the effective date of this
offering and (ii) the date of each of the Company's annual meetings of
stockholders provided such person is still an outside director and that such a
person shall have served on the date of the grant on the board for at least
the preceding six months. Each option granted under the Director Plan has a
term of ten years. The options vest over a four-year period. The exercise
price per share of options shall be 100% of the fair market value per share on
the date of the grant. Options granted under the Director Plan are generally
non-transferable. Unless otherwise terminated by the Board of Directors, the
Director Plan terminates automatically in April 2008. As of March 31, 1998, no
options to purchase shares of common stock had been granted under the Director
Plan.
Employee Stock Options
In April 1998, the Board of Directors granted options to employees to
purchase 101,689 shares of common stock at an exercise price of $5.90 per
share. The Company will record deferred compensation expense during the three
months ended June 30, 1998 in the amount of $518,614 (unaudited) which will be
recognized as compensation expense over the four year vesting period of the
options.
(11) NEW FINANCIAL ACCOUNTING STANDARDS
Statement 130
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Statement 130 establishes standards for the required reporting and display of
comprehensive income and its components in equal prominence with other
financial statements. Statement 130 was issued to address concerns over the
practice of reporting elements of comprehensive income directly in equity.
Statement 130 is effective for both interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect the provisions of this
Statement. On January 1, 1998, the Company adopted Statement 130. Statement
130 did not affect the current or prior period financial statement displays
presented by the Company.
Statement 131
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. Statement 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Statement 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated, unless it is impracticable to
do so. Statement 131 need not be applied to interim financial statements in
the initial year of its application, but comparative information for interim
periods in the initial year of application shall be reported in financial
statements for interim periods in the second year of application. It is not
anticipated that Statement 131 will have any material effect on current or
prior period disclosures presented by the Company.
F-21
<PAGE>
Restenosis, or re-narrowing of blood vessels, associated with angioplasty and
stent placement is a major problem in cardiovascular medicine. Vascular damage
caused by these procedures often produces proliferation of smooth muscle cells
and the inhibition of endothelial cell layer regrowth, leading to vessel
narrowing and impaired blood flow. The Company is currently developing Ad.iNOS,
an adenovirus vector containing the inducible nitric oxide synthase gene, for
the treatment of vascular damage associated with angioplasty and other
applications, such as arteriovenous grafts.
[Two figures of cross-sectional images of blood vessels from animal models of
restenosis illustrate the text immediately below the figures. Figure 1 is taken
from the control subject. Figure 2 is taken from the subject treated with
Ad.iNOS and shows the inhibition of vessel re-narrowing relative to Figure 1.]
The Company's Ad.iNOS product candidate was evaluated using an animal model
of restenosis. Vascular injury was induced in a major blood vessel of the
animal through the introduction of a catheter, followed immediately by an
infusion of either Ad.iNOS or a control directly to the site of damage.
Examination several weeks later revealed evidence of smooth muscle cell
proliferation and significant vessel re-narrowing in the control group (figure
1). In contrast, vessel re-narrowing in Ad.iNOS-treated animals was inhibited
(figure 2). Long-term studies on the effects of Ad.iNOS have not been
conducted. AD.iNOS is not currently marketed by GenVec, and there can be no
assurance that the Company will be able to obtain the necessary regulatory
approvals to do so in the future. See "Risk Factors--Uncertainties Related to
Clinical Development."
<PAGE>
[LOGO OF GENVEC APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 11,025
NASD filing fee................................................. 4,237
Printing and engraving costs.................................... 130,000
Legal fees and expenses......................................... 400,000
Accounting fees and expenses.................................... 150,000
Blue Sky fees and expenses...................................... 10,000
Transfer Agent and Registrar fees............................... 10,000
Miscellaneous expenses.......................................... 184,736
--------
Total......................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in the terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation to be filed upon the closing of the offering to
which this Registration Statement relates (Exhibit 3.3 hereto) and the
Registrant's Bylaws (Exhibit 3.5 hereto) provides for indemnification of the
Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
Registrant has also entered into agreements with its directors and executive
officers that require the Registrant among other things to indemnify them
against certain liabilities that may arise by reason of their status or
service as directors to the fullest extent not prohibited by Delaware law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since April 1995, the Registrant has issued and sold the following
unregistered securities (as adjusted to reflect the 5.9 to 1 reverse stock
split consummated in June 1998):
(1) From April 1, 1995 to March 31, 1998, Registrant granted options to
purchase 1,261,281 shares of Common Stock pursuant to its Amended and
Restated 1993 Stock Incentive Plan at exercise prices ranging from $.59 per
share to $4.13 per share.
(2) From April 1, 1995 to March 31, 1998, Registrant issued and sold an
aggregate of 363,159 shares of Common Stock to its employees, directors and
consultants upon exercise of stock options granted pursuant to Registrant's
Amended and Restated 1993 Stock Incentive Plan at exercise prices ranging
from $0.059 to $0.59 for an aggregate consideration of $1,266,994 .
(3) In September 1995, Registrant issued and sold an aggregate of
2,095,763 shares of Class C Convertible Preferred Stock to private
investors for aggregate cash consideration of $12,365,000. The following
investors purchased shares of Class C Convertible Preferred Stock: Canaan
Capital Limited
II-1
<PAGE>
Partnership, Canaan Capital Offshore Limited Partnership, C.V., Canaan
S.B.I.C., L.P. (collectively, the "Canaan Entities"), Biotech Target SA,
CIP Capital L.P., The CIT Group/Venture Capital, Inc., Fourth Generation
Partners, Mindful Partners, Prism Partners I, Quai Limited, State of
Michigan Pension Fund, Betty S. Bardige. Harry T. Rein, a director of the
Registrant, is a general partner of each of the Canaan Entities. Bruce
Schackman, a former director of the Registrant, is a managing director of
The CIT Group Venture Capital, Inc.
(4) In May 1996, Registrant issued and sold an aggregate of 96,852 shares
of Class D Convertible Preferred Stock to Scios, Inc.. for an aggregate
cash consideration of approximately $1.0 million.
(5) In October 1997, Registrant issued and sold an aggregate of 75,329
shares of Class E Convertible Preferred Stock to Fuso Pharmaceuticals
Industries, Ltd. for an aggregate cash consideration of approximately $1.0
million.
(6) In December 1997, Registrant issued and sold an aggregate of 154,963
shares of Class E-1 Convertible Preferred Stock to Warner-Lambert Company
for an aggregate cash consideration of approximately $2.0 million. Wendell
Wierenga, a director of the Registrant, is the Senior Vice President of
Worldwide Preclinical Research, Development and Technologies for the Parke-
Davis Pharmaceuticals Research division of Warner-Lambert Company.
There were no underwriters employed in connection with any of the above
transactions. See "Certain Transactions" in the form of the Prospectus
included herein.
The sales of the securities described in Items 15(1) and 15(2) were deemed
to be exempt from registration under the Securities Act in reliance on Rule
701 promulgated under Section 3(b)of the Securities Act as transactions
pursuant to compensatory benefit plans and contracts relating to compensation
as provided under such Rule 701. The sale of securities described in Items 15
(3) through 15 (6) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer not
involving a public offering. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access,
through employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of the Registrant, as currently
in effect.
3.2++++ Restated Certificate of Incorporation of the Registrant, to be filed
prior to the closing of the offering.
3.3+++ Restated Certificate of Incorporation, to be filed immediately
following the offering.
3.4++ Restated Bylaws of the Registrant as currently in effect.
3.5+++ Restated Bylaws, to be effective upon the closing of the offering.
4.1++++ Specimen Common Stock Certificate
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1++ Form of Indemnification Agreement for Directors and Officers.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<C> <S>
10.2+++ Amended and Restated 1993 Stock Incentive Plan and forms of
agreements thereunder.
10.3+++ 1998 Employee Stock Purchase Plan.
10.4+++ 1998 Director Option Plan.
10.5++++ +Research, Development and Collaboration Agreement dated July 21,
1997 between the Warner-Lambert Company and the Registrant.
10.6++++ +Stock Purchase Agreement dated July 21, 1997 between the Warner-
Lambert Company and the Registrant.
10.7++++ +License Agreement dated May 31, 1996 between Scios, Inc. and the
Registrant.
10.8++++ +Stock Purchase Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.9++++ +Collaboration Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.10++++ +Commercialization Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries Ltd. and the Registrant.
10.11++++ +License Agreement dated February 1, 1998 between Asahi Chemical
Industry Co., Ltd. and the Registrant.
10.12++++ +Sponsored Research Agreement dated April 1, 1998 between Cornell
University and the Registrant.
10.13++++ +Amended and Restated Exclusive License Agreement dated April 1,
1993 between Cornell University and the Registrant.
10.14 Lease Agreement between Trizechahn Twinbrook Metro Limited
Partnership, a Maryland limited partnership.
10.15 Lease Agreement dated September 1, 1997 between Biomedical Institute
and Registrant.
10.16++ Letter Agreement dated March 9, 1995 between the Registrant and Paul
H. Fischer.
10.17++ Letter Agreement dated June 6, 1993 between the Registrant and Imre
Kovesdi.
10.18++ Letter Agreement dated March 9, 1995 between the Registrant and
Thomas E. Smart.
10.19++ Consulting Agreement dated April 28, 1998 between the Registrant and
Herbert J. Conrad.
10.20+++ Registration Rights Agreement dated April 22, 1998 among the
Registrant and certain stockholders.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit
5.1).
23.3++ Consent of Leydig, Voit & Mayer, Ltd.
24.1++ Power of Attorney (see page II-5 of Registration Statement filed on
April 30, 1998).
27.1++ Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------
++++ Previously filed with Amendment No. 2 to the Registration Agreement on
June 3, 1998.
+++ Previously filed with Amendment No. 1 to the Registration Agreement on May
22, 1998.
++ Previously filed with original Registration Statement on April 30, 1998.
+ Confidential treatment requested.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(a) It will provide to the Underwriters at the closing as specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar volume of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
II-4
<PAGE>
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide Offering thereof;
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
ROCKVILLE, MARYLAND, ON THE 18TH DAY OF JUNE, 1998.
GenVec, Inc.
/s/ Paul H. Fischer
By___________________________________
Paul H. Fischer, President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Paul H. Fischer Director, President June 18, 1998
- ------------------------------------- and Chief Executive
(PAUL H. FISCHER) Officer (Principal
Executive Officer;
Principal Financial
and Accounting
Officer)
Hal S. Broderson * Director June 18, 1998
- -------------------------------------
(HAL S. BRODERSON)
Herbert J. Conrad * Director June 18, 1998
- -------------------------------------
(HERBERT J. CONRAD)
Harry T. Rein * Director June 18, 1998
- -------------------------------------
(HARRY T. REIN)
Wendell Wierenga * Director June 18, 1998
- -------------------------------------
(WENDELL WIERENGA)
Gregory Zaic * Director June 18, 1998
- -------------------------------------
(GREGORY ZAIC)
/s/ Paul H. Fischer
*By:_________________________________
Paul H. Fischer, Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of the Registrant, as
currently in effect.
3.2++++ Restated Certificate of Incorporation of the Registrant, to be filed
prior to the closing of the offering.
3.3+++ Restated Certificate of Incorporation, to be filed immediately
following the offering.
3.4++ Restated Bylaws of the Registrant as currently in effect.
3.5+++ Restated Bylaws, to be effective upon the closing of the offering.
4.1++++ Specimen Common Stock Certificate
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1++ Form of Indemnification Agreement for Directors and Officers.
10.2+++ Amended and Restated 1993 Stock Incentive Plan and forms of
agreements thereunder.
10.3+++ 1998 Employee Stock Purchase Plan.
10.4+++ 1998 Director Option Plan.
10.5++++ +Research, Development and Collaboration Agreement dated July 21,
1997 between the Warner-Lambert Company and the Registrant.
10.6++++ +Stock Purchase Agreement dated July 21, 1997 between the Warner-
Lambert Company and the Registrant.
10.7++++ +License Agreement dated May 31, 1996 between Scios, Inc. and the
Registrant.
10.8++++ +Stock Purchase Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.9++++ +Collaboration Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.10++++ +Commercialization Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries Ltd. and the Registrant.
10.11++++ +License Agreement dated February 1, 1998 between Asahi Chemical
Industry Co., Ltd. and the Registrant.
10.12++++ +Sponsored Research Agreement dated April 1, 1998 between Cornell
University and the Registrant.
10.13++++ +Amended and Restated Exclusive License Agreement dated April 1,
1993 between Cornell University and the Registrant.
10.14 Lease Agreement between Trizechahn Twinbrook Metro Limited
Partnership, a Maryland limited partnership.
10.15 Lease Agreement dated September 1, 1997 between Biomedical Institute
and Registrant.
10.16++ Letter Agreement dated March 9, 1995 between the Registrant and Paul
H. Fischer.
10.17++ Letter Agreement dated June 6, 1993 between the Registrant and Imre
Kovesdi.
10.18++ Letter Agreement dated March 9, 1995 between the Registrant and
Thomas E. Smart.
10.19++ Consulting Agreement dated April 28, 1998 between the Registrant and
Herbert J. Conrad.
10.20+++ Registration Rights Agreement dated April 22, 1998 among the
Registrant and certain stockholders.
23.1 Consent of KPMG Peat Marwick LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.3++ Consent of Leydig, Voit & Mayer, Ltd.
24.1++ Power of Attorney (see page II-5 of Registration Statement filed on
April 30, 1998).
27.1++ Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------
++++ Previously filed with Amendment No. 2 to the Registration Agreement on
June 3, 1998.
+++ Previously filed with Amendment No. 1 to the Registration Agreement on May
22, 1998.
++ Previously filed with original Registration Statement on April 30, 1998.
* To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 1.1
DRAFT 5/20/98
-------------
2,500,000 SHARES/1/
GENVEC, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
____________, 1998
BANCAMERICA ROBERTSON STEPHENS
J.P. MORGAN SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
GenVec, Inc., a Delaware corporation (the "Company"), addresses you as
the Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell 2,500,000
---------------------
shares of its authorized and unissued Common Stock, $.001 par value per share
(the "Firm Shares"), to the several Underwriters. The Company also proposes to
grant to the Underwriters an option to purchase up to 375,000 additional shares
of the Company's Common Stock, $.001 par value per share (the "Option Shares"),
as provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common
Stock, $.001 par value per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby, including the Shares, are hereinafter
referred to as "Common Stock."
2. Representations, Warranties and Agreements of the Company.
----------------------------------------------------------
The Company represents and warrants to and agrees with each Underwriter
that:
(a) A registration statement on Form S-1 (File No. 333-51475) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and
- ---------------------------------------
/1/ Plus an option to purchase up to 375,000 additional shares from the Company
to cover over-allotments.
<PAGE>
Regulations as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file such
additional amendments to such registration statement, such amended prospectuses
subject to completion and such abbreviated registration statements as may
hereafter be required. Copies of such registration statement and amendments, of
each related prospectus subject to completion (the "Preliminary Prospectuses")
and of any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations have been delivered to you and were identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
the Commission's Electronic Data Gathering, Analysis and Retrieval System
("EDGAR") except to the extent permitted by Regulation S-T.
-----
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if BancAmerica Robertson Stephens, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations
pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if BancAmerica
Robertson Stephens, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement" as
used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
--------
however, that if in reliance on Rule 434 of the Rules and Regulations and with
- -------
the consent of BancAmerica Robertson Stephens, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection with
the offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
BancAmerica Robertson Stephens, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially different from the prospectus in the
Registration Statement.
2
<PAGE>
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
-------- -------
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
no proceeding has been instituted in any such jurisdiction, revoking, limiting
or curtailing, or seeking to revoke, limit or curtail, such power and authority
or qualification; the Company is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities"""""" which are material to
the conduct of its business, all of which are valid and in full force and
effect; there are no United States Food and Drug Administration (the "FDA"), the
Drug Enforcement Agency (the "DEA") or United States Environment Protection
Agency (the "EPA"), enforcement actions pending or threatened against the
Company; the Company is conducting its business in compliance with all the laws,
rules and regulations of the jurisdictions in which it is conducting business
except where failure to be so in compliance would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company. The Company is not in violation of its
charter or bylaws in any material respect or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company is a party or by which it or its properties may be bound; and the
Company is not in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or over its
properties of which it has knowledge. The Company does not own or control,
directly or indirectly, any corporation, association or other entity.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable
3
<PAGE>
principles; the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company is a party or by
which it or its properties may be bound, (ii) the charter or bylaws of the
Company, or (iii) any law, order, rule, regulation, writ, injunction, judgment
or decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its properties. No
consent, approval, authorization or order of or qualification with any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties is required for the
execution and delivery of this Agreement and the consummation by the Company of
the transactions herein contemplated, except such as may be required under the
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") (if
applicable), or under state or other securities or Blue Sky laws, or under the
rules and regulations of the National Association of Securities Dealers, Inc.
(the "NASD"), all of which requirements have been satisfied in all material
----
respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company or
any of its officers or any of its properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or might materially and adversely affect the Company's
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations which have not been accurately described in all
material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders exists with respect to any of the Shares or
the issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon and will
not apply to the consummation of the transactions contemplated on the Closing
Date. No further approval or authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act or under state or
other securities or Blue Sky laws or pursuant to the rules and regulations of
the NASD. Except as disclosed in the Prospectus and the financial statements of
the Company, and the related notes thereto, included in the Prospectus, the
Company does not have outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible securities
or obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements,
options and rights.
4
<PAGE>
(g) KPMG Peat Marwick LLP, which has examined the financial statements
of the Company, together with the related schedules and notes, as of December
31, 1996 and 1997 and for each of the years in the three (3) years ended
December 31, 1997 filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; the audited
financial statements of the Company, together with the related schedules and
notes, and the unaudited financial information, forming part of the Registration
Statement and Prospectus, fairly present the financial position and the results
of operations of the Company at the respective dates and for the respective
periods to which they apply; and all audited financial statements of the
Company, together with the related schedules and notes, and the unaudited
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company except
as disclosed in the Prospectus, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (vi) any loss or
damage (whether or not insured) to the property of the Company which has been
sustained or will have been sustained which has a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) the Company has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus as owned by it, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, other than such as would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company, (ii) the agreements to which the Company is a party
described in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) the Company has valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by it, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted.
(j) The Company has timely filed all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown thereon as
due, and there is no tax deficiency that has been or, to the best of the
Company's knowledge, might reasonably be expected to be asserted against the
Company that might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
and all tax liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business and consistent with insurance
5
<PAGE>
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect; the Company has not been refused any insurance coverage sought or
applied for; and the Company does not have any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and adversely
affect the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company exists or is imminent; and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of its
principal suppliers that might be expected to result in a material adverse
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company. No collective bargaining agreement exists
with any of the Company's employees and, to the best of the Company's knowledge,
no such agreement is imminent.
(m) The Company owns or possesses adequate rights to use all patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights or other information (collectively, "Intellectual
------------
Property") which are necessary to conduct its businesses as described in the
- --------
Registration Statement and Prospectus; the expiration of any Intellectual
Property would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any Intellectual Property; except as set forth in the Registration
Statement and Prospectus, the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company; and to the knowledge of the
Company, none of the patents owned or licensed by the Company are unenforceable
or invalid. The Company has duly and properly filed or caused to be filed with
the United States Patent and Trademark Office (the "PTO") and applicable foreign
---
and international patent authorities all patent applications described or
referred to in the Prospectus, and believes it and its affiliates have complied
with the PTO's duty of candor and disclosure for each of the United States
patent and patent applications described or referred to in the Prospectus; the
Company is unaware of any facts which would preclude the grant of a patent from
each of the patent applications described or referred to in the Prospectus; the
Company has no knowledge of any facts which would preclude it from having clear
title to its patents and patent applications referenced in the Prospectus; and
the Company has not terminated or breached and is not in violation of any
material agreement covering its Intellectual Property rights. The Company is
not aware of the granting of any patents to third parties or the filing of
patent applications by third parties or any other rights of third parties to any
of the Company's Intellectual Property. The Company is not aware of any pending
U.S. or foreign patent applications which, if issued, would limit or prohibit
the business now conducted or proposed to be conducted by the Company as
described in the Registration Statement and the Prospectus (except as described
therein).
(n) The Common Stock has been approved for quotation on The Nasdaq
National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company" or
a company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.
6
<PAGE>
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) The Company has not at any time during the last five (5) years (i)
made any unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each beneficial owner
of ______ or more shares of Common Stock has agreed in writing that such person
will not, directly or indirectly, without the prior written consent of
BancAmerica Robertson Stephens, sell, offer, contract to sell, pledge, grant any
option to purchase or otherwise dispose of (collectively, a "Disposition") any
shares of Common Stock or any securities convertible into or exchangeable for,
or any rights to purchase or acquire, Common Stock held by such person, acquired
by such person after the date of the lock-up letter agreement (the "Lock-Up
-------
Agreement") or which may be deemed to be beneficially owned by such person
- ---------
pursuant to the Rules and Regulations promulgated under the Act (the "Lock-Up
-------
Shares"), for a period commencing on the date of the execution of the Lock-Up
- ------
Agreement and ending 180 days after the date appearing on the final prospectus
(the "Lock-Up Period"). The foregoing restriction has been expressly agreed to
--------------
preclude the holder of Lock-Up Shares from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Lock-Up Shares during the Lock-Up Period, even if such Lock-Up
Shares would be disposed of by someone other than such holder. Such prohibited
hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Lock-Up Shares or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Lock-Up Shares. Notwithstanding the foregoing, such person may
transfer any or all of the Lock-Up Shares (i) as a bona fide gift or gifts
(including, but not limited to, a transfer without consideration to any trust
for the benefit of any member of the immediate family of such person or to any
partnership or other entity all of whose beneficial ownership is held by such
person or members of his or her immediate family) or (ii) as a distribution to
limited partners or stockholders of such person; provided, however, that in any
-------- -------
case it shall be a condition to the transfer that the transferee execute an
agreement stating that the transferee is receiving and holding the Lock-Up
Shares subject to the foregoing restrictions. Such person has also agreed to
notify BancAmerica Robertson, Stephens in writing prior to any transfer of Lock-
Up Shares. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and stockholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of BancAmerica Robertson Stephens.
(t) Except as set forth in the Registration Statement and Prospectus
(i) the Company is in compliance with all material rules, laws and regulations
relating to the use, treatment, storage and disposal of
7
<PAGE>
toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to the best of the Company's knowledge, the
Company will not be required to make future material capital expenditures to
comply with Environmental Laws and (iv) to the best of the Company's knowledge,
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et
--
seq.), or otherwise designated as a contaminated site under applicable state or
- ---
local law.
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
3. Purchase, Sale and Delivery of Shares. On the basis of the
-------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of its delivery to the Company, and, in the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach), at the offices
of Wilson, Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94303
(or at such other place as may be agreed upon among the Representatives and the
Company), at 7:00 A.M., San Francisco time (a) on the third (3rd) full business
day following the first day that Shares are traded, (b) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (c) at such other time and date not later than seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 10 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
-------- -------
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representatives may, in their sole discretion, postpone the
Closing Date until no later than two (2) full business days following delivery
of copies of the Prospectus to the Representatives. The certificates for the
Firm Shares to be so delivered will be made available to you at such office or
such other location including, without limitation, in New York City, as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If the
8
<PAGE>
Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), on the inside front
cover concerning stabilization and over-allotment by the Underwriters, and under
the sixth and seventh paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the several
---------------------------------
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to
9
<PAGE>
correct any statements or omissions, if, at any time when a prospectus relating
to the Shares is required to be delivered under the Act, any event shall have
occurred as a result of which the Prospectus or any other prospectus relating to
the Shares as then in effect would include any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under Rule
434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if BancAmerica Robertson Stephens, on behalf of
the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request. To the extent
applicable, such documents shall be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(e) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the forty-fifth (45th)
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement. To the
extent applicable, such reports or documents shall be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters
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hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
stockholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the NASD, (v) every material
press release and every material news item or article in respect of the Company
or its affairs which was generally released to stockholders or prepared by the
Company, and (vi) any additional information of a public nature concerning the
Company, or its business which you may reasonably request. During such five (5)
year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and its subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary which
is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the
Company will reimburse the several Underwriters for all out-of-pocket expenses
(including fees and disbursements of Testa, Hurwitz & Thibeault, LLP) incurred
by the Underwriters in investigating or preparing to market or marketing the
Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the prior
written consent of BancAmerica Robertson Stephens, effect the Disposition of,
directly or indirectly, any securities other than (i) the sale of the Firm
Shares and the Option Shares hereunder; (ii) the Company's issuance of options
or Common Stock under the Company's presently authorized Amended and Restated
1993 Stock Incentive Plan, 1998 Employee Stock Purchase Plan and 1998 Director
Option Plan (the "Option Plans") and (iii) the issuance and sale of Common Stock
to Warner-Lambert pursuant to the Stock Purchase Agreement dated as of July 21,
1997.
(l) During the Lock-Up Period, the Company will not cause to become
effective any registration statement relating to any securities of the Company,
including a registration statement registering shares under the Option Plans or
other employee benefit plan.
5. Expenses.
--------
(a) The Company agrees with each Underwriter that:
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(i) The Company will pay and bear all costs and expenses in connection
with the preparation, printing and filing of the Registration Statement
(including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions and provinces as you may designate (including filing fees and fees
and disbursements of Underwriters' Counsel in connection with such NASD filings
and Blue Sky and provincial securities laws qualifications); and all other
expenses directly incurred by the Company in connection with the performance of
their obligations hereunder.
(ii) In addition to its other obligations under Section 8(a) hereof,
the Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 8(a)
hereof, it will reimburse the Underwriters on a monthly basis for all reasonable
legal or other expenses incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c) hereof, they will reimburse the Company on
a monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an
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arbitration tribunal in such demand or notice, then the party responding to said
demand or notice is authorized to do so. Any such arbitration will be limited to
the operation of the interim reimbursement provisions contained in Sections
5(a)(ii) and 5(b) hereof and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for expenses which is created by
the provisions of Sections 8(a) and 8(b) hereof or the obligation to contribute
to expenses which is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the several
---------------------------------------
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company herein, to the performance by
the Company of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date of this Agreement, or such later
date as shall be consented to in writing by you; and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the following
opinion of counsel for the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus;
(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company. To such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
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outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, and, to such counsel's
knowledge, will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal
or other similar right;
(v) The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right
of first refusal or other similar right.
(vi) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally or by
general equitable principles;
(viii) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(ix) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom as to
which such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and Regulations;
(x) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by such counsel and is a
fair summary of such matters and conclusions; and the forms of certificates
evidencing the Common Stock and filed as exhibits to the Registration
Statement comply with Delaware law;
(xi) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes are
accurate and fairly present the information required to be presented by the
Act and the applicable Rules and Regulations;
(xii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required;
(xiii) The performance of this Agreement and the consummation of
the transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note
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<PAGE>
or other evidence of indebtedness, or any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement
or instrument known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency or
body having jurisdiction over the Company, or over any of its properties or
operations;
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company, or over any of its properties or
operations is necessary in connection with the consummation by the Company
of the transactions herein contemplated, except such as have been obtained
under the Act or such as may be required under state or other securities or
Blue Sky laws in connection with the purchase and the distribution of the
Shares by the Underwriters;
(xv) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations, other than those
described therein;
(xvi) To such counsel's knowledge, the Company is not presently
(a) in material violation of its charter or bylaws, or (b) in material
breach of any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company, or over
any of its properties or operations; and
(xvii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Common Stock
or other securities, because of the filing of the Registration Statement by
the Company have, with respect to the offering contemplated thereby, waived
such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights;
"""" [(xviii) The issuance of shares of Common Stock in the
amount of $5,000,000 to Warner-Lambert, Inc. in a private placement to
close concurrently with the closing of the initial public offering,
pursuant to the terms and conditions of the Stock Purchase Agreement dated
as of July 21, 1997 between the Company and Warner-Lambert, Inc., will be
exempt from all registration requirements of the Act, as amended, and all
other applicable Federal and state securities laws.]
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements
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<PAGE>
therein not misleading, or at the Closing Date or any later date on which the
Option Shares are to be purchased, as the case may be, the Registration
Statement, the Prospectus and any amendment or supplement thereto (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the States of California and
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion of
Testa, Hurwitz & Thibeault, LLP, in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby as
you may reasonably require, and the Company shall have furnished to such counsel
such documents as they may have requested for the purpose of enabling them to
pass upon such matters.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
KPMG Peat Marwick LLP addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. The Original Letter from KPMG Peat Marwick LLP shall be addressed
to or for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of December 31, 1997 and related consolidated
statements of operations, stockholders' equity, and cash flows for the twelve
(12) months ended December 31, 1997, (iii) state that KPMG Peat Marwick LLP has
performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS
71") for a review of interim financial information and providing the report of
KPMG Peat Marwick LLP as described in SAS 71 on the financial statements for the
1-quarter period ended March 31, 1998 (the "Quarterly Financial Statements"),
(iv) state that in the course of such review, nothing came to their attention
that leads them to believe that any material modifications need to be made to
any of the Quarterly Financial Statements in order for them to be in compliance
with generally accepted accounting principles consistently applied across the
periods presented, and (v) address other matters agreed upon by KPMG Peat
Marwick LLP and you. In addition, you shall have received from KPMG Peat
Marwick LLP a letter addressed to the Company and made available to you for the
use of the Underwriters stating that their review of the Company's system of
internal accounting controls, to the extent they deemed necessary in
establishing the
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scope of their examination of the Company's consolidated financial statements as
of December 31, 1997, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
of the Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may
be, and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to the
Closing Date or any later date on which Option Shares are to be purchased,
as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations, and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has
not been so set forth; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been
(a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b)
any transaction that is material to the Company, except transactions
entered into in the ordinary course of business, (c) any obligation, direct
or contingent, that is material to the Company, incurred by the Company,
except obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the Company that
is material to the Company except as disclosed in the Prospectus, (e) any
dividend or distribution of any kind declared, paid or made on the capital
stock of the Company, or (f) any loss or damage (whether or not insured) to
the property of the Company which has been sustained or will have been
sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company.
(h) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company, and each beneficial owner of ____
or more shares of Common Stock in writing prior to the date hereof that such
person will not, during the Lock-up Period, effect the Disposition of any Lock-
Up, otherwise than (i) as a bona fide gift or gifts, provided the donee or
donees thereof agree in writing to be bound by this restriction, (ii) as a
distribution to partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of BancAmerica Robertson
Stephens. The foregoing restriction shall have been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Lock-Up Shares during the Lock-up Period, even if
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such Lock-Up Shares would be disposed of by someone other than the such holder.
Such prohibited hedging or other transactions would including, without
limitation, any short sale (whether or not against the box) or any purchase,
sale or grant of any right (including, without limitation, any put or call
option) with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or derives
any significant part of its value from Lock-Up Shares. Furthermore, such person
will have also agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Lock-Up Shares
Securities held by such person except in compliance with this restriction.
(i) You shall have received on the Closing Date, and on any later date
on which Option Shares are to be purchased, the opinion of Lexdig, Voit & Mayer,
LTD. patent counsel to the Company, dated the Closing Date and such later date
on which Option Shares are to be purchased, addressed to the Underwriters and
with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that they serve as patent counsel to the Company
with respect to the Company's Intellectual Property, including those patents and
patent applications referred to or described in the Prospectus, which in some
cases are licensed to the Company from various licensors (individually, a
"Licensor"), and that:
(i) Such counsel is unaware of any facts that would lead it to
believe that the statements contained in the Registration Statement and
Prospectus under the sections entitled (1) "Risk Factors-Intellectual
Property" and (2) "Business" contains any untrue statement of material fact
concerning the Company's patent portfolio (the "Patent Rights") and other
proprietary rights of the Company or omits any material fact necessary to
make the statements therein concerning the Patent Rights and other
proprietary rights of the Company not misleading.
(ii) Such counsel is unaware of any facts, other than those
recited in or encompassed by the Registration Statement and Prospectus,
that would lead it to believe that the Company lacks title to the Company's
issued patents and pending patent applications referred to in the
Registration Statement and Prospectus or valid licenses from third parties
referred to or described in the Registration Statement and Prospectus (such
third parties hereinafter referred to as "Licensors"). In particular, such
counsel is unaware of any facts, other than those recited in or encompassed
by the Registration Statement and Prospectus, that would lead it to believe
that any document setting forth an assignment of any of the issued patents
or pending patent applications referred to in the Registration Statement
and Prospectus from any named inventor to, as the case may be, the Company
or the Licensors has not been recorded.
(iii) Such counsel is unaware of any facts, other than those
recited in or encompassed by the Registration Statement and Prospectus,
that would form a basis for the belief that any of the claims of the
Company's or Licensors' issued patents referred to in the Registration
Statement and Prospectus is unpatentable, unenforceable, or invalid.
Furthermore, such counsel is unaware of any facts, other than those recited
in or encompassed by the Registration Statement and Prospectus, that would
form a basis for the belief that either the Company or each Licensor has
failed to comply with its duty or candor and good faith in dealing with the
PTO, including any duty to disclose to the PTO information known to be
material to patentability, with respect to its respective issued patents
and pending patent applications referred to in the Registration Statement
and Prospectus.
(iv) Such counsel is unaware of any facts, other than those
recited in or encompassed by the Registration Statement and Prospectus,
that would lead it to believe that the Company lacks any patent rights or
licenses necessary to conduct the current or prospective business of the
Company as specified in the Registration Statement and Prospectus.
Moreover, such counsel is unaware of any facts, other than those recited in
or encompassed by the Registration Statement and Prospectus, that would
lead it to believe that any pending U.S. or foreign patent applications, if
issued, would limit or prohibit the current or prospective business of the
Company as specified in the Registration Statement and Prospectus.
18
<PAGE>
(v) Such counsel is not aware of any patents of others which are
or would be infringed by the Company's product candidates described in the
Registration Statement and Prospectus in such manner as to materially and
adversely affect the Company, other than the patents recited in or
encompassed by the Registration Statement and Prospectus. Such counsel
knows of no pending or threatened action, suit, proceeding or claim by
others that the Company is infringing any patent which could result in any
material adverse effect on the Company, except as recited in or encompassed
by the Registration Statement and Prospectus.
(vi) Such counsel is not aware of any pending or threatened legal
or governmental proceedings relating to the Patent Rights, other than
proceedings relating to affairs before the PTO, including but not limited
to review of pending patent and trademark applications, interference
proceedings, and appeal proceedings.
(vii) Such counsel is aware of no facts, other than those
recited in or encompassed by the Registration Statement and Prospectus,
concerning the existence of any contracts or documents material to the
Company's Patent Rights.
(ii) """"
(j) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company as to the accuracy of the representations and warranties
of the Company herein, as to the performance by the Company of its obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
7. Option Shares.
-------------
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of 375,000 Option
Shares at the purchase price per share for the Firm Shares set forth in Section
3 hereof. Such option may be exercised by the Representatives on behalf of the
several Underwriters on one (1) or more occasions in whole or in part during the
period of thirty (30) days after the date on which the Firm Shares are initially
offered to the public, by giving written notice to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the Representatives
in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in same-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any
19
<PAGE>
other expenses borne by them by reason of such breach. Such delivery and payment
shall take place at the offices of Wilson, Sonsini Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, CA 94303 or at such other place as may be agreed upon
among the Representatives and the Company (i) on the Closing Date, if written
notice of the exercise of such option is received by the Company at least two
(2) full business days prior to the Closing Date, or (ii) on a date which shall
not be later than the third (3rd) full business day following the date the
Company receives written notice of the exercise of such option, if such notice
is received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, to the conditions set forth in Section 6 hereof, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and you shall have been furnished
with all such documents, certificates and opinions as you may request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants or agreements
of the Company or the satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Schedule E of the Bylaws of the NASD), under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of or
based upon (i) any breach of any representation, warranty, agreement or covenant
of the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or 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, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement
20
<PAGE>
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
-------- -------
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or based
upon (i) any breach of any representation, warranty, agreement or covenant of
such Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or 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, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, and each person, if any, who controls the Company within the meaning of
the Act or the Exchange Act. This indemnity agreement shall be in addition to
any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; 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 legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party
21
<PAGE>
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
--------
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
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 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the initial public
offering price, and the Company are responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
- -------- -------
amount in excess of the amount by which the underwriting discount applicable to
the Shares purchased by such Underwriter exceeds the amount of damages which
such Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(d)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company
within the meaning of the Act or the Exchange Act and each officer of the
Company who signed the Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. Representations, Warranties, Covenants and Agreements to Survive
----------------------------------------------------------------
Delivery. All representations, warranties, covenants and agreements of the
- --------
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter within the meaning of the Act or the Exchange Act, or by or on
behalf of the Company or any of its officers, directors or controlling persons
within the meaning of
22
<PAGE>
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters shall
----------------------------
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or other
such documents which may thereby be made necessary, and (ii) the respective
number of Firm Shares to be purchased by the remaining Underwriters and
substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section 10, neither the Company shall be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company, and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
23
<PAGE>
11. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the initial public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse, or (ii) if additional material governmental restrictions,
not in force and effect on the date hereof, shall have been imposed upon trading
in securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In the event of termination pursuant to subparagraph (i) above,
the Company shall remain obligated to pay costs and expenses pursuant to
Sections 4(i), 5 and 8 hereof. Any termination pursuant to any of subparagraphs
(ii) through (v) above shall be without liability of any party to any other
party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
-------
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o BancAmerica Robertson Stephens, 555 California
Street, Suite 2600, San Francisco, California 94104, telecopier number (415)
781-0278, Attention: General Counsel; if sent to the Company, such notice shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to c/o GenVec, Inc., 12111 Parklawn Dr., Rockville, MD
20852, telecopier number (301) 816-0005, Attention: Paul H. Fischer, Chief
Executive Officer.
13. Parties. This Agreement shall inure to the benefit of and be binding
-------
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing
24
<PAGE>
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by BancAmerica Robertson Stephens on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
--------------
accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
------------
each of which will constitute an original.
25
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
GENVEC, INC.
By ________________________
Accepted as of the date first above written:
BANCAMERICA ROBERTSON STEPHENS
J.P. MORGAN SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCAMERICA ROBERTSON STEPHENS
By _________________________________
Authorized Signatory
26
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION> Number of
Underwriters Firm Shares
-------------------------------------- To Be
Purchased
-----------
<S> <C>
BancAmerica Robertson Stephens.......................
J.P. Morgan Securities Inc...........................
Donaldson, Lufkin & Jenrette Securities Corporation..
---------
Total.......................................... 2,500,000
=========
</TABLE>
-1-
<PAGE>
Exhibit 5.1
June 17, 1998
GenVec, Inc.
12111 Parklawn Drive
Rockville, Maryland 20852
RE: AMENDMENT NO. 4 TO REGISTRATION STATEMENT NO. 333-51475 ON FORM S-1
Ladies and Gentlemen:
We have examined Amendment No. 4 to the Registration Statement on Form S-1
filed by you with the Securities and Exchange Commission on June 17, 1998
(Registration No. 333-51475), (the "Registration Statement") in connection with
the registration under the Securities Act of 1933, as amended, of 2,500,000
shares of your Common Stock (the "Shares"). The Shares include an over-
allotment option for 375,000 shares granted to the underwriters. The Shares are
to be sold to the underwriters for resale to the public as described in the
Registration Statement and pursuant to the Underwriting Agreement filed as an
exhibit thereto. As your counsel, we have examined the proceedings proposed to
be taken in connection with the sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states, where required, the Shares when issued and sold in the
manner referred to in the Registration Statement will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
Exhibit 10.14
5615 FISHERS LANE
OFFICE LEASE
THIS LEASE (the "Lease") is made and entered into this _____ day of
_____________ 1998, by and between TRIZECHAHN TWINBROOK METRO LIMITED
PARTNERSHIP, a Maryland limited partnership ("Landlord") and GENVEC, INC., a
Delaware corporation ("Tenant").
In consideration of the Rent hereinafter reserved and the agreements
hereinafter set forth, Landlord and Tenant mutually agree as follows:
1. DEFINITIONS.
Except as otherwise expressly provided or unless the context otherwise
requires, the following terms shall have the meanings assigned to them in this
Section:
A. Alterations: Any improvements, alterations, fixed decorations or
modifications, structural or otherwise, to the Premises, the Building or the
Land, as defined below, including but not limited to the installation or
modification of carpeting, partitions, counters, doors, air conditioning ducts,
plumbing, piping, lighting fixtures, wiring, hardware, locks, ceilings and
window and wall coverings.
B. Base Year: [INTENTIONALLY OMITTED.]
C. Building: The building located at 5615 Fishers Lane in Rockville,
Maryland, in which the Premises are located. Except as expressly indicated
otherwise, the term "Building" shall include all portions of said building,
including but not limited to the Premises, the Common Areas and the garage.
D. Common Areas: Those areas of the Building and/or Land, as the case may
be, made available by Landlord for use by Tenant in common with the Landlord,
other tenants of the Building and the employees, agents and invitees of Landlord
and of such other tenants.
E. Consumer Price Index (Regular and Base): [Intentionally omitted.]
F. Default Rate: That rate of interest which is five (5) percentage
points above the annual rate of interest which is publicly announced by
NationsBank of D.C. ("NationsBank") from time to time as its "prime" rate of
interest, irrespective of whether such rate is the lowest rate of interest
charged by NationsBank to commercial borrowers. In the event that NationsBank
ceases to announce such a prime rate of interest, Landlord, in Landlord's
reasonable discretion, shall designate
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the prime rate of interest by another bank located in the Washington, D.C.
metropolitan area, which shall be the prime rate of interest used to calculate
the default rate.
G. Fiscal Year: Each consecutive twelve (12) month period during the
Term of this Lease that falls between January 1 and December 31 inclusive.
H. Ground Leases: All ground and other underlying leases from which
Landlord's title to the Land and/or the Building is or may in the future be
derived. "Ground Lessors" shall denote those persons and entities holding such
ground or underlying leases.
I. Holidays: New Year's Day, Washington's Birthday, Martin Luther King,
Jr.'s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day, Christmas Day and any other holidays designated
by an executive order of the President of the United States or by Act of
Congress.
J. Land: The real estate that supports the Building, and all associated
easements.
K. Landlord's Work: [INTENTIONALLY OMITTED.]
L. Lease Commencement Date: The date this Lease commences, as determined
pursuant to Subsection 2.A. below.
M. Lease Year: That period of twelve (12) consecutive calendar months
that commences on the first day of the calendar month in which the Lease
Commencement Date occurs, and each consecutive twelve (12) month period
thereafter. The earliest such twelve (12) month period shall be referred to as
the "first Lease Year," and each of the following Lease Years shall similarly be
numbered for identification purposes.
N. Mortgages: All mortgages, deeds of trust and similar security
instruments which may now or in the future encumber or otherwise affect the
Building or the Land, including mortgages related to both construction and
permanent financing. "Mortgagees" shall denote those persons and entities
holding such mortgages, deeds of trust and similar security instruments.
O. Operating Expenses: [INTENTIONALLY OMITTED.]
P. Premises: 9,752 square feet of rentable area on the second (2nd) floor
of the Building, known as suite 200, as shown on the floor plan attached hereto
as Exhibit A. However, the area and plan of the Premises may change in the event
of the exercise of any option to expand or contract the Premises set forth in
this Lease. The rentable area of the Premises has been determined in accordance
with the Greater Washington Commercial Association of REALTORS(R) Standard
Method of Measurement dated June 13, 1995 (the "GWCAR Standard Method of
Measurement").
Q. Premises' Standard Electrical Capacity: The electrical capacity
sufficient to support Tenant's balanced consumption of two and one-half (2.5)
watts per square foot of rentable area.
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R. Real Estate Tax Expenses: [INTENTIONALLY OMITTED.]
S. Rent: All Base Rent and Additional Rent.
(1) Base Rent: The amount payable by Tenant pursuant to Subsection
4.A. below.
(2) Additional Rent: All sums of money payable by Tenant pursuant to
this lease other than Base Rent.
(3) Monthly Rent: A monthly installment of Base Rent and Additional
Rent, if any, which shall equal one-twelfth (1/12th) of Base Rent and Additional
Rent then in effect.
T. Tenant's Personal Property: All equipment, improvements, furnishings
and/or other property now or hereafter installed or placed in or on the Premises
by and at the sole expense of Tenant or with Tenant's permission (other than any
property of Landlord), with respect to which Tenant has not been granted any
credit or allowance by Landlord, and which: (i) is removable without damage to
the Premises, the Building and the Land, and (ii) is not a replacement of any
property of Landlord, whether such replacement is made at Tenant's expense or
otherwise.
U. Unavoidable Delay: Any delays due to strikes, labor disputes,
shortages of material, labor or energy, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty or any other causes
beyond the control of Landlord.
V. Work Agreement: [INTENTIONALLY OMITTED.]
2. TERM.
A. Term of Lease: The term of this Lease (the"Term") shall commence on a
date (the "Lease Commencement Date"), as defined below, and shall terminate at
midnight on the date immediately preceding the second anniversary of the Lease
Commencement Date, or such earlier date on which this Lease is terminated
pursuant to the provisions hereof (the "Lease Expiration Date"). The Lease
Commencement Date shall be the date of delivery of the Premises by Landlord to
Tenant. Landlord hereby leases the Premises to Tenant and Tenant hereby leases
the Premises from Landlord for the Term.
B. Declarations: If requested by Landlord at any time during the Term,
Tenant promptly will execute a declaration in the form attached hereto as
Exhibit B.
C. Effective Date: The rights and obligations set forth in this Lease,
except for the obligation to pay Rent and as otherwise specifically provided
herein to the contrary, shall become effective on the date of final execution of
this Lease.
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3. AS-IS CONDITION.
Tenant hereby accepts the Premises in its "as is" condition as of the Lease
Commencement Date. Landlord shall have no obligation to make any improvements
or alterations to the Premises.
4. RENT.
From and after the Lease Commencement Date, Tenant shall pay to Landlord
such Base Rent and Additional Rent as are set forth in this Section 4 and in
Section 5 below.
A. Base Rent: Base Rent shall equal the following amounts:
<TABLE>
<CAPTION>
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BASE RENT
LEASE PER SQUARE FOOT BASE RENT MONTHLY
YEAR PER ANNUM PER ANNUM BASE RENT
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<S> <C> <C> <C>
1 $16.75 $163,346.00 $13,612.17
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2 $17.50 $170,660.00 $14,221.67
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</TABLE>
Tenant shall pay Base Rent to Landlord in equal monthly installments ("Monthly
Base Rent") in advance on the first day of each calendar month during the Term,
without notice, except that the first monthly installment of Base Rent shall be
paid upon execution of this Lease. If the Lease Commencement Date occurs on a
date other than the first day of a calendar month, Tenant shall receive a credit
equal to the Monthly Base Rent multiplied by the number of days in said calendar
month prior to the Lease Commencement Date and divided by the number of days in
such month, which credit shall be applied toward the installment of Monthly Base
Rent next due hereunder. If the Lease Expiration Date occurs after the
expiration of the last numbered Lease Year set forth above in this Section 4.A.
for which an amount of Monthly Base Rent is specified, then Monthly Base Rent
shall continue to be payable by Tenant at such rate for each month or portion of
a month thereafter which is prior to the Lease Expiration Date.
B. Payment: All Base Rent and Additional Rent due and payable to Landlord
under this Lease shall be made payable to TrizecHahn Twinbrook Metro Limited
Partnership and delivered to TrizecHahn Twinbrook Metro Limited Partnership at
NationsBank, P.O. Box #631331, Baltimore, MD 21263-1331; provided, however, that
at Landlord's sole option, following at least thirty (30) days written notice to
Tenant, Tenant shall thereafter make all payments of Base Rent and Additional
Rent due and payable to Landlord under this Lease by means of electronic
transfers of funds from Tenant's financial institution to Landlord's designated
financial institution. Payments of Rent (other than in cash), if initially
dishonored, shall not be considered rendered until ultimately honored as cash by
Landlord's depository. Except as expressly set forth otherwise in this Lease,
Tenant will pay all Rent to Landlord without demand, deduction, set-off or
counter-claim.
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C. Late Fee: If Tenant fails to make any payment of Rent on or before
the date when payment is due, then Tenant also shall pay to Landlord a late fee
equal to five percent (5%) of the amount that is past due for each month or part
thereof until such Rent is fully paid. Said late fee shall be deemed
reimbursement to Landlord for its costs of carrying and processing Tenant's
delinquent account. Acceptance by Landlord of said late fee shall not waive or
release any other rights or remedies to which Landlord may be entitled on
account of such late payment.
D. Arbitration: [INTENTIONALLY OMITTED.]
5. ADDITIONAL RENT.
A. To Cover Consumer Price Index Increases: [INTENTIONALLY OMITTED.]
B. To Cover Increased Operating and Real Estate Tax Expenses:
[INTENTIONALLY OMITTED.]
C. Statements: [INTENTIONALLY OMITTED.]
D. Retroactive Adjustments: [INTENTIONALLY OMITTED.]
E. Change In or Contest of Taxes: [INTENTIONALLY OMITTED.]
F. Sales, Use or Other Taxes: If during the Term any governmental
authority having jurisdiction over the Building or the Land levies, assesses or
imposes any tax on Landlord, the Premises, the Building or the Land or the rents
payable hereunder, in the nature of a sales tax, use tax or any tax except (i)
taxes on Landlord's income, (ii) estate or inheritance taxes, or (iii) Real
Estate Tax Expenses, then Tenant shall pay its proportionate share to Landlord
within fifteen (15) days after receipt by Tenant of notice of the amount of such
tax.
6. USE.
A. Permitted Use: Tenant shall use and occupy the Premises solely for
office use and administrative activities directly related thereto and for no
other purpose.
B. Legal and Other Restrictions of Tenant's Use: In its use of the
Premises, Tenant shall comply with all present and future laws, regulations
(including but not limited to fire and zoning regulations) and ordinances of all
other public and quasi-public agencies having jurisdiction over the Land or the
Building. Tenant shall not use the Land, the Building or use or occupy the
Premises for any unlawful, disorderly or hazardous purposes or in a manner which
will interfere with the rights of Landlord, other tenants or their invitees or
in any way injure or annoy any of them.
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7. CARE OF PREMISES.
Tenant shall at its expense keep the Premises (including all improvements,
fixtures and other property located therein) in a neat and clean condition and
in good order and repair, and will suffer no waste or injury thereto and, as
between Landlord and Tenant, Landlord shall be responsible for compliance of the
Building (other than the Premises) and the Common Areas with applicable laws and
governmental regulations. Tenant shall surrender the Premises at the end of the
Term in as good order and condition as they were in on the Lease Commencement
Date, ordinary wear and tear excepted.
8. ALTERATIONS BY TENANT.
A. Making of Alterations; Landlord's Consent: Tenant shall not make or
permit to be made any Alterations without the prior written consent of Landlord
both as to whether the Alterations may be made and as to how and when they will
be made, which consent shall not be unreasonably withheld or delayed with
respect to any proposed Alteration which would not affect any of the Building's
operating systems or any of the structural components of the Building; provided,
however, that the consent of Landlord shall not be required for (i) painting or
carpeting of the Premises or (ii) Alterations costing less than Ten Thousand
Dollars ($10,000) in the aggregate which do not affect any of the Building's
operating systems or any of the structural proponents of the Building; further
provided, that Tenant shall give Landlord at least ten (10) days' prior written
notice of any such Alterations not requiring Landlord's consent and Tenant shall
observe all reasonable rules and regulations promulgated by Landlord with
respect to the performance of Alterations. Any Alterations shall be made at
Tenant's expense, by its contractors and subcontractors and in accordance with
complete plans and specifications approved in advance in writing by Landlord,
and only after Tenant: (i) has obtained all necessary permits from governmental
authorities having jurisdiction and has furnished copies thereof to Landlord,
(ii) has submitted to Landlord an architect's certificate that the Alterations
will conform to all applicable laws and regulations, and (iii) has complied with
all other requirements reasonably imposed by Landlord, including without
limitation any requirements due to the underwriting guidelines of Landlord's
insurance carriers. Landlord's consent to any Alterations and approval of any
plans and specifications constitutes approval of no more than the concept of
these Alterations and not a representation of warranty with respect to the
quality or functioning of such Alterations, plans and specifications. Tenant
shall be and is solely responsible for the Alterations and for the proper
integration thereof with the Building, the Building's systems and existing
conditions. Landlord shall have the right, but not the obligation, to supervise
the making of any Alterations. If any Alterations are made without the prior
written consent of Landlord, or which do not conform to plans and specifications
approved by Landlord or to other conditions imposed by Landlord pursuant to this
Section, Landlord may, in its sole discretion, correct or remove such
Alterations at Tenant's expense. Following completion of any Alterations, at
Landlord's request, Tenant either shall deliver to Landlord a complete set of
"as built" plans showing the Alterations or shall reimburse Landlord for any
expense incurred by Landlord in causing the Building plans to be modified to
reflect the Alterations.
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B. No Liens: Tenant shall take all necessary steps to ensure that no
mechanic's or materialmen's liens are filed against the Premises, the Building
or the Land as a result of any Alterations made by the Tenant. If any
mechanic's lien is filed, Tenant shall discharge the lien within ten (10) days
thereafter, at Tenant's expense, by paying off or bonding the lien.
9. EQUIPMENT.
A. Permitted Equipment: Tenant shall not install or operate in the
Premises any equipment or other machinery that, in the aggregate, will cause
Tenant to use more than the Premises' Standard Electrical Capacity, without:
(i) obtaining the prior written consent of Landlord, who may condition its
consent upon the payment by Tenant of Additional Rent for additional consumption
of utilities, additional wiring or other expenses resulting therefrom, (ii)
securing all necessary permits from governmental authorities and utility
companies and furnishing copies thereof to Landlord, and (iii) complying with
all other requirements reasonably imposed by Landlord. Prior to the Lease
Commencement Date, Tenant shall provide Landlord with a list of all equipment
that Tenant intends to install or operate in the Premises which operate on more
than one hundred twenty (120) volts, and Tenant shall provide Landlord with an
updated list of such equipment prior to the installation or use of any
additional equipment which operates on more than one hundred twenty (120) volts.
Tenant shall not install any equipment or machinery which may necessitate any
changes, replacements or additions to or material changes in the use of water,
heating, plumbing, air conditioning or electrical systems of the Building
without obtaining the prior written consent of Landlord, who may withhold its
consent in its absolute discretion.
B. Payment For Excess Utility Usage: If Tenant's equipment shall result
in electrical demand in excess of the Premises' Standard Electrical Capacity,
Landlord shall have the right, in its sole discretion, to install additional
transformers, distribution panels, wiring and other applicable equipment at the
expense of Tenant. None of the equipment so installed shall be deemed to be
Tenant's Personal Property. If at any time during the Term, Tenant's connected
electrical load from its use of equipment and fixtures (including incandescent
lighting and power), as estimated by Landlord, exceeds the Premises' Standard
Electrical Capacity, then Landlord may, at its option: (i) install separate
electrical meter(s) for the Premises, or (ii) cause a survey to be made by an
independent electrical engineer or consulting firm to determine the amount of
electricity consumed by Tenant beyond the Premises' Standard Electrical
Capacity. Tenant shall reimburse Landlord for the cost of the installation of
said meter(s) or completion of said meter(s) or survey, and shall pay as
Additional Rent the cost of any electricity in excess of an average of the
Premises Standard Electrical Capacity, at the rate charged by the utility
company providing such electricity, assuming continuous business hours, within
ten (10) days after receipt of any bill therefor from Landlord.
C. Noise; Vibration; Floor Load: Business machines and equipment
belonging to Tenant, which cause noise or vibration that may be transmitted to
any part of the Building to such a degree as to be objectionable to Landlord or
to any tenant of the Building, shall be installed and maintained by Tenant at
Tenant's expense on devices that eliminate the noise and vibration. Tenant
shall not place any load upon the floor of the Premises which exceeds the per
square foot load
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the floor was designed to carry (eighty (80) pounds per square
foot for live loads and twenty (20) pounds per square foot for dead loads).
10. OWNERSHIP AND REMOVAL OF PROPERTY.
A. Landlord's Property: Any Alterations and other improvements and any
equipment, machinery, furnishings and other property, installed or located in
the Premises, the Building or the Land by or on behalf of Landlord or Tenant,
except for Tenant's Personal Property: (i) shall immediately become the
property of Landlord, and (ii) shall be surrendered to Landlord with the
Premises as a part thereof at the end of the Term unless the same are removable
without more than minor damage to the Premises, if Tenant does in fact repair
the affected area(s) to a reasonable condition; provided, however, that if
Landlord requests Tenant to remove any Alterations installed by or on behalf of
Tenant, Tenant shall cause the same to be removed at Tenant's expense on or
before the Lease Expiration Date, or shall reimburse Landlord for the cost of
such removal, as elected by Landlord (unless Landlord expressly waives in
writing the right to require such removal at the time Landlord give its consent
to the making of such Alterations). Notwithstanding the foregoing, Tenant, upon
submitting its request to Landlord to make Alterations, shall have the right to
request therein that Landlord specify whether and to what extent Landlord will
require Tenant to remove the Alterations in question at the end of the Term,
provided that Tenant refers therein to the provisions of this Section 10.A. If
Tenant shall fail to request such information in its request to make any
Alterations, such right shall be deemed null and void as to the Alterations in
question, and all such Alterations shall thereafter be subject to the exercise
of Landlord's rights and to Tenant's obligations set forth in the first sentence
of this Section 10.A. If Tenant submits its request for such information in
accordance with the foregoing provisions and Landlord consents to the
Alterations requested, Landlord shall, together with its consent, specify in
writing whether and to what extent it will require Tenant to remove the
Alterations in question at the end of the Term, and if Landlord fails so to
specify, Tenant shall have no further obligation to remove the Alterations which
were the subject of Tenant's request.
B. Removal of Property At End of Term: Tenant shall remove all of
Tenant's Personal Property, and all computer cabling and wiring installed by or
on behalf of Tenant (irrespective of whether such cabling and wiring constitutes
Tenant's Personal Property under the terms of this Lease, and at Tenant's
expense, using a contractor approved in advance by Landlord in writing), from
the Building and the Land on or before the Lease Expiration Date. Any personal
property belonging to Tenant or to any other person or entity which is left in
the Building or on the Land after the date this Lease is terminated for any
reason shall be deemed to have been abandoned. In such event, Landlord shall
have the right to store such property at Tenant's sole cost and/or to dispose of
it in whatever manner Landlord considers appropriate, without waiving its right
to claim from Tenant all expenses and damages caused by Tenant's failure to
remove such property, and Tenant and any other person or entity shall have no
right to compensation from or any other claim against Landlord as a result.
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11. LANDLORD'S ACCESS TO PREMISES.
Upon such notice to Tenant as is reasonable under the circumstances (which
notice may be given orally and which notice shall not be required in the event
of an emergency), Landlord may at any reasonable time enter the Premises to
examine them, to make alterations or repairs thereto or for any other purposes
which Landlord considers necessary or advisable; however, in the case of any
emergency, Landlord and its agents may enter the Premises at any time and in any
manner. Tenant shall allow the Premises to be exhibited by Landlord: (i) at
any reasonable time to representatives of lending institutions or to prospective
purchasers of the Building, and (ii) at any reasonable time to persons who may
be interested in leasing the Premises. Landlord reserves the right and shall be
permitted reasonable access to the Premises to install facilities within and
through the Premises and to install and service any systems deemed advisable by
Landlord to provide services or utilities to any tenant of the Building.
Landlord shall use reasonable efforts to avoid material interference with
Tenant's business operations in Landlord's exercise of any of its rights under
this Section 11.
12. SERVICES AND UTILITIES.
A. Services Provided: As long as Tenant is not in Default, as defined in
Subsection 19.A. below, Landlord shall provide the following to Tenant, without
additional charge, except as otherwise provided herein (including, but not
limited to, as provided in Sections 5 and 1.O. hereof):
(1) Elevator service for common use, subject to call at all times,
including Sundays and Holidays.
(2) Central heating and air conditioning from 7:00 a.m. until 6:00
p.m. on weekdays, exclusive of Holidays, during the seasons of the year and
within the temperature ranges usually furnished in comparable office buildings
in the city (or, if not a city, other local jurisdiction) in which the Building
is located. Landlord shall provide heat and air conditioning at other times at
Tenant's expense, provided that Tenant gives Landlord notice by 1:00 p.m. on
weekdays for after-hour service on the next weekday, two (2) business days'
notice before a Holiday for service on such Holiday and two (2) business days'
notice for after-hour service on Saturday or Sunday. Landlord shall charge
Tenant for such after-hour, Holiday and special weekend service at the
prevailing rates charged by Landlord from time to time to other tenants of the
Building.
(3) Cleaning and char services in Landlord's standard manner.
(4) Electrical facilities to furnish electricity up to the Premises'
Standard Electrical Capacity (including the replacement of Building standard
light bulbs in Building standard light fixtures, it being agreed that if
Landlord replaces any other light bulbs in the Premises, Tenant shall pay
Landlord the cost of such bulbs and all labor costs incurred by Landlord in
connection therewith within fifteen (15) days after Landlord's written demand
therefor).
(5) Rest room facilities.
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(6) Routine maintenance, painting and electrical lighting service for
all Common Areas of the Building in such manner as Landlord deems reasonable.
(7) Reasonable access to the Premises at all times, subject to such
security procedures, restrictions and other regulations as Landlord may
promulgate.
B. Failure to Provide Services: Landlord shall have no liability to
Tenant or others based on any failure by Landlord to furnish the foregoing, due
to Unavoidable Delays, repair or maintenance work or any other reason except the
bad faith interruption of services by Landlord, and such failure shall neither
render Landlord liable for damages to either person or property, nor be
construed as an eviction of Tenant, nor cause a diminution or abatement of Rent
nor relieve Tenant of any of Tenant's obligations hereunder. If any of the
services described in Section 12.A. hereof is suspended and such suspension
renders the Premises untenantable and continues for more than ten (10) business
days, if the reason for the suspension is other than an Unavoidable Delay, all
Rent due hereunder shall be abated for the period commencing on the eleventh
(11th) business day of such suspension and concluding on the date that the
service has been restored.
C. Conservation: Tenant hereby agrees to comply with all energy
conservation procedures, controls and requirements instituted by Landlord
pursuant to any government regulations or otherwise, including but not limited
to controls on the permitted range of temperatures, the volume of energy
consumption or the hours of operation of the Building. Institution by Landlord
of such controls and requirements shall not entitle Tenant to terminate this
Lease or to an abatement of any Rent payable hereunder.
D. Recycling: Without limiting the foregoing, Tenant covenants and
agrees, at its sole cost and expense, to comply with all present and future
laws, orders, and regulations of the jurisdiction in which the Building is
located and of the federal, municipal, and local governments, departments,
commissions, agencies and boards having jurisdiction over the Building to the
extent that they or this Lease impose on Tenant duties and responsibilities
regarding the collection, sorting, separation, and recycling of trash. Tenant
shall pay all costs, expenses, fines, penalties, or damages that may be imposed
on Landlord or Tenant by reason of Tenant's failure to comply with the
provisions of this Section 12.D., and, at Tenant's sole cost and expense, shall
indemnify, defend and hold Landlord harmless (including legal fees and expenses)
from and against any actions, claims, and suits arising from such noncompliance,
using counsel reasonably satisfactory to Landlord.
13. RULES AND REGULATIONS.
Tenant shall abide by and observe the rules and regulations attached hereto
as Exhibit D and such other rules and regulations as may be made by Landlord
from time to time, provided that such rules and regulations shall not be
materially inconsistent with the provisions of this Lease. Nothing contained in
this Lease or in any rules and regulations shall be interpreted to impose upon
Landlord any obligations to enforce against any tenant its rules and
regulations, or the provisions of any lease with any other tenant, and Landlord
shall not be liable to Tenant or any other entity for any violation of said
rules, regulations or lease provisions.
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14. REPAIR OF DAMAGE CAUSED BY TENANT: INDEMNIFICATION.
A. Repairs: Except as otherwise expressly provided in this Lease, all
injury, breakage and damage to the Land, the Building or the Premises, caused by
any act or omission of Tenant which Tenant has not repaired within such time as
is specified in a notice by Landlord to Tenant shall be repaired by and at the
sole expense of Tenant, except Landlord shall have the right, at its option, to
make such repairs and to charge Tenant for all costs and expenses incurred in
connection therewith as Additional Rent payable within ten (10) days after the
rendering of a bill therefor. Tenant shall notify Landlord promptly of any
injury, breakage or damage to the Land, the Building, or the Premises caused by
Tenant.
B. Indemnification: Tenant hereby agrees to indemnify and hold Landlord
harmless from and against all costs, damages, claims, liabilities and expenses,
including attorneys' fees, suffered by or claimed against Landlord, directly or
indirectly, based on, arising out of or resulting from: (i) Tenant's use and
occupancy of the Premises or the business conducted by Tenant therein or
Tenant's act or omission anywhere in the Building or on the Land (ii) the making
by Tenant of any Alterations, (iii) any act or omission of Tenant or its
employees, agents or invitees, and (iv) any breach or default by Tenant in the
observance or performance of its covenants and obligations under this Lease.
15. LIMITATION ON LANDLORD LIABILITY.
A. Liability Standard: Landlord shall not be liable to Tenant or any
other individual or entity for any damage, loss or claim whatsoever, except
damages, losses and claims that are the direct result of Landlord's gross
negligence or willful misconduct; however, in no event shall Landlord be liable
for consequential damages.
B. Limitation on Total Liability: Notwithstanding any other provision of
this Lease, it is expressly understood and agreed that the total liability of
Landlord arising out of or in connection with this Lease, the relationship of
Landlord and Tenant hereunder and/or Tenant's use of the Premises, shall be
limited to the estate of Landlord in the Building. No other property or assets
of Landlord or any partner or owner of Landlord shall be subject to levy,
execution, or other enforcement proceedings or other judicial process for the
satisfaction of any judgement or any other right or remedy of Tenant arising out
of or in connection with this Lease, the relationship of Landlord and Tenant
hereunder and/or Tenant's use of the Premises.
16. FIRE AND OTHER CASUALTY.
If the Premises shall be damaged by fire or other casualty, other than as a
result of the negligence or misconduct of Tenant, the Lease shall not terminate
and, upon adjustment of insurance claims, Landlord shall repair the damage,
provided that Landlord shall have no obligation to repair damage to or replace
Tenant's Personal Property. Except as otherwise provided herein, if any part of
the Premises are rendered untenantable by reason of any such damage, Rent shall
abate from the date of the damage to the date the damage is repaired, in the
proportion that the area of the untenantable
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part bears from time to time to the total area of the Premises. No compensation
or reduction of Rent shall be paid or allowed for inconvenience, annoyance or
injury to Tenant or Tenant's business arising from any damage to or repair of
the Premises or the Building.
Notwithstanding the foregoing, if Landlord does not receive sufficient
insurance proceeds to fully repair the damage, or if the Building shall be so
damaged that, as determined by Landlord, substantial reconstruction of the
Premises or the Building is required (whether or not the Premises have been
damaged), then Landlord, at its option, may give Tenant, within sixty (60) days
after the casualty, written notice of termination of this Lease, and this Lease
and the Term shall terminate (whether or not the Term has commenced) upon the
expiration of thirty (30) days from the date of the notice, with the same effect
as if the new expiration date had been the date initially fixed for expiration
of the Term, and all Rent shall be apportioned as of such date.
If the Premises or the Building shall be damaged by fire or other casualty
due to the negligence or misconduct of Tenant: (i) Landlord shall have no
obligation to repair the Premises or the Building, (ii) this Lease shall, at
Landlord's option, not terminate, (iii) Landlord may at Tenant's expense repair
the damage after notifying Tenant (for informational purposes only) of
Landlord's intention to do so, and (iv) Landlord may pursue any legal and
equitable remedies available to it.
17. TENANT INSURANCE.
A. Types of Insurance Required: Tenant, at its expense, shall obtain and
maintain in effect at all times during the Term an insurance policy providing
the following coverage:
(1) An "all risk" insurance policy covering all of Tenant's Personal
Property within, and improvements and alterations to, the Premises for not less
than the full replacement value thereof. All proceeds of such insurance shall be
used to repair or replace the items so insured.
(2) A commercial general liability policy on an occurrence basis, with the
following limits:
<TABLE>
<CAPTION>
<S> <C>
Each occurrence limit for bodily injury and property damage $1,000,000
General aggregate $2,000,000
Product/completed operations aggregate $2,000,000
Fire damage legal liability $ 50,000
Medical payments (any one person) $ 5,000
</TABLE>
Said insurance shall name Landlord (in care of Landlord's management agent and
referring to the Building by its address), Landlord's management agent and
Mortgagee as an additional insured. The policy shall protect Landlord,
Landlord's management agent, and the Mortgagee against any liability for bodily
injury, personal injury, death or property damage occurring upon, in or about
the Premises, the Building or the Land or arising out of or relating to any
risks against which Tenant is required to indemnify Landlord, Landlord's
management agent and the Mortgagee. From time to time during the Term, Landlord
may require Tenant to increase said limits of said insurance to the limits of
liability
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insurance then customarily required of tenants of other comparable office
buildings in the city (or, if not a city, other local jurisdiction) in which the
Building is located.
B. Required Provisions of Policies: All insurance policies required to be
maintained by Tenant under this Lease must: (i) be issued by insurance
companies approved by Landlord; (ii) be in form and have content satisfactory to
Landlord; (iii) be written as primary policy coverage and not contributing to or
in excess of any coverage which Landlord or the Mortgagees may carry; (iv)
contain an express waiver of any right of subrogation by the insurance company
against Landlord, the Mortgagees and the Landlord's and the Mortgagees'
employees and agents; and (v) provide that the policy may not be canceled or
permitted to lapse unless Landlord shall have received at least fifteen (15)
days prior written notice of cancellation or non-renewal. Tenant shall deliver
to Landlord (in care of Landlord's management agent and referring to the
Building by its address) certified copies or duplicate originals of each such
policy and any renewal policy, together with evidence of payment of all
applicable premiums, at least ten (10) days before the Lease Commencement Date
and at least thirty (30) days before the renewal of any policies. Any insurance
required of Tenant under this Section may be carried under a blanket policy,
provided that said policy shall specifically set forth the amount of insurance
allocated to this Lease.
C. Effect of Tenant's Activities on Insurance: Tenant shall not conduct
or permit to be conducted any activity, or place any equipment in or about the
Land, the Building or the Premises which will increase the rate of, or make void
or voidable, any fire or other insurance maintained or required to be maintained
by Landlord or any Mortgagee on the Building, the Land or the property kept
thereon or therein, which will conflict with the provisions of any such
insurance policy or which will make it impracticable for Landlord to obtain
insurance covering any risks against which Landlord reasonably deems it
advisable to obtain insurance. In the event any increases in the rates of such
insurance are, in Landlord's reasonable judgement, due to Tenant's presence in
the Building, to any activity conducted or property installed or placed by
Tenant on or about the Land, the Building or the Premises or to Alterations
installed by Tenant or at Tenant's request, Tenant shall reimburse Landlord for
the amount of such increases promptly upon demand therefor. Statements by the
applicable insurance company or insurance rating bureau that such increases are
due to any activity, property or improvements shall be conclusive for the
purposes of determining Tenant's liability hereunder.
D. Termination Right: Landlord shall have the right to terminate this
Lease upon thirty (30) days notice to Tenant in the event Landlord receives
notice from any of Landlord's insurance carriers that such carrier intends to
cancel its insurance on the Building, or to increase the cost of such insurance
by more than one hundred percent (100%) above the premium payable by Landlord
immediately prior to such notice, due to the activities of Tenant or the
presence of Tenant in the Building. However, Landlord shall not terminate this
Lease in the event Landlord is able, with good faith efforts, to obtain
equivalent insurance from an insurance carrier satisfactory to Landlord at a
premium not more than one hundred percent (100%) greater than the premium for
the canceled insurance; provided that Tenant shall reimburse Landlord for all
additional premiums charged to Landlord by such new insurance carrier. It is
expressly understood that Landlord shall not have the right to terminate this
Lease pursuant to this Subsection D. if any cancellation or rate increase is due
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to factors generally applicable to the insurance or rental market, rather than
to Tenant's activities or presence in the Building.
E. Waiver: Except for gross negligence and intentional acts, Landlord
and Tenant hereby each waive and release each other from any and all
liabilities, claims and losses for which Landlord or Tenant is or may be held
liable, to the extent either party: (i) receives insurance proceeds on account
thereof, or (ii) is required to maintain insurance pursuant to this Section,
whichever is greater.
18. CONDEMNATION.
A. Landlord's Right to Terminate: If a substantial part of the Premises,
the Building or the Land is taken or condemned by any governmental authority for
any purpose or is granted to any authority in lieu of condemnation
(collectively, a "taking"), Landlord or Tenant shall have the right in its sole
discretion to terminate this Lease by written notice to the other party and upon
the giving of such notice, the Term shall terminate as of the date title vests
in the authority, and Rent shall be abated as of that date. For purposes of
this Section, a substantial part of the Premises, the Land or the Building shall
be considered to have been taken if, (i) in the sole opinion of Landlord, the
taking shall render it commercially undesirable for Landlord to permit this
Lease to continue or to continue operating the Building or (ii) the remainder of
the Premises is untenantable.
B. Adjustment of Rent: If a portion of the Premises is taken and Landlord
does not elect to terminate this Lease pursuant to the preceding paragraph, then
Rent shall be equitably adjusted as of the date title vests in the authority and
this Lease shall otherwise continue in full force and effect.
C. Division of Award: Tenant shall have no claim against Landlord
arising out of or related to any taking, or for any portion of the amount that
may be awarded as a result, and Tenant hereby assigns to Landlord all its
rights, title and interest in and to any such award; provided, however, that
Tenant may assert any claim it may have against the authority for compensation
for Tenant's Personal Property and for any relocation expenses compensable by
statute, as long as such awards shall be made in addition to and stated
separately from the award made for the Land, the Building and the Premises.
19. DEFAULT.
A. Default of Tenant: The following events shall be a default by Tenant
(a "Default") under this Lease:
(1) Failure of Tenant to pay Rent as and when due, if the failure
continues for three (3) days after notice from Landlord specifying the failure.
(2) Failure of Tenant to comply with or perform any covenant or
obligation of Tenant under this Lease, other than those concerning the payment
of Rent, if the failure continues for twenty (20) days after notice from
Landlord to Tenant specifying the failure.
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(3) If, in Landlord's reasonable opinion, Tenant's activities or
presence in the Premises results in a significant, continuing or repeated threat
of physical danger to other tenants and/or users of the Building, whether or not
Tenant is capable of controlling such threat.
(4) If Tenant, any guarantor of Tenant's performance hereunder (a
"Guarantor") or, if Tenant is a partnership, any partner of Tenant ("Partner"),
shall file a voluntary petition in bankruptcy or insolvency, shall be
adjudicated bankrupt or insolvent or shall file a petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future federal, state or other law, or
shall make an assignment for the benefit of creditors, or shall seek or
acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or
of any Guarantor or Partner or of all or any part of the property of Tenant or
of such Guarantor or Partner.
(5) If, within thirty (30) days after the commencement of any
proceeding against Tenant or a Guarantor or Partner, whether by the filing of a
petition or otherwise, seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future applicable federal, state or other law, such proceeding shall not have
been dismissed or if, within thirty (30) days after the appointment of any
trustee, receiver or liquidator of Tenant or any Guarantor or Partner, or of all
or any part of the property of Tenant or of any Guarantor or Partner, without
the acquiescence of such individual or entity, such appointment shall not have
been vacated or otherwise discharged, or if any execution or attachment shall
have been issued against the property of Tenant or of any Guarantor or Partner,
pursuant to which the Premises shall be taken or occupied or attempted to be
taken or occupied.
(6) If Tenant fails to take possession of the Premises on the Lease
Commencement Date or vacates, abandons or ceases to carry on its ordinary
activities in the Premises prior to the Lease Expiration Date, with or without
an intention of paying Rent; provided, however, that if (i) Tenant gives
Landlord at least thirty (30) days prior written notice that it intends to
vacate the Premises, (ii) Tenant pays the full amount of all Rent when due under
this Lease while the Premises are vacant, (iii) the fact that the Premises are
vacant does not adversely affect the Building or other tenants therein and does
not result in any liability to, or expenditure of funds by, Landlord, and (iv)
Tenant leaves the Premises in a condition satisfactory to Landlord and continues
to maintain the Premises in a condition satisfactory to Landlord throughout the
remainder of the Term, then, and in such event only, Tenant shall not be deemed
to be in Default under this Section 19.A.(6) and Landlord shall have the right,
exercisable by sending written notice to Tenant, to sublet from Tenant for the
balance of the Term of this Lease all or any portion of the Premises at Tenant's
then rental rate hereunder, or to terminate this Lease as to all or any portion
of the Premises, which rights of Landlord as to subletting and termination shall
be exercisable by Landlord in its sole discretion.
B. Remedies Upon Default: Upon the occurrence of a Default, Landlord
shall have the right, then or at any time thereafter:
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<PAGE>
(1) Without demand or notice, to reenter and take possession of all or
any part of the Premises, to expel Tenant and those claiming through Tenant and
to remove any property therein, either by summary proceedings or by any other
action at law, in equity or otherwise, with or without terminating this Lease,
without being deemed guilty of trespass and without prejudice to any other
remedies of Landlord for breach of this Lease, and/or
(2) To give Tenant written notice of Landlord's intent to terminate
this Lease, and on the date specified in Landlord's notice, Tenant's right to
possession of the Premises shall cease and this Lease shall terminate.
If Landlord elects to terminate this Lease, everything contained in this
Lease on the part of Landlord to be done shall cease, without prejudice to
Landlord's right to recover from Tenant all Rent, as set forth in Subsections C.
and D. below. If Landlord elects to reenter pursuant to Subsection B.(1) above,
Landlord may terminate this Lease, or, from time to time without terminating
this Lease, may relet all or any part of the Premises as the agent of Tenant,
for such term, at such rental and upon such other provisions as Landlord deems
acceptable, with the right to make any alterations and repairs to the Premises
that Landlord deems appropriate, at Tenant's expense. No such reentry or taking
of possession of the Premises shall be construed as an election to terminate
this Lease, unless notice of such intention is given pursuant to Subsection
B.(2) above, or unless termination be decreed by a court of competent
jurisdiction at the instance of Landlord. Landlord shall in no event be under
any obligation to relet any part of the Premises.
C. Liability of Tenant: If Landlord terminates this Lease or reenters
the Premises (with or without terminating this Lease), Tenant shall remain
liable (in addition to all other liabilities of Tenant accrued at the time of
the Default) for the sum of (i) any unpaid Rent accrued prior to the time of
termination and/or reentry, as the case may be, plus interest thereon from the
due date at the Default Rate, (ii) all Base Rent and Additional Rent provided
for in this Lease from the time of termination and/or reentry, as the case may
be, until the date this Lease would have expired had a Default not occurred,
plus interest thereon from the due date at the Default Rate, (iii) any and all
expenses (including but not limited to attorneys' and brokerage fees) incurred
by Landlord in reentering and repossessing the Premises, in correcting any
default, in painting, altering or repairing the Premises in order to place the
Premises in first-class rentable condition (whether or not the Premises are
relet), in protecting and preserving the Premises and in reletting or attempting
to relet the Premises, and (iv) any other amounts necessary to compensate
Landlord for any other injury or detriment caused by the Default, minus the net
proceeds (after deducting any rental abatements, tenant improvement allowances
and other concessions and inducements) actually received by Landlord, if any,
from any reletting to the extent attributable to the period prior to the date
this Lease would have expired had a Default not occurred, Landlord shall have
the option to recover any damages sustained by Landlord either at the time of
reletting, if any, or in separate actions from time to time as said damages
shall have been made more easily ascertainable by successive relettings or, at
Landlord's option, to defer any such recovery until the date this Lease would
have expired in the absence of a Default, in which event Tenant hereby agrees
that the cause of action shall be deemed to have accrued on the aforesaid date.
The provisions of this Section shall be in addition to, and shall not prevent
the enforcement of, any claim Landlord may have for anticipatory breach of this
Lease.
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D. Liquidated Damages: In addition to Landlord's rights pursuant to
Subsection C. above, if Landlord terminates this Lease, Landlord shall have the
right at any time, at its sole option, to require Tenant to pay to Landlord on
demand, as liquidated damages, the sum of (i) the total of the Base Rent,
Additional Rent and all other sums which would have been payable under this
Lease from the date of Landlord's demand for liquidated damages ("Landlord's
Demand") until the date this Lease would have terminated in the absence of the
Default, discounted to present value at the rate of five percent (5%) per annum
(the "Discount Rate"), (ii) all unpaid Rent accrued prior to the time of
Landlord's Demand, plus interest thereon from the due date at the Default Rate,
(iii) any and all expenses (including but not limited to attorneys' and
brokerage fees) incurred by Landlord in reentering and repossessing the
Premises, in correcting any default, in painting, altering or repairing the
Premises in order to place the Premises in first-class rentable condition
(whether or not the Premises are relet), in protecting and preserving the
Premises and in reletting or attempting to relet the Premises, and (iv) any
other amounts necessary to compensate Landlord for any other injury or detriment
caused by the Default; minus the sum of (a) the net fair market rental value of
the Premises for the period referred to in Subsection D.(i) above, discounted to
present value at the Discount Rate, and (b) any sums actually paid by Tenant to
Landlord pursuant to Subsection C. above; provided, however, that if said
damages shall be limited by law to a lesser amount, Landlord shall be entitled
to recover the maximum amount permitted by law. The "net fair market rental
value" referred to in Subsection D.(a) above shall be the fair market rental
value of the Premises at the time of Landlord's Demand, reduced by any rental
abatements, tenant improvement allowances and other concessions and inducements
generally provided by landlords seeking to lease comparable commercial property
in the area of the Premises at the time of Landlord's Demand. If reletting is
accomplished within a reasonable time after Lease termination, the "net fair
market rental value" referred to in Subsection D.(a) above shall be deemed prima
facie to be the net rental income (after deducting any rental abatements, tenant
improvement allowances and other concessions and inducements) realized upon such
reletting.
E. Waiver: Tenant, on its own behalf and on behalf of all persons and
entities claiming through Tenant, including but not limited to creditors of
Tenant, hereby waives any and all rights and privileges which Tenant and such
other persons and entities might otherwise have under any present or future law:
(i) to redeem the Premises, (ii) to reenter or repossess the Premises, or (iii)
to restore the operation of this Lease, with respect to any dispossession of
Tenant by judgment or warrant of any court, any reentry by Landlord or any
expiration or termination of this Lease, whether by operation of law or pursuant
to the provisions of this Lease. Tenant hereby expressly waives receipt of a
Notice to Quit.
F. Lien on Personal Property: Landlord shall have a lien upon Tenant's
Personal Property and other Property brought onto the Premises by Tenant, as and
for security for the Rent and other obligations of Tenant herein provided.
Landlord may, at any time after a Default, seize and take possession of any and
all such property. If Tenant fails to redeem the property so seized by payment
of whatever sums may be due Landlord pursuant to this Lease, then Landlord shall
have the right, after twenty (20) days written notice to Tenant to sell such
personal property at public or private sale and upon such terms and conditions
as Landlord may deem advantageous, and after the payment of all proper charges
incident to such sale, apply the proceeds thereof to the payment of any
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balance due to Landlord hereunder and pay any remaining balance to Tenant. The
exercise by Landlord of the foregoing remedy shall not discharge Tenant from any
deficiency owed to Landlord, nor shall it preclude the exercise by Landlord of
any other rights and remedies. Landlord shall not be liable to Tenant, or other
owners of property seized, for damages, general or special, if Landlord
reasonably believed it was acting lawfully in seizing property located in the
Premises.
G. Right of Distress: Landlord shall, to the extent permitted by law,
have a right of distress for Rent.
H. Right of Landlord to Cure: If Tenant defaults in the making of any
payment or in the doing of any act required to be made or done by Tenant under
this Lease, then Landlord may, at its option, make such payment or do such act,
and the expenses thereof, with interest thereon at the Default Rate, from the
date paid by Landlord, shall constitute Additional Rent hereunder due and
payable by Tenant with the next payment of Monthly Base Rent.
I. Attorneys' Fees: In the event of any Default hereunder, Tenant shall
pay to Landlord all attorneys' fees incurred by Landlord in connection with such
Default or the enforcement of Landlord's rights or remedies arising in
connection therewith, whether or not this Lease is terminated and whether or not
Landlord institutes any lawsuit against Tenant as a result of such Default. In
addition to the foregoing, whether or not this Lease is terminated, Tenant shall
pay to Landlord all other costs incurred by Landlord with respect to any lawsuit
instituted or action taken by Landlord to enforce the provisions of this Lease.
J. Survival: Tenant's liability pursuant to this Section 19 shall
survive the termination of this Lease, the institution of summary proceedings
and/or the issuance of a warrant thereunder.
20. NO WAIVER.
No failure or delay by Landlord in enforcing its right to strict
performance by Tenant of every provision of this Lease or in exercising any
right or remedy hereunder, and no acceptance by Landlord of full or partial rent
during the continuance of any Default, shall constitute a waiver of the
provision or the Default, and no provision shall be waived or modified except by
a written instrument executed by Landlord. No payment by Tenant, or receipt by
Landlord, of a lesser amount than the full Rent shall be deemed to be other than
a payment on account, notwithstanding any endorsement or statement on any check
or letter accompanying any payment of any Rent. No waiver of any Default or
settlement of any proceeding instituted on account of any claimed Default shall
affect or alter this Lease or constitute a waiver of any of Landlord's rights
hereunder.
21. HOLDING OVER.
If Tenant shall be in possession of the Premises after termination of this
Lease (whether by normal expiration of the Term or otherwise), at Landlord's
option: (i) Landlord may deem Tenant to be occupying the Premises as a tenant
from month-to-month, at the sum of two hundred fifty percent (250%) of the
Monthly Base Rent in effect for the last full month of the Term, plus the
monthly
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installment of Additional Rent which is then payable pursuant to Section
5.C. of this Lease, and subject to all of the other provisions of this Lease, as
applicable to a month-to-month tenancy, or (ii) Landlord may exercise any or all
remedies for Default and at law and in equity, including but not limited to an
action against Tenant for wrongfully holding over.
22. SUBORDINATION.
A. Lease Subordinate: This Lease shall be subject and subordinate to the
lien of any and all Mortgages and to any Ground Leases, and any and all
renewals, extensions, modifications, recastings and refinancings thereof. This
clause shall be self-operative, without execution of any further instrument; but
if requested by Landlord or any Mortgagee, Tenant shall promptly execute a
certificate or other document evidencing and providing for such subordination.
Landlord shall have the right to execute said document on behalf of Tenant if
Tenant fails to do so within five (5) days after receipt of the request. Tenant
agrees that, if any Mortgage is foreclosed or Ground Lease terminated, upon
request by the purchaser at the foreclosure sale or Ground Lessor, as the case
may be, Tenant shall attorn to and recognize the purchaser or Ground Lessor as
the landlord under this Lease and shall make all payments required hereunder to
such new landlord without any deduction or set-off of any kind whatsoever.
Tenant waives the provisions of any law or regulation, now or hereafter in
effect, which may give or purport to give Tenant any right to terminate or
otherwise affect this Lease or the obligations of Tenant hereunder in the event
that any such foreclosure, termination or other proceeding is filed, prosecuted
or completed. Notwithstanding anything herein to the contrary, any Mortgagee
may at any time subordinate the lien of its Mortgage to the operation and effect
of this Lease without Tenant's consent, by giving Tenant written notice of such
subordination, in which event this Lease shall be deemed to be senior to such
Mortgage, and thereafter such Mortgagee shall have the same rights as it would
have had if this Lease had been executed, delivered and recorded before said
Mortgage.
B. Modifications to Lease: In the event any of Landlord's insurance
carriers or any Mortgagee requests modifications to this Lease, Tenant shall
execute a written amendment incorporating such requested modifications within
thirty (30) days after the same has been submitted to Tenant by Landlord,
provided that such modifications do not materially adversely affect Tenant's use
of the Premises as herein permitted or increase the rentals and other sums
payable by Tenant hereunder. In the event Tenant refuses or fails to execute
such amendment within thirty (30) days, Landlord shall have the right, at its
sole option, in addition to Landlord's other remedies for Default, to terminate
and cancel this Lease by written notice to Tenant specifying the date on which
this Lease will terminate. From and after said termination date, both Landlord
and Tenant shall be relieved of any and all further obligations hereunder,
except liabilities arising prior to the date of termination.
23. ASSIGNMENT AND SUBLETTING.
A. No Transfer Without Consent: Tenant shall not, without the prior
written consent of Landlord in each instance (which consent may be withheld in
Landlord's sole and absolute discretion) (i) assign, mortgage or otherwise
encumber this Lease or any of its rights hereunder;
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(ii) sublet the Premises or any part thereof or permit the occupancy or use of
the Premises or any part thereof by any persons or entities other than Tenant;
or (iii) permit the assignment of this Lease or any of Tenant's rights hereunder
by operation of law. Any attempted assignment, mortgaging or encumbering of this
Lease or any of Tenant's rights hereunder and any attempted subletting or grant
of a right to use or occupy all or a portion of the Premises in violation of the
foregoing sentence shall be void. Landlord agrees that it shall not unreasonably
withhold, condition or delay its consent to a proposed subletting provided that
all of the following conditions are satisfied: (a) there shall be no uncured
default at the time of the proposed subletting, (b) the proposed subtenant shall
be creditworthy, (c) the proposed subtenant shall not be a governmental entity
or a person or entity enjoying sovereign or diplomatic immunity, (d) the use of
the Premises by the proposed subtenant shall not attract a volume, frequency or
type of visitor or employee to the Building which is not consistent with the
standards of an office building comparable to the Building, (e) the proposed
subtenant shall specifically covenant and agree to perform the obligations of
Tenant hereunder and to occupy the Premises subject to the provisions of this
Lease, and (f) Tenant remains liable for the faithful performance of this Lease.
B. Take-Back Rights: In addition, Tenant may not assign this Lease, nor
sublet (or permit occupancy or use of) the Premises, or any part thereof,
without giving Landlord fifteen (15) business days prior written notice thereof.
For thirty (30) days following receipt of said notice, Landlord shall have the
right, exercisable by sending notice to Tenant, to sublet from Tenant for the
balance of the Term of this Lease (i) all of the Premises in the event Tenant
notified Landlord of its desire to assign this Lease, or (ii) so much of the
Premises as Tenant intends to sublet in the event Tenant notified Landlord of
its desire to sublet the Premises or permit another to make use thereof, at the
same rental Tenant is obligated to pay to Landlord hereunder. In the event
Landlord does not exercise the aforesaid right within said fifteen (15) business
days, Tenant may attempt to assign, sublet or permit use of this Lease or such
space; provided that Tenant shall obtain the prior written consent of Landlord
as set forth in Subsection A. above. In the event that Tenant defaults
hereunder, Tenant hereby assigns to Landlord the Rent due from any assignee or
subtenant and hereby authorizes each such party to pay said Rent to Landlord.
C. Transfer of Stock: If Tenant and/or any Guarantor is a corporation,
then the sale, issuance or transfer of any voting capital stock of Tenant or any
Guarantor, by the person, persons or entities owning a controlling interest
therein as of the date of this Lease, which results in a change in the voting
control of Tenant or the Guarantor, shall be deemed an assignment within the
meaning of this Section 23. If Tenant and/or any Guarantor is a partnership,
the sale or transfer of the partnership share, or any portion thereof, of any
general partner shall be deemed an assignment of this Lease.
D. Expenses and Profits; Effect of Consent:
(1) In the event Landlord permits Tenant to assign or sublet all or a
portion of the Premises to a third party, any sums that are paid by such third
party for the right to occupy the Premises, in excess of the Rent then in effect
shall be paid by Tenant to Landlord on a monthly basis as Additional Rent.
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(2) Tenant shall be responsible for all costs and expenses, including
attorneys' fees, incurred by Landlord in connection with any proposed or
purported assignment or sublease and an administrative fee of Two Thousand Five
Hundred Dollars ($2,500.00).
(3) The consent by Landlord to any assignment or subletting shall
neither be construed as a waiver or release of Tenant from any covenant or
obligation of Tenant under this Lease, nor as relieving Tenant from giving
Landlord the aforesaid fifteen (15) business days notice of, or from obtaining
the consent of Landlord to, any further assignment or subletting. The
collection or acceptance of Rent from any such assignee or subtenant shall not
constitute a waiver or release of Tenant from any covenant or obligation of
Tenant under this Lease, except as expressly agreed by Landlord in writing.
24. TRANSFER BY LANDLORD.
Landlord (and any successor or affiliate of Landlord) may freely sell,
assign or transfer all or any portion of its interest in this Lease or the
Premises, the Building or the Land and, in the event of any such sale,
assignment or transfer, shall be relieved of any and all obligations under this
Lease from and after the date of the sale, assignment or transfer. From and
after said date, Tenant shall be bound to such purchaser, assignee or other
transferee, as the case may be, as though the latter had been the original
Landlord hereunder, provided that the purchaser, assignee or transferee agrees
to assume the obligations of Landlord hereunder.
25. INABILITY TO PERFORM.
This Lease and Tenant's obligation hereunder shall in no way be affected,
impaired or excused, nor shall Tenant have any claim against Landlord for
damages, because Landlord, due to Unavoidable Delays, is unable to fulfill any
of its obligations under this Lease, including, but not limited to, any
obligations to provide any services, repairs, replacements, alterations or
decorations or to supply any improvements, equipment or fixtures.
26. ESTOPPEL CERTIFICATES.
Tenant shall, without charge, within ten (10) days after receipt of any
request therefor, execute and deliver to Landlord a certificate stating: (i)
whether this Lease is unmodified and in full force and effect (or if there have
been modifications, that the Lease is in full force and effect and setting forth
all such modifications); (ii) whether there then exist any defenses against the
enforcement of any right of Landlord hereunder (and, if so, specifying the same
in detail); (iii) the dates to which rent and any other charges hereunder have
been paid by Tenant; (iv) that Tenant has no knowledge of any then uncured
defaults under this Lease (or, if Tenant has knowledge of any such defaults,
specifying the same in detail); (v) that Tenant has no knowledge of any event
that will or may result in the termination of this Lease (or if Tenant has such
knowledge, specifying the same in detail); (vi) the address to which notices to
Tenant are to be sent; and (vii) such other information as may be reasonably
requested. It is understood that any such certificate may be relied upon by
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Landlord, any Mortgagee, prospective Mortgagee, Ground Lessor, prospective
Ground Lessor, or purchaser or prospective purchaser of the Land or the
Building.
27. COVENANT OF QUIET ENJOYMENT.
Landlord covenants that it has the right to make this Lease and that, if
Tenant shall pay all Rent and perform all of Tenant's other obligations under
this Lease, Tenant shall have the right, during the Term and subject to the
provisions of this Lease, to quietly occupy and enjoy the Premises without
hindrance by Landlord or its successors and assigns.
28. WAIVER OF JURY TRIAL.
Landlord and Tenant hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of them against the other with respect to any
matter arising out of or connected with this Lease.
29. BROKERS.
Landlord and Tenant each represents and warrants to the other that, except
as hereinafter set forth, neither of them has employed any broker in procuring
or carrying on any negotiations relating to this Lease. Landlord and Tenant
shall indemnify and hold each other harmless from any loss, claim or damage
relating to the breach of the foregoing representation and warranty. Landlord
recognizes only Scheer Partners, Inc., as Tenant's agent, as broker with respect
to this Lease and agrees to be responsible for the payment of any leasing
commissions owed to said broker.
30. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord shall have the following rights, exercisable without notice,
without liability for damage or injury to property, person or business and
without effecting an eviction, constructive or actual, or disturbance of
Tenant's use or possession of the Premises or giving rise to any claim for set-
off, abatement of Rent or otherwise:
A. To change the Building's name or street address.
B. To affix, maintain and remove any and all signs on the exterior and
interior of the Building.
C. To designate and approve, prior to installation, all window shades,
blinds, drapes, awnings, window ventilators, lighting and other similar
equipment to be installed by Tenant that may be visible from the exterior of the
Premises or the Building.
D. To decorate and make repairs, alterations, additions and improvements,
whether structural or otherwise, in, to and about the Building and any part
thereof, and for such purposes to enter the Premises, and, during the
continuance of any such work, to close temporarily doors, entry
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ways, Common Areas in the Building and to interrupt or temporarily suspend
Building services and facilities, all without affecting Tenant's obligations
hereunder, as long as the Premises remain tenantable.
E. To grant to anyone the exclusive right to conduct any business or
render any service in the Building, provided Tenant is not thereby excluded from
uses expressly permitted herein.
F. To alter, relocate, reconfigure and reduce the Common Areas of the
Building, as long as the Premises remain reasonably accessible.
G. To alter, relocate, reconfigure, reduce and withdraw the Common Areas
located outside the Building, including parking and access roads, as long as the
Premises remain reasonably accessible.
H. To erect, use and maintain pipes and conduits in and through the
Premises.
Tenant shall use reasonable efforts to avoid unreasonable interference with
Tenant's business operations in the Premises during the course of Landlord's
exercise of its rights under this Section 30.
31. NOTICES.
No notice, request, approval, waiver or other communication which may be or
is required or permitted to be given under this Lease shall be effective unless
the same is in writing and hand-delivered, sent by registered or certified mail,
return receipt requested, first-class postage prepaid, or sent with charges
prepaid by a nationally recognized air courier service, addressed as follows:
If to Landlord:
c/o TrizecHahn Twinbrook Metro Limited Partnership
1250 Connecticut Avenue, N.W.
Suite 500
Washington, D.C. 20036
Attention: Portfolio Manager - Twinbrook Metro Park
If to Tenant:
Prior to the Lease Commencement Date: After the Lease Commencement Date:
________________________________________ At the Premises
________________________________________ __________________________________
Attn: __________________________________ Attn: Ms. Cindy Utley
---------------
or at any other address of which either party shall notify the other in
accordance with this Section. Such communications, if sent by registered or
certified mail, shall be deemed to have been given two (2) days after the date
of mailing, or if sent by a nationally recognized air courier service, shall be
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deemed to have been given one (1) business day after the date of deposit of the
notice with such service. If any Mortgagee shall notify Tenant that it is the
holder of a Mortgage affecting the Premises, no notice, request or demand
thereafter sent by Tenant to Landlord shall be effective until a copy of same
shall be sent to such Mortgagee in the manner prescribed in this Section at such
address as such Mortgagee shall designate.
32. MISCELLANEOUS PROVISIONS.
A. Benefit and Burden: The provisions of this Lease shall be binding
upon, and shall inure to the benefit of, the parties hereto and each of their
respective successors and permitted assigns.
B. Governing Law: This Lease shall be construed and enforced in
accordance with the laws of the jurisdiction in which the Building is located.
C. No Partnership: Nothing contained in this Lease shall be deemed to
create a partnership or joint venture between Landlord and Tenant, or to create
any other relationship between the parties other than that of Landlord and
Tenant.
D. Delegation by Landlord: Wherever Landlord has the authority to take
any action under this Lease, Landlord shall have the right to delegate such
authority to others, and Landlord shall be responsible for the authorized
actions of such agents, employees and others, to the same extent as if Landlord
had taken such action itself.
E. Tenant Responsibility for Agents: In any case where Tenant is
responsible for performing or refraining from an act or for preventing an action
or result from occurring, Tenant shall also be responsible for any actions taken
or omitted by Tenant's agents, employees, business invitees, licensees,
contractors, subtenants, family members, guests and any other individuals or
entities present in the Building or on the Land at Tenant's invitation.
F. Invalidity of Particular Provisions: If any provision of this Lease or
the application thereof to any person, entity or circumstance shall, to any
extent, be held invalid or unenforceable, the remaining provisions and the
application of such invalid or unenforceable provisions to persons, entities and
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby. Each provision of this Lease shall be valid and
enforced to the fullest extent permitted by law.
G. Counterparts: This Lease may be executed in several counterparts, all
of which shall constitute one and the same document.
H. Entire Agreement: This Lease, and any exhibits and addenda attached
hereto, embody the entire agreement of the parties hereto, and no
representations, inducements or agreements, oral or otherwise, between the
parties not contained in this Lease or in the exhibits or addenda shall be of
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any force or effect. No rights, privileges, easements or licenses are granted
to Tenant hereby, except as expressly set forth herein.
I. Amendments: This Lease may not be modified in whole or in part in any
manner other than by an agreement in writing.
J. Mortgagee's Performance: Tenant shall accept performance of any of
Landlord's obligations hereunder by any Mortgagee.
K. Limitation on Interest: In any case where this Lease provides for a
rate of interest that is higher than the maximum rate permitted by law, the rate
specified herein shall be deemed to equal, and the party designated as recipient
of such interest shall be entitled to receive, the maximum rate of interest
permitted by law.
L. Remedies Cumulative: All rights and remedies of Landlord shall be
cumulative and shall not be exclusive of any other rights or remedies of
Landlord hereunder or now or hereafter existing at law or in equity.
M. Annual Financial Statements: Within ten (10) days after a written
request by Landlord to Tenant, Tenant shall submit to Landlord an audited
financial statement covering the preceding Fiscal Year, which has been prepared
in accordance with generally accepted accounting principles by an independent
certified public accountant.
33. LENDER APPROVAL.
If the Mortgagee fails to give its consent to this Lease, Landlord shall
have the right, at its sole option, to terminate and cancel this Lease. Such
option shall be exercisable by Landlord by written notice to Tenant of such
termination, whereupon this Lease shall be deemed canceled and terminated, and
both Landlord and Tenant shall be relieved of any and all liabilities and
obligations hereunder.
34. PARKING.
Parking will be made available to Tenant pursuant to the provisions of
Exhibit E attached hereto.
35. SECURITY DEPOSIT.
A. Amount and Uses: Landlord acknowledges receipt from Tenant of Thirteen
Thousand Six Hundred Twelve and 17/100 Dollars ($13,612.17) (the "Security
Deposit"), to be held by Landlord as security for the payment of all Rent
payable by Tenant and for the faithful performance by Tenant of all other
obligations of Tenant under this Lease. Said Security Deposit shall be repaid
to Tenant after the termination of this Lease (or any renewal thereof), provided
Tenant shall have made all such payments and performed all such obligations
hereunder. Landlord shall not be
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required to maintain the Security Deposit in a separate account. The Security
Deposit shall not be mortgaged, assigned, transferred or encumbered by Tenant
without the prior written consent of Landlord, and any such act shall be void.
Landlord may, at Landlord's option, appropriate and apply the entire Security
Deposit, or so much thereof as Landlord believes may be necessary, to compensate
Landlord for the payment of any past-due Rent and for loss or damage sustained
by Landlord due to any Default. In the event Landlord appropriates or applies
the Security Deposit in such a manner, Tenant, within five (5) days after notice
thereof, shall pay to Landlord an amount sufficient to restore the Security
Deposit to the original sum deposited. Tenant's failure to restore any such
deficiency shall constitute a Default hereunder. In the event of bankruptcy or
other debtor-creditor proceedings by or against Tenant, the Security Deposit
shall be applied first to the payment of Rent due Landlord for all periods prior
to the filing of such proceedings.
B. Transferability: In the event of a sale or transfer of Landlord's
interest in the Building or of the interest of any successor or assign of
Landlord, Landlord (or such successor or assign) shall have the right to
transfer the Security Deposit to any vendee or transferee and shall thereupon be
released automatically from any liability therefor. Tenant shall look solely to
the transferee for the return of the Security Deposit. No Mortgagee or
purchaser of any or all of the Building at any foreclosure proceeding shall
(regardless of whether the Lease is at the time subordinated to the lien of said
Mortgage) be liable to Tenant or any other person for any of such Security
Deposit, or any other payment made by Tenant hereunder, unless Landlord has
actually delivered said deposit or other such sum to such Mortgagee or
purchaser. In the event of any rightful and permitted assignment of Tenant's
interest in this Lease, the Security Deposit shall be deemed to be held by
Landlord as a deposit made by the assignee, and Landlord shall have no liability
to the assignor with respect to the return of the Security Deposit.
36. HAZARDOUS MATERIALS.
A. Definition. As used in this Lease, the term "Hazardous Material"
means any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "infectious wastes", "hazardous materials" or "toxic substances" now or
subsequently regulated under any federal, state or local laws, regulations or
ordinances including, without limitation, oil, petroleum-based products, paints,
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar compounds, and
including any different products and materials which are subsequently found to
have adverse effects on the environment or the health and safety of persons.
B. General Prohibition. Tenant shall not cause or permit any Hazardous
Material to be generated, produced, brought upon, used, stored, treated,
discharged, released, spilled or disposed of on, in under or about the Premises,
the Building, or the Land (hereinafter referred to collectively as the
"Property") by Tenant, its affiliates, agents, employees, contractors,
subtenants, assignees or invitees. Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all actions (including, without
limitation, remedial or enforcement actions of any kind, administrative or
judicial proceedings, and orders or judgments arising out of or resulting
therefrom), costs, claims,
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damages (including without limitation, attorneys', consultants', and experts'
fees, court costs and amount paid in settlement of any claims or actions),
fines, forfeitures or other civil, administrative or criminal penalties,
injunctive or other relief (whether or not based upon personal injury, property
damage, or contamination of, or adverse effects upon, the environment, water
tables or natural resources), liabilities or losses arising from a breach of
this prohibition by Tenant, its affiliates, agents, employees, contractors,
subtenants, assignees or invitees.
C. Notice. In the event that Hazardous Materials are discovered upon, in,
or under the Property, and any governmental agency or entity having jurisdiction
over the Property requires the removal of such Hazardous Materials, Tenant shall
be responsible for removing those Hazardous Materials arising out of or related
to the use or occupancy of the Property by Tenant or its affiliates, agents,
employees, contractors, subtenants, assignees or invitees but not those of its
predecessors. Notwithstanding the foregoing, Tenant shall not take any remedial
action in or about the Property or any portion thereof without first notifying
Landlord of Tenant's intention to do so and affording Landlord the opportunity
to protect Landlord's interest with respect thereto. Tenant immediately shall
notify Landlord in writing of: (i) any spill, release, discharge or disposal of
any Hazardous Material in, on or under the Property or any portion thereof; (ii)
any enforcement, cleanup, removal or other governmental or regulatory action
instituted, contemplated, or threatened (if Tenant has notice thereof) pursuant
to any laws respecting Hazardous Materials; (iii) any claim made or threatened
by any person against Tenant or the Property or any portion thereof relating to
damage, contribution, cost recovery, compensation, loss or injury resulting from
or claimed to result from any Hazardous Materials; and (iv) any reports made to
any governmental agency or entity arising out of or in connection with any
Hazardous Materials in, on under or about or removed from the Property or any
portion thereof, including any complaints, notices, warnings, reports or
asserted violations in connection therewith. Tenant also shall supply to
Landlord as promptly as possible, and in any event within five (5) business days
after Tenant first receives or sends the same, copies of all claims, reports,
complaints, notices, warnings or asserted violations relating in any way to the
Premises, the Property or Tenant's use or occupancy thereof.
D. Survival. The respective rights and obligations of Landlord and
Tenant under this Section 36 shall survive the expiration or earlier termination
of this Lease.
37. RELOCATION OF TENANT.
Landlord reserves the right at any time prior to Tenant's possession of the
Premises, to relocate Tenant to any other space within the Building as Landlord
deems necessary or advisable. It is further understood and agreed that Landlord
shall have the right, at any time during the Term and at its sole cost and
expense, to relocate Tenant to other premises within the Building (the
"Relocation Space"). Landlord shall provide written notice to Tenant of the
relocation to the Relocation Space not less than sixty (60) days prior to such
relocation. Tenant agrees to execute, upon Landlord's request, an amendment to
this Lease documenting the change in location. All other terms and provisions
of this Lease shall remain in full force and effect.
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In the event that Tenant fails or refuses to relocate to the Relocation
Space at the end of the aforesaid 60-day period, Landlord shall have the right
to terminate this Lease by giving ten (10) days' written notice of termination
to Tenant.
38. NO RECORDATION.
Tenant shall not record or attempt to record this Lease or any memorandum
hereof in any public records without the prior written approval of Landlord,
which may be denied in Landlord's sole and absolute discretion. In the event
that Landlord grants its approval to record this Lease or a memorandum hereof,
Tenant shall pay all recordation fees, taxes and charges in connection with such
recordation.
39. LANDLORD'S TERMINATION OPTION.
Notwithstanding anything in this Lease to the contrary, Landlord shall have
the right, exercisable at Landlord's sole option, to terminate this Lease at any
time after the last day of the eighteenth (18th) month of the Term, said right
of Landlord to be exercisable by giving written notice thereof to Tenant, which
written notice shall set forth a date of termination which is at least sixty
(60) days after the date of such notice (which written notice may be given prior
to the last day of the eighteenth (18th) month of the Term, but shall not expire
prior to a date which is both after the last day of the eighteenth (18th) month
of the Term and at least sixty (60) days after the date of such notice), in
which event this Lease shall terminate on the date set forth in such notice from
Landlord to Tenant as if such date were the date originally fixed herein for the
expiration of the Term hereof, and neither party shall have any obligations
hereunder accruing after the date of such termination.
40. TENANT'S TERMINATION OPTION.
Notwithstanding anything in this Lease to the contrary, Tenant shall have
the right, exercisable at Tenant's sole option, to terminate this Lease at any
time after the last day of the twelfth (12th) month of the Term, said right of
Tenant to be exercisable by giving written notice thereof to Landlord, which
written notice shall set forth a date of termination which is at least ninety
(90) days after the date of such notice (which written notice may be given prior
to the last day of the twelfth (12th) month of the Term, but shall not expire
prior to a date which is both after the last day of the twelfth (12th) month of
the Term, and at least ninety (90) days after the date of such notice), in which
event this Lease shall terminate on the date set forth in such notice from
Tenant to Landlord as if such date were the date originally fixed herein for the
expiration of the Term hereof, and neither party shall have any obligations
hereunder accruing after the date of such termination; provided, however, that
if the termination date specified in Tenant's notice is after the last day of
the eighteenth (18th) month of the Term, Tenant shall be obligated to provide
sixty (60) days' notice of termination [instead of ninety (90) days notice].
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal
as of the day and year first above written.
WITNESS: LANDLORD:
TRIZECHAHN TWINBROOK METRO LIMITED
PARTNERSHIP, a Maryland limited partnership
By: TH Twinbrook Metro LLC, a Maryland
limited liability company, its General
Partner
/s/ By: /s/ Brian P. Coulter
- --------------------------------- ------------------------------
Name: Brian P. Coulter
------------------------------
Its: Vice President
-----------------------------
ATTEST: TENANT:
[Corporate Seal] GENVEC, INC., a Delaware corporation
/s/ Tom Smart By: /s/ Paul H. Fischer
- ---------------------------- ------------------------------
Its:
----------------------------------------
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EXHIBIT A
[Description To Be Provided]
A-1
<PAGE>
EXHIBIT B
DECLARATION BY LANDLORD AND TENANT
AS TO DATE OF DELIVERY AND ACCEPTANCE OF
POSSESSION, LEASE COMMENCEMENT DATE, ETC.
THIS DECLARATION is hereby attached to and made a part of the Lease dated
the ____ day of ________________, 98, entered into by and between TRIZECHAHN
TWINBROOK METRO LIMITED PARTNERSHIP, A MARYLAND LIMITED PARTNERSHIP, as Landlord
and GENVEC, INC., A DELAWARE CORPORATION, as Tenant. All terms used in this
Declaration have the same meaning as they have in the Lease.
(i) Landlord and Tenant do hereby declare that possession of the Premises
was accepted by Tenant of the 23rd day of April, 1998;
(ii) As of the date hereof, the Lease is in full force and effect, and
Landlord has fulfilled all of its obligation under the Lease required to be
fulfilled by Landlord on or prior to said date;
(iii) The Lease Commencement Date is hereby established to be April 23,
1998; and
(iv) The Lease Expiation Date is hereby established to be April 22, 2000,
unless the Lease is sooner terminated pursuant to any provision thereof.
WITNESS: LANDLORD:
TRIZECHAHN TWINBROOK METRO LIMITED
PARTNERSHIP, a Maryland limited partnership
By: TH Twinbrook Office LLC, a Maryland limited
liability company, its General Partner
By: /s/ Holly H. Davis
--------------------------------------
Name: Holly H. Davis
------------------------------------
Its: Vice President
-------------------------------------
ATTEST TENANT:
[Corporate Seal] GENVEC, INC., a Delaware corporation
By: /s/ Paul H. Fischer
- -------------------------- -----------------------------------------
Its: President and CEO
----------------------------------------
[NOTE: NOT TO BE EXECUTED AT TIME OF EXECUTION OF LEASE]
---
B-1
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EXHIBIT C
[Intentionally omitted.]
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EXHIBIT D
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety and
well-being of all the tenants of the Building. Adherence to these rules and
regulations by each and every tenant contributes to safe occupancy and quiet
enjoyment of the Building. Any violation of these rules and regulations by any
tenant which continues after notice from Landlord shall be a Default under such
tenant's lease, at the option of Landlord.
Landlord may, upon request by any tenant, waive compliance by such tenant
of any of the following rules and regulations, provided that (a) no waiver shall
be effective unless signed by Landlord or Landlord's authorized agent, (b) no
such waiver shall relieve any tenant from the obligation to comply with such
rule or regulation in the future, unless expressly consented to by Landlord, and
(c) no such waiver granted to any tenant shall relieve any other tenant from the
obligation of complying with said rule or regulation unless such other tenant
has received a similar waiver in writing from Landlord.
1. The sidewalks, entrances, passages, courtyards, elevators, vestibules,
stairways, corridors, halls and other parts of the Building not occupied by any
tenant (hereinafter "Common Areas") shall not be obstructed or encumbered by any
tenant or used for any purposes other than ingress and egress to and from the
tenant's premises. No tenant shall permit the visit to its premises of persons
in such numbers or under such conditions as to interfere with the use and
enjoyment of the Common Areas by other tenants.
2. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No drapes,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of a tenant's premises, without the prior written
consent of Landlord. Such awnings, projections, curtains, blinds, screens and
other fixtures shall be of a quality, type, design and color acceptable to
Landlord and shall be attached in a manner approved by Landlord.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside or inside
of the tenant's premises or in the Building without the prior written consent of
Landlord. In the event of any violation of the foregoing by any tenant,
Landlord may remove the same without any liability and may charge the expense
incurred by such removal to the tenant or tenants responsible for violating this
rule. All interior signs on the doors and directory tablet of the Building
shall be inscribed, painted or affixed by Landlord at the expense of each
tenant, and shall be of a size, color and style acceptable to Landlord.
4. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the Common Areas without
the prior written consent of Landlord.
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5. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown therein. No tenant
shall throw anything out of the doors or windows or down any corridors of
stairs.
6. There shall be no marking, painting, drilling into or other form of
defacing of or damage to any part of a tenant's premises or the Building. No
boring, cutting or stringing of wires shall be permitted. No tenant shall
construct, maintain, use or operate within its premises or elsewhere within or
on the outside of the Building, any electrical device, wiring or apparatus in
connection with a loud speaker system or other sound system. Upon prior written
approval by Landlord, a tenant may install Muzak or other internal music system
within the tenant's premises if the music system cannot be heard outside of the
premises.
7. No tenant shall make or permit to be made any disturbing noises or
disturb or interfere with the occupants of the Building or neighboring buildings
or premises or those having business with them, whether by the use of any
musical instrument, radio, tape recorder, whistling, singing or any other way.
8. No bicycles, vehicles, animals, birds or pets of any kind shall be
brought into or kept in or about a tenant's premises or in the Building.
9. No cooking shall be done or permitted by any tenant on its premises,
except that, with Landlord's prior written approval (including approval of plans
and specifications therefore), a tenant may install and operate for convenience
of its employees a lounge or coffee room with a microwave, sink and
refrigerator; provided that in so doing the tenant shall comply with all
applicable building code requirements and any insurance or other requirements
specified by Landlord. No tenant shall cause or permit any unusual or
objectionable odors to originate from its premises.
10. No space in or about the Building shall be used for the manufacture,
storage, sale or auction of merchandise goods or property of any kind.
11. No tenant shall buy or keep in the Building or its premises any
inflammable, combustible or explosive fluid, chemical or substance.
12. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanisms thereof. The doors leading to the corridors or main
halls shall be kept closed during business hours except as they may be used for
ingress and egress. Each tenant shall, upon the termination of its tenancy,
return to Landlord all keys used in connection with its premises, including any
keys to the premises, to rooms and offices within the premises, to storage rooms
and closets, to cabinets and other built-in furniture, and to toilet rooms,
whether or not such keys were furnished by Landlord or procured by the tenant,
and in the event of the loss of such keys, such tenant shall pay to Landlord the
cost of replacing the locks. On termination of a tenant's lease, the tenant
shall disclose to Landlord the combination of all locks for safes, safe cabinets
and vault doors, if any, remaining in the premises.
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13. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description, must take place in such manner and
during such hours as Landlord may require. Landlord reserves the right (but
shall not have the obligation) to inspect all freight brought into the Building
and to exclude from the Building all freight which violates any of these rules
and regulations or any provision of any tenant's lease.
14. Any person employed by any tenant to do janitorial work within the
tenant's premises must obtain Landlord's approval prior to commencing such work,
and such person shall comply with all instructions issued by the superintendent
of the Building while in the Building. No tenant shall engage or pay any
employees on the tenant's premises or in the Building, except those actually
working for such tenant on said premises.
15. No tenant shall purchase spring water, ice, coffee, soft drinks,
towels or other like merchandise or service from any company or person who has,
in Landlord's opinion committed violations of Building regulations or caused a
hazard or nuisance to the Building and/or its occupants.
16. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation or
desirability of the Building as a building for offices and, upon written notice
from Landlord, such tenant shall refrain from and discontinue such advertising.
17. Landlord reserves the right to exclude from the Building at all times
any person who is not known or does not properly identify himself to the
Building's management or its agents. Landlord may at its option require all
persons admitted to or leaving the Building to register between the hours of 6
p.m. and 8 a.m., Monday through Friday, and all times on Saturdays, Sundays and
holidays. Each tenant shall be responsible for all persons for whom it
authorized entry into the Building, and shall be liable to Landlord for all acts
of such persons.
18. Each tenant shall see that all lights are turned off before closing
and leaving its premises at any time.
19. The requirements of tenants will be attended to only upon application
at the office of the Building. Building employees have been instructed not to
perform any work or do anything outside of their regular duties, except with
special instructions from the management of the Building.
20. Canvassing, soliciting and peddling in the Building is prohibited, and
each tenant shall cooperate to prevent the same.
21. No water cooler, plumbing or electrical fixture shall be installed by
tenant without Landlord's prior written consent.
D-3
<PAGE>
22. No hand trucks, except those equipped with rubber tires and side
guards, shall be used to deliver or receive any merchandise in any space or in
the Common Areas of the Building, either by tenant or its agents or contractors.
23. Access plates to under floor conduits shall be left exposed. Where
carpet is installed, carpet shall be cut around the access plates.
24. Mats, trash and other objects shall not be placed in the public
corridors.
25. At least once a year, each tenant at its own expense shall clean all
drapes installed by Landlord for the use of the tenant and any drapes installed
by the tenant which are visible from the exterior of the Building.
26. Landlord shall not maintain suite finishes which are non-standard such
as kitchens, bathrooms, wallpaper, special lights, etc. However, should the
need for repairs arise, Landlord shall arrange for the work to be done at
tenant's expense.
27. Landlord's employees are prohibited from receiving articles delivered
to the Building and, if any such employee receives any article for any tenant,
such employee shall be acting as the agent of such tenant for such purposes.
28. No smoking shall be permitted in any of the Common Areas of the
Building or in the tenant's premises. All cigarettes and related trash shall be
disposed of in trash receptacles and not on the sidewalk, parking lot or grass.
D-4
<PAGE>
EXHIBIT E
PARKING
1. AVAILABILITY; RENT.
Landlord agrees that it will provide to Tenant sufficient space to park
nineteen (19) automobiles, either in the parking lot of the Building or as
otherwise provided, without additional cost to Tenant beyond the payment of Rent
under the Lease, which parking spaces will be labeled as being for use by
Tenant. Landlord reserves the right to institute either a valet or self-parking
system; provided, however, that if at any time during the Term of the Lease
Landlord provides to Tenant any additional spaces, Landlord shall at all times
have the right to reclaim such spaces upon thirty (30) days' notice to Tenant.
2. REGULATIONS; LIABILITY.
Tenant and its employees, agents and invitees shall observe reasonable
safety precautions in the use of the parking lot and shall at all times abide by
all rules and regulations promulgated by Landlord and/or the parking lot
operator governing use of the parking lot. Landlord does not assume any
responsibility for, and shall not be held liable for, any damage or loss to any
automobiles parked in the parking lot or to any personal property located
therein, or for any injury sustained by any person in or about the parking lot.
E-1
<PAGE>
EXHIBIT 10.15
LEASE AGREEMENT
THIS LEASE made as of this 1st day of APRIL, 1993, by and between
Biomedical Research Institute ("BRI"), an affiliate of AFBR, Incorporated in the
State of Illinois, the address of which is 12111 Parklawn Drive, Rockville,
Maryland 20852 ("Landlord"), and GenVec, Inc., the address of which is 12111
Parklawn Drive, Rockville, Maryland 20852 ("Tenant").
ARTICLE I
GRANT AND TERM
SECTION 1.01. LEASED PREMISES. (a) Landlord, in consideration of the rent
to be paid and the covenants to be performed by Tenant, does hereby demise and
lease unto Tenant, and Tenant hereby rents and hires from Landlord, those
certain premises consisting of 3,343 square feet of office, laboratory, and
animal facilities located at 12111 Parklawn Drive, Rockville, Maryland 20852, as
more particularly shown and described by cross-hatching on Exhibit A attached
---------
hereto. Tenant agrees to accept the premises in "as is" condition.
(b) Said Lease shall include all of the equipment, fixtures, furnishings,
decor, decorations, installations, appurtenances and personal property presently
existing on said premises or to be placed, installed or erected on the premises,
and together with the right to use all hallways, lobbies, stairways and
lavatories shown by shading on Exhibit "A" hereto and all adjoining parking
areas, driveways, sidewalks, roads, alleys and means of ingress and egress
pertaining to the Leased Premises (collectively, the "common areas").
SECTION 1.02. COMMENCEMENT AND ENDING DAY OF TERM. The term of this Lease
shall commence upon APRIL 1, 1993 and shall end on MARCH 31, 1994.
SECTION 1.03. RENEWAL BY TENANT. Provided there is no continuing Event of
Default, Tenant may renew this Lease for an additional twelve (12) months by
delivering at least thirty (30) days prior written notice to Landlord.
SECTION 1.04. TENANT'S EARLY TERMINATION OPTION. Notwithstanding any
other provision of this Lease to the contrary, and provided Tenant is not
otherwise in default hereunder, Tenant shall have the right, at its option, to
terminate this Lease by delivering to Landlord at least thirty (30) days' prior
written notice thereof, which notice shall be accompanied by a payment in the
amount of two (2) month's net rent in consideration for such early termination.
In the event that this option is exercised,
<PAGE>
this Lease shall terminate on the date specified in such notice, without the
need for further action, whereupon neither party shall have any further
liability to the other under this Lease. Tenant shall continue to pay all rent
until the date of termination.
ARTICLE II
RENT
SECTION 2.01. RENT. Tenant shall pay to Landlord, without deduction or
set-off except as otherwise provided in this Lease, at the address specified
herein or furnished pursuant to this Lease, a monthly rental ("net rent") of
$4,560.41 ($16.37 per square foot on an annual basis) during the term of this
Lease. Monthly rental for the renewal period will be adjusted based on the
Washington, D.C. area CPI (Urban Wage Earners) and the determination of the
adjusted rental for the renewal period shall be made and communicated to Tenant
(along with the calculation therefore) at least thirty (30) days prior to the
last date on which Tenant may exercise its renewal option pursuant to Section
1.03.
SECTION 2.02. NON-APPLICABLE.
SECTION 2.03. NON-APPLICABLE.
SECTION 2.04. SERVICES AND BENEFITS INCLUDED IN ANNUAL RENTAL. Landlord
shall provide Tenant as part of Tenant's Annual Rent the following services and
benefits:
1. Occupancy of turnkey laboratory, and animal facilities in "as is"
condition;
2. Adequate premise security consistent with other laboratories in
business on Landlord's leasehold;
3. Fire, casualty and public liability coverage on the
building and the common spaces;
4. Parking for at least 12 cars;
5. All utilities related to the Leased Premises;
6. Janitorial services on a regular basis;
7. All real estate taxes payable on the Property; and
8. All maintenance and cleaning services for both the Leased Premises and
the common areas, unless due to the negligence or willful misconduct
of Tenant or special requests by Tenant.
<PAGE>
SECTION 2.05. OPTIONAL SERVICES OFFERED BY LANDLORD. At Tenant's option,
subject to separate agreement in writing, Landlord will provide the following
services at Landlord's cost plus a maximum markup of 20% above Landlord's cost:
1. Environment rooms
2. Common Equipment
3. Certified Equipment
4. Conference Facilities
5. Repository
6. Kitchen
7. Animal Husbandry
8. Word Processing
9. Messenger Center
10. Clerical Services
Landlord may allow Tenant to solely use specific pieces of common equipment
without charging Tenant additional rent for this sole use. If no additional
rent is charged to Tenant, Tenant agrees to maintain the equipment and return it
to Landlord in a reasonable condition. Tenant agrees to accept responsibility
for the related repair and maintenance costs.
ARTICLE III
USE
SECTION 3.01. USE. Tenant shall use the Leased Premises only for the
operation of a medical research laboratory, administrative offices, and animal
rooms and for no other purpose without the prior written consent of Landlord;
provided, however, that at Landlord's option, Tenant may use the Leased Premises
for any legally permissible use which proves to be economically feasible, to be
determined by Landlord within its good faith discretion.
SECTION 3.02. WASTE/PROHIBITED USE. Tenant shall not use or permit the
Leased Premises or any part thereof to be used for any purpose or purposes other
than the purpose or purposes for which the Leased. Premises are leased. Tenant
shall not commit or suffer to be committed any waste upon the Leased Premises.
Tenant shall not use the Leased Premises or permit the same to be used in whole
or in part for any purpose or use that violates the laws, ordinances,
regulations or rules of any public authority or organization.
ARTICLE IV
MAINTENANCE
SECTION 4.01. Landlord agrees to maintain in good repair the outside
walls, foundation and roof of the buildings and surface of the parking areas,
sidewalks and driveways, as well as the structural soundness of the building,
including all common areas and all component parts thereof the plumbing,
electrical wiring, air conditioning and heating equipment.
<PAGE>
SECTION 4.02. Tenant will at all times during the term of the Lease,
maintain the Leased Premises and the immediate area around the Leased Premises,
at its own expense, in a clean, orderly, and sanitary condition.
ARTICLE V
ALTERATIONS AND ADDITIONS
SECTION 5.01. Tenant shall make no improvements or additions in or to the
Leased Premises without Landlord's prior written permission which will not be
unreasonably withheld. Minor alterations, additions or decorating may be made by
Tenant in a good workmanlike manner. All alterations, improvements or additions
shall be at Tenant's sole expense unless otherwise agreed to in writing by both
parties.
SECTION 5.02. In the event that any mechanics' or materialmen's liens
shall at any time be filed against the Leased Premises purporting to be for
work, labor, services or materials performed or furnished to Tenant or anyone
holding the Leased Premises through or under Tenant, Tenant shall forthwith
cause the same to be discharged of record or by bond, indemnification agreement
or otherwise as agreed in writing between the parties within thirty (30) days
following the date of such filing. If Tenant shall fail to cause lien to be
discharged (or Landlord's interest protected as allowed in the preceding
sentence) after being notified of the filing thereof as aforesaid, then, in
addition to any other right or remedy of Landlord and Tenant shall pay as
additional rent, on the first day of the next succeeding month all costs and
expenses, including reasonable attorneys' fees incurred by Landlord in
attempting to discharge such lien.
SECTION 5.03. REPLACEMENTS. Tenant may install or place or re-install or
replace upon and, if there is no continuing Event of Default, remove from the
Leased Premises any trade fixtures, signs, machinery, and equipment. Such trade
fixtures, signs, machinery, and equipment shall not be come the property of the
Landlord (other than replacements of trade fixtures, machinery, and equipment
which are the property of the Landlord and which replacements shall also be the
property of Landlord). All personal property of the Tenant located on the Leased
Premises is at Tenant's sole risk.
ARTICLE VI
LIMITATION ON LANDLORD'S LIABILITY
SECTION 6.01. Except with respect to any damages resulting from the
willful or negligent act or omission of Landlord, its agents and employees,
Landlord shall not be liable to Tenant, its employees, agents, business
invitees, licensees, customers, guests, or trespassers for any damage or loss to
the property of Tenant or others located on the Leased Premises or for any
accident or injury
<PAGE>
to person in the Leased Premises or the Building resulting from: the necessity
of repairing any portion of the Building; the use or operation (by Tenant or any
other person or persons whatsoever) of any elevators, or heating, cooling,
electrical or plumbing equipment or apparatus; the termination of this Lease by
reason of the destruction of the Building or the Leased Premises; any fire,
robbery, theft and/or any other casualty; any leaking in any part or portion of
the Leased Premises or the Building; any water, wind, rain, or snow that may
leak into, or flow from, any part of the Leased Premises or the Building; any
acts or omissions of any occupant of any space adjacent to or adjoining all or
any part of the Leased Premises; any water, gas, steam, fire, explosion,
electricity or falling plaster; the bursting, stoppage or leakage of any pipes,
sewer pipes, drains, conduits, ducts, appliances or plumbing works; the
functioning or malfunctioning of the fire sprinkler system; the functioning or
malfunctioning of any security system installed in the building of any part
thereof, or any other cause whatsoever.
SECTION 6.02. Landlord shall not be required to perform any of its
obligations or any other provision of this Lease, nor be liable for loss or
damage for failure to do so, nor shall Tenant be released from any of its
obligations under this Lease because of the Landlord's failure to perform, where
such failure arises from or through acts of God, strikes, lockouts, labor
difficulties, explosions, sabotage, accidents, riots, civil commotions, acts of
war, results of any warfare or warlike conditions in this or any foreign
country, fire and casualty, requirements or other causes beyond the reasonable
control of Landlord. If Landlord is so delayed or prevented from performing any
of its obligations during the Term, the period of such delay or such prevention
shall be deemed added to the time herein provided for the performance of any
such obligation.
ARTICLE VII
RULES AND REGULATIONS
SECTION 7.01. RULES AND REGULATIONS. Tenant agrees to comply with and
observe all rules and regulations established by Landlord from time to time
(including, but not limited to, those attached hereto as Exhibit "B"), provided
the same shall apply uniformly to all tenants of the laboratories. Tenant's
failure to keep and observe said rules and regulations shall constitute a breach
of the terms of this Lease in the same manner as if the rules and regulations
were contained herein as covenants. In the case of any conflict between said
rules and regulations and this Lease, this Lease shall be controlling.
<PAGE>
ARTICLE VIII
ACCESS BY LANDLORD
SECTION 8.01. RIGHT OF ENTRY. Landlord or Landlord's agents shall have the
right to enter the Leased Premises at all reasonable times to examine the same
after having given Tenant at least forty-eight (48) hours prior notice thereof,
except if otherwise agreed to by Tenant or in case of emergencies, in which
event as much prior notice as is practicable shall be given. After giving the
same notice as described in the immediately preceding sentence, Landlord or
Landlord's agents shall have the further right to enter the Leased Premises to
make such repairs, alterations, improvements or additions as Landlord may deem
necessary or desirable, and Landlord shall be allowed to take all material into
and upon the Leased Premises that may be required therefore without the same
constituting an eviction of Tenant in whole or part, and the rent and other
charges reserved shall in no way abate while said repairs, alterations,
improvements, or additions are being made, by reason of loss or interruption of
business by Tenant, or otherwise. During the three (3) months prior to the
expiration of the term of this Lease, Landlord may exhibit the Leased Premises
to prospective tenants.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Tenant hereby indemnifies, and shall protect and hold
Landlord harmless from and against all liabilities, losses, claims, demands,
costs, expenses, and judgments of any nature arising, or alleged to arise, from
or in connection with (a) any injury to, or the death of, any person or loss or
damage to property on or about the Leased Premises or any adjoining property
arising from or connected with (i) the use of the Leased Premises or the common
area by Tenant during the term, (ii) the use of any common equipment (referred
to in Section 2.05) by Tenant or any of its employees during the term, or (b)
performance of any labor or services or the furnishing of any material or other,
property in respect of the Leased Premises or any part thereof by or at the
request of the Leased Premises or any part thereof by or at the request of
Tenant. Tenant will resist and defend any action, suit, or proceeding brought
against Landlord by reason of any such occurrence by counsel designated by
Tenant and approved by Landlord.
<PAGE>
ARTICLE X
INSURANCE AND INDEMNITY
SECTION 10.01. TENANT'S INSURANCE. (a) Tenant, at its sole cost and
expense, shall, during the entire term hereof, procure, pay for and keep in full
force and effect: (i) public liability and property damage insurance with
respect to the Leased Premises and the operations of Tenant in, on or about the
Leased Premises, in which the limits with respect to public liability shall be
not less than One Million Dollars ($1,000,000) per occurrence for personal
injury and death and in which the limits with respect to property damage
liability shall not be less than Five Hundred Thousand Dollars ($500,000); (ii)
insurance against vandalism, malicious mischief and such other additional perils
as now are or hereafter may be included in a standard extended coverage
endorsement from time to time in general use in the county in which the Leased
Premises are located, insuring tenant's merchandise, trade fixtures, equipment
and all other items of personal property of Tenant located on or in the Leased
Premises, in an amount equal to not less than eighty percent (80%) of the actual
replacement cost thereof; and (iii) workman's compensation coverage as required
by law.
(b) All policies of insurance required to be carried by Tenant pursuant to
this Section 10.01 shall be written by responsible insurance companies
authorized to do business in the state in which the Leased Premises are located,
and shall name Landlord as an additional insured.
(c) Provided the insurance required to be maintained by Tenant pursuant to
Section 10.01 (a) is in full force and effect and remains so, Landlord waives,
releases, and discharges Tenant to the extent of insurance coverage maintained
by Tenant. All claims or demand whatsoever which Landlord may have or acquire in
the future arising out of damage to or destruction of the Leased Premises
occasioned by fire or extended coverage risks whether such claim or demand may
arise because of the negligence of Tenant, its agents or employees or otherwise,
and Landlord agrees to look only to the insurance coverage to the extent of such
coverage in the event of such loss.
(d) Landlord and Tenant hereby each release the other from any and all
liability or responsibility to the other or any one claiming through or under
them by way of subrogation or otherwise for any insured loss or damage to
property caused by fire or other casualty, whether such loss, damage, fire or
other insured event shall have been caused by the negligence but not willful
misconduct of the other party, provided, however, that this release shall be
applicable and in force and effect only with respect to loss or damage occurring
during such time as the releasor's policies of insurance shall contain a clause
or endorsement to the effect that any such release shall not adversely affect or
impair said policies
<PAGE>
or prejudice the right of the releasor to recover thereunder and shall apply
only to the extent of the respective insurance coverages. Landlord and Tenant
that each will request its insurance carriers to include in its policies such a
clause or endorsement provided that if an additional premium shall be charged
therefore, each party shall advise the other thereof and of the amount of such
additional premium, and the other party, at its election, may pay but shall not
be obligated to do so. If both parties cannot obtain such a waiver subrogation
at reasonable commercial rates, then both parties shall be released from their
obligation to obtain such a waiver.
Each party will be deemed to have provided within their respective
insurance policies a waiver of subrogation until notice is provided that waiver
of subrogation has not been obtained and the policy for which it has not been
obtained.
ARTICLE XI
OFF-SET STATEMENT, ATTORNMENT AND SUBORDINATION
SECTION 11.01. OFF-SET STATEMENT. Tenant agrees within ten (10) days
after request therefore by Landlord, to execute in recordable form and deliver
to Landlord a statement, in writing, certifying (a) that this Lease is in full
force and effect, (b) the date of commencement of the term of this Lease, (c)
that rent is paid currently without any off-set or defence thereto, (d) the
amount of rent, if any, paid in advance, (e) whether this Lease has been
modified and, if so, identifying the modifications, and(f) that there are no
uncured defaults by Landlord or stating those claimed by Tenant, provided that,
in fact, such facts are accurate and ascertainable.
SECTION 11.02. ATTORNMENT. Subject to the non-disturbance provisions
of Section 11.03, in the event any proceedings are brought for the foreclosure
of, or in the event of the conveyance by deed in lieu of foreclosure of, or in
the event of exercise of the power of sale under, any mortgage and/or deed of
trust made by Landlord covering the Leased Premises, or in the event Landlord
sells, conveys or otherwise transfers its interest in the Leased Premises or any
portion thereof containing the Leased Premises, this Lease shall remain in full
force and effect and Tenant hereby attorns to and covenants and agrees to
execute an instrument in writing reasonably satisfactory to the new owner
whereby Tenant attorns to, such successor in interest and recognizes such
successor as the Landlord under this Lease. Payment by or performance of this
Lease by any person, firm or corporation claiming an interest in this Lease or
the Leased Premises by, through or under the Tenant without Landlord's consent
in writing shall not constitute an attornment or create any interest in this
Lease or the Leased Premises.
<PAGE>
SECTION 11.03 SUBORDINATION. Tenant agrees that this Lease shall, at the
request of Landlord, be subordinate to any first mortgages or deeds of trust or
primary leases that may now or hereafter be placed upon the Leased Premises and
to any and all advances to be made thereunder, and to the interest thereon, and
all renewals, replacements and extensions thereof, provided the mortgagees or
beneficiaries named in said mortgages or trust deeds shall agree to recognize
the interest of Tenant under this Lease in the event of foreclosure, if Tenant
is not then in default. Tenant also agrees that any mortgagee or beneficiary may
elect to have this Lease constitute a prior lien to its mortgage or deed of
trust, and in the event of such election and upon notification by such mortgagee
or beneficiary to Tenant to that effect, this Lease shall be deemed prior in
lien to such mortgage or deed of trust. Tenant agrees that upon the request of
Landlord, or any mortgagee or beneficiary, Tenant shall execute whatever
instruments may be required to carry out the intent of this Section.
SECTION 11.04. REMEDIES. Failure of Tenant to execute any statements or
instruments necessary or desirable to effectuate the foregoing provisions of
this Article, within ten (10) days upon written request so to do by Landlord,
shall constitute a breach of this Lease. In the event of such failure, Landlord,
in addition to any other rights or remedies it might have, shall have the right
by not less than ten (10) days' notice to Tenant to declare this Lease
terminated and the term ended, and if Tenant shall not have executed and
delivered such statement or instrument to Landlord prior to the expiration of
such ten (10) day notice period, this Lease shall cease and terminate on the
date specified in such notice with the same force and effect as though the date
set forth in such notice were the date originally set forth herein and fixed for
the expiration of the term; upon such termination Tenant shall vacate and
surrender the Leased Premises. Further, Tenant hereby irrevocably appoints
Landlord as attorney-at-fact for the name of the Tenant any such statements or
instruments.
ARTICLE XII
ASSIGNMENT AND SUBLETTING
SECTION 12.01. ASSIGNMENT AND SUBLETTING. Notwithstanding any provision
herein to the contrary, Tenant agrees not to assign or in any manner transfer
this Lease or any estate or interest therein, and not to lease or sublet the
Leased Premises or any part or parts thereof or any right or privilege
appurtenant thereto without the written consent of the Landlord, which consent
shall not be unreasonably withheld.
<PAGE>
SECTION XIII
DEFAULT
SECTION 13.01. If Tenant shall violate any covenant, including the
covenant to pay rent when due, made by it in this Lease and shall fail to pay
said rent within the five (5) day period after Tenant's receipt of notice of
such failure, or in the event of a violation of any other covenant, Tenant shall
fail to comply with said covenant within twenty (20) days after Tenant's receipt
of notice of such violation from Landlord, or Tenant shall abandon said Leased
Premises, or shall be adjudicated insolvent or bankrupt pursuant to the
provisions of any state Act or the Federal Bankruptcy Code ("Events of
Default"), Landlord may, at its option, re-enter and remove all persons and
property from Leased Premises without being deemed guilty of any manner of
trespass and without prejudice to any remedies for arrears of rent or breach of
covenant and declare this Lease and the tenancy created terminated. Landlord
may, at its election, provide Tenant with additional time to correct any Event
of Default provided Tenant is utilizing its best efforts to correct such Event
of Default. Landlord's agent or attorney may resume possession of the property
and relet the same for the remainder of the term for the account of Tenant, who
shall pay any deficiency. Landlord shall be entitled to the benefit of all
provisions of applicable laws respecting the speedy recovery of lands and
tenements held over by Tenant or proceedings in forcible entry and detainer. If
Landlord ends this Lease or ends Tenants right to possess the Premises because
of a Default, Landlord may hold Tenant liable for rent and other indebtedness
accrued to the date the Lease ends. Tenant shall also be liable for the rent.
Additional Rent and other indebtedness that otherwise would have been payable by
Tenant during the remainder of the term had there been no Default., reduced by
any sums Landlord receives by reletting the Premises during the Term.
SECTION 13.02. If Landlord shall default on the terms of this Lease
Agreement by reason of the Termination of the Prime Lease Agreement between
American Foundation for Biological Research as Tenant and William Klinedist as
Landlord, and Tenant (GenVec) is required to vacate its premises prior to the
ending day of the term as outlined in Section 1.03, then this will not be
considered an "early termination" as defined in Section 1.04, and therefore,
Tenant will be not be required to pay the early termination fee of two (2)
month's net rent.
ARTICLE XIV
ATTORNEY'S FEES
SECTION 14.01. In case suit shall be brought for recovery of possession of
the Leased Premises, for the recovery of rent of any other amount due under the
provisions of this Lease, or because of the breach of any other covenant herein
contained on the part of
<PAGE>
Tenant to be kept or performed, and a breach shall be established, Tenant shall
pay to Landlord all expenses incurred therefore, including reasonable attorneys'
fees; provided, however, that if Landlord shall fail to establish such breach,
then Landlord shall pay to Tenant all of Tenant's reasonable expenses incurred
in the defense thereof, including reasonable attorneys' fees. In the event of
such suit, both parties waive their respective rights to a trial by jury.
ARTICLE XV
QUIET ENJOYMENT
SECTION 15.01. Tenant upon paying the rent as provided in ARTICLE II, and
performing the covenants and agreements of this Lease shall quietly have, hold
and enjoy the Leased Premises and all rights granted Tenant in this Lease during
the term thereof and extensions thereto, if any.
ARTICLE XVI
BANKRUPTCY OR INSOLVENCY
SECTION 16.01. TENANT'S INTEREST NOT TRANSFERABLE. Neither Tenant's
interest in this Lease, nor any estate hereby created in Tenant nor any interest
herein or therein, shall pass to any trustee or receiver or assignee for the
benefit of creditors or otherwise by operation of law except as may specifically
be provided pursuant to the Bankruptcy Code.
SECTION 16.02. TERMINATION BY INSOLVENCY. In the event the interest or
estate created in Tenant hereby shall be taken in execution or by other process
of law or if Tenant hereby shall be taken in execution or by other process of
law or if Tenant is adjudicated insolvent or bankrupt pursuant to the provisions
of any State Act or the Bankruptcy Code or if Tenant is adjudicated insolvent by
a Court of competent jurisdiction other than the United States Bankruptcy Court,
or if a receiver or trustee of the property of Tenant, if any, to pay its debts,
or if any assignment shall be made of the property of Tenant or, if any, for the
benefit of creditors, then and in any such events, this Lease and all rights of
Tenant hereunder shall automatically cease and terminate with the same force and
effect as though the date of such event were the date originally set forth
herein and fixed for the expiration of the term, and Tenant shall vacate and
surrender the Leased Premises but shall remain liable as herein provided.
<PAGE>
ARTICLE XVII
MISCELLANEOUS
SECTION 17.01. WAIVER; ELECTION OF REMEDIES. One or more waivers of any
covenant or condition by Landlord shall not be construed as a waiver of a
subsequent breach of the same covenant or condition, and the consent or approval
by Landlord to or of any act by Tenant requiring Landlord's consent or approval
shall not be deemed to render unnecessary Landlord's consent or approval to or
of any subsequent similar act by Tenant. No breach by Tenant of a covenant or
condition of this Lease shall be deemed to have been waived by Landlord unless
such waiver is in writing signed by Landlord. The rights and remedies of
Landlord under this Lease or under any specific Section, subsection or clause
hereof shall be cumulative and in addition to any and all other rights and
remedies which Landlord has or may have elsewhere under this Lease or at law or
equity, whether or not such Section, subsection or clause expressly so states.
<PAGE>
SECTION 17.02. NOTICES. Any notices required or permitted hereunder shall
be in writing and delivered either in person to the other party or the other
party's authorized agent, or by United States Certified Mail, Return Receipt
Requested, postage fully prepaid, or by telegraphic communication, to the
addresses set forth hereinafter, to such other address as either party may
designate in writing and deliver as herein provided.
Landlord: Biomedical Research Institute
12111 Parklawn Drive
Rockville MD 20852
with a copy to: Warren S. Oliveri, Jr.
1025 Thomas Jefferson, N.W. Washington D.C.
20007
Tenant: GenVec, Inc.
12111 Parklawn Drive
Rockville MD 20852
with a copy to: Hal S. Broderson, M.D.
Hillman Medical Ventures
2 Walnut Grove Drive Suite 130
Horsham PA 19044-2255
SECTION 17.03. CAPTIONS. The captions and headings throughout this Lease
are for convenience and reference only and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provision or the scope
or intent of this Lease nor in any way affect this Lease.
SECTION 17.04. LAW OF MARYLAND. This Lease Agreement shall be construed
under the laws of the State of Maryland.
SECTION 17.05. HOLD OVER. During the period of any holding over after the
termination or expiration of this Lease Agreement by Tenant, Tenant shall be
deemed to be a Tenant from month to month.
SECTION 17.06. SUCCESSOR AND ASSIGNS. This Lease Agreement and the
covenants and conditions herein contained shall inure to the benefit of and be
binding upon Landlord, its successors and assigns, and shall inure to the
benefit of Tenant and only such assigns of Tenant to whom the assignment by
Tenant has been consented to by Landlord.
SECTION 17.07. ENTIRE AGREEMENT. This Lease Agreement constitutes the
entire agreement of the parties and the same may not be amended or modified
orally. All understandings, prior negotiations and agreements heretofore, oral
and written, had between the parties are merged in this Lease Agreement, which
alone
<PAGE>
fully and completely expresses their understanding and is binding upon Tenant,
its successors and assigns.
SECTION 17.08. This Lease is subject to and subordinate to the Prime
Lease Agreement between American Foundation for Biological Research as Tenant
and William Klinedist as Landlord, dated November, 1989.
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease
on the day and year first above written.
BIOMEDICAL RESEARCH INSTITUTE (Landlord)
By: /s/ James L. Leef, Ph.D.
--------------------------------------------
James L. Leef, Ph.D.
Title: Director
Date: March 25, 1993
GENVEC, INC. (Tenant)
By: /s/ Charles A. Reinhart III
-------------------------------------------
Charles A. Reinhart III
Title: Secretary, Director of Finance
Date: 3/31/93
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
LEASE AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
LEASE - COMMERCIAL - INDUSTRIAL LEASE AGREEMENT
-----------------------------------------------
ADDENDUM TO LEASE DATED APRIL 1, 1993
-------------------------------------
The above referenced lease is hereby amended as follows:
1.) SECTION 1.02. COMMENCEMENT AND ENDING DAY OF TERM. The term of this
------------
Lease shall commence upon April 1, 1994 and shall end on March 31, 1995.
2.) ARTICLE II - RENT Section 2.01. RENT. Tenant shall pay to Landlord,
-----------------
without deduction or set-off... ("net rent") of $4,697.22 ($16.86 per
square foot on an annual basis)...
Attached you will find a copy of the Consumer Price Index, All Urban Consumers
(CPI-U), U.S. City average reflecting the 3.0% increase.
3-28-94 /s/ James L. Leef
- --------------- -------------------------
Date Lessor (James L. Leef)
3-28-94 /s/ Theresa Smith
- --------------- -------------------------
Date Witness (Theresa Smith)
This addendum, dated March 21, 1994, supersedes any previous addenda. It is
bound unto all terms and conditions of above mentioned lease, the only changes,
herein affected, being that of additional time and rate of rental.
Attachment CPI-U
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
LEASE AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
LEASE - COMMERCIAL - INDUSTRIAL LEASE AGREEMENT
-----------------------------------------------
ADDENDUM TO LEASE DATED MAY 1, 1994
-----------------------------------
The above referenced lease is hereby amended as follows:
SECTION 1.01. LEASED PREMISES. (a) Landlord, in consideration of the rent to be
paid and the covenants to be performed by Tenant, and hires from Landlord, those
certain premises consisting of 4,320 square feet of office, laboratory, and
animal facilities located at 12111 Parklawn Drive, Rockville, Maryland 20852...
SECTION 2.01. RENT. Tenant shall pay to Landlord, without deduction or set-off
except ..... ("net rent") of $6,069.60 ($.16.86 per square foot on an annual
basis.)...
This addendum represents an additional 977 square feet of space on the
1st floor, Room(s) 101, 101A, 101B, 101C, 101D, 101E, 101J and the hallway.
Total square feet 3,343 + 977 = 4,320.
This addendum, dated May 1, 1994, supersedes any previous addenda. It is
bound unto all terms and conditions of above mentioned lease, the only changes,
herein affected, being that of additional space and net rent.
6-9-94 /s/ James L. Leef
- --------------- -------------------------------
Date Lessor (James L. Leef)
6-29-94 By /s/ Charlie Reinhart III
- --------------- -------------------------------
Date Lessee (Charlie Reinhart III)
6-9-94 /s/ Theresa Smith
- --------------- -------------------------------
Date Witness (Theresa Smith)
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
LEASE AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
LEASE - COMMERCIAL - INDUSTRIAL LEASE AGREEMENT
-----------------------------------------------
ADDENDUM TO LEASE DATED AUGUST 16, 1994
---------------------------------------
The above referenced lease is hereby amended as follows:
SECTION 1.01. LEASED PREMISES. (a) Landlord, in consideration of the rent to be
paid and the covenants to be performed by Tenant, and hires from Landlord, those
certain premises consisting of 6,050 square feet of office, laboratory, and
animal facilities located at 12111 Parklawn Drive, Rockville, Maryland 20852...
SECTION 2.01. RENT. Tenant shall pay to Landlord, without deduction or set-off
except ..... ("net rent") of $8,500.25 ($16.86 per square foot on an annual
basis)...
This addendum represents an additional 1,730 square feet of space on the
2nd floor, rooms 206, 207. Total square feet 4,320 + 1,730 = 6,050. Attached
you will find a floor plan with the additional space.
The breakdown of space is as follows:
1st Floor: 977 square feet
2nd Floor (Room 204 and Room 202): 3,343 square feet
2nd Floor (Room 206 and Room 207): 1,730 square feet
======
TOTAL SQUARE FEET: 6,050 square feet
6,050 square feet x $16.86 per square foot = $102,003.00 divided by 12
months = $8,500.25 per month.
This addendum, dated August 16, 1994, supersedes any previous addenda. It
is bound unto all terms and conditions of above mentioned lease, the only
changes, herein affected, being that of additional space and net rent.
9-24-94 /s/ James L. Leef
- ------------- -----------------------------
Date Lessor (James L. Leef)
9-30-94 /s/ Charlie Reinhart III
- ------------- -----------------------------
Date Lessee (Charlie Reinhart III)
9-24-94 /s/ Theresa Smith
- ------------- -----------------------------
Date Witness (Theresa Smith)
<PAGE>
LEASE AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
LEASE - COMMERCIAL - INDUSTRIAL LEASE AGREEMENT
-----------------------------------------------
ADDENDUM TO LEASE DATED APRIL 1, 1993
-------------------------------------
The above referenced lease is hereby amended as follows:
SECTION 1.01. LEASED PREMISES. (a) Landlord, in consideration of the rent to be
paid and the covenants to be performed by Tenant, and hires from Landlord, those
certain premises consisting of 6,050 square feet of office, laboratory, and
animal facilities located at 12111 Parklawn Drive, Rockville, Maryland 20852...
SECTION 2.01. RENT. Tenant shall pay to Landlord, without deduction or set-off
except ..... ("net rent") of $8,500.25 ($16.86 per square foot on an annual
basis)...
THIS ADDENDUM SHALL ADD THE ADJACENT SPACE TO THE DEMISED PREMISES, KNOWN
-------------------------------------------------------------------------
AS 12115 PARKLAWN DRIVE, ROCKVILLE, MARYLAND MORE SPECIFICALLY DESCRIBED AS
---------------------------------------------------------------------------
BAY "K", CONTAINING APPROXIMATELY THREE THOUSAND (3,000) SQUARE FEET OF
-----------------------------------------------------------------------
IMPROVED WAREHOUSE SPACE, AS SHOWN ON THE ATTACHED EXHIBIT "B".
---------------------------------------------------------------
THE ANNUAL RENTAL FOR THIS ADDITIONAL SPACE SHALL BE 3,000 SQUARE FEET X
------------------------------------------------------------------------
$16.86 PER SQUARE FOOT= $50,580,00 DIVIDED BY 12 MONTHS = $4,215.00.
---------------------------------------------------------------------
The breakdown of space is as follows:
1st Floor: 977 square feet
2nd Floor (Room 204 and Room 202): 3,343 square feet
2nd Floor (Room 206 and Room 207): 1,730 square feet
12115 Parklawn Drive "Bay K: : 3,000 square feet
======
TOTAL SQUARE FEET: 9,050 square feet
9,050 square feet x $16.86 per square foot = $152,583.00 divided by 12
months = $12,715.25 per month.
This addendum, dated December 29, 1994, supersedes any previous addenda. It
is bound unto all terms and conditions of above mentioned lease, the only
changes, herein affected, being that of additional space and net rent.
_______________________________ __________________________________
Date Lessor (James L. Leef)
_______________________________ __________________________________
Date Lessee (Charlie Reinhart III)
_______________________________ __________________________________
Date Witness (Theresa Smith)
<PAGE>
SECOND LEASE AMENDMENT
This Second Lease Amendment (the "Second Amendment") is made this 4th
day of April, 1995, between BIOMEDICAL RESEARCH INSTITUTE ("BRI"), an affiliate
of AFBR, Incorporated, ("Landlord"), and GENVEC, INC., ("Tenant"), and shall be
effective as of March 1, 1995.
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
April 1, 1993 (the "Lease"), for premises containing approximately 3,343 square
feet of space (the "Premises") located at 12111 Parklawn Drive, Rockville,
Maryland (the "Building"); and
WHEREAS, the Lease was thereafter amended to extend the lease term and
add an additional 2,707 square feet of space to the Premises; and
WHEREAS, the Lease is scheduled to expire on March 31, 1995; and
WHEREAS, Landlord and Tenant desire to amend the Lease to expand the
Premises leased by Landlord to Tenant in the Building, and to extend the term of
the Lease, all on the terms stated herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the parties, the parties agree as follows:
1. EXPANSION PREMISES.
-------------------
Landlord hereby demises and leases to Tenant and Tenant hereby
leases and accepts from Landlord, for a term and
<PAGE>
upon the conditions hereinafter provided, an additional three thousand (3,000)
square feet of space identified as "Bay K" in the building known as 12115
Parklawn Drive, Rockville, Maryland, such additional space being outlined on the
floor plan attached hereto and incorporated herein by reference as EXHIBIT A
(the "Expansion Premises").
2. TERM.
-----
The Lease for the Premises and the Expansion Premises will be
extended as of March 1, 1995, on a month-to-month basis, with Tenant's right to
terminate such monthly tenancy limited by the provisions of Section 5 below.
3. RENT FOR PREMISES AND EXPANSION PREMISES.
-----------------------------------------
Tenant shall pay Landlord as Rent for the Premises and Expansion
Premises, in legal tender as provided in the Lease, at Landlord's office, or as
directed from time to time by Landlord's notice, the annual sum of One hundred
fifty-two thousand five hundred eighty-three and 00/100 Dollars ($152,583.00),
payable in equal monthly installments of Twelve thousand seven hundred fifteen
and 25/100 ($12,715.25), in advance, promptly on the first day of each calendar
month of the term. The aforementioned Rent is based on a charge per square foot
of Sixteen and 86/100 Dollars ($16.86).
4. TENANT IMPROVEMENTS.
--------------------
Tenant agrees to accept the Premises and the Expansion Premises
in their "as is" condition.
-2-
<PAGE>
5. TERMINATION OF AGREEMENT.
-------------------------
Notwithstanding anything to the contrary contained in this
Amendment and the Lease, Tenant shall have the right to partially terminate the
Lease for the Premises and the Expansion Premises, after delivering prior
written notice of its intention to Landlord, in accordance with the following
schedule:
<TABLE>
<CAPTION>
Description Square Footage Required Notice
----------- -------------- ---------------
<S> <C> <C>
Bay K 3,000 45 days
Orig. 2d Floor 3,343 60 days
Sitek Upstairs 1,730 30 days
Sitek Downstairs 977 30 days
</TABLE>
Tenant may terminate its obligations with respect to each of the foregoing areas
of the Premises in any order in which it deems appropriate; provided, however,
that (a) in no event may Tenant give concurrent notices for more than one (1)
area, and (b) its right to terminate its obligations for any other area will not
accrue until after its notice of termination for a previously terminated area
has expired.
6. DEFINED TERMS.
--------------
Except as otherwise expressly provided herein, all defined terms
shall have the same meanings as provided in the Lease.
7. HEADINGS.
---------
Headings contained in this Amendment are for convenience only
and are not substantive to the provisions of this Amendment.
-3-
<PAGE>
8. LEASE TERM RATIFIED.
--------------------
Except as otherwise expressly provided herein, and unless
inconsistent with the terms hereof (the terms of which supersede all prior
agreements of the parties as to the Expansion Premises), all other terms,
conditions and covenants of the Lease are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Second Amendment by
affixing their hands and seals as of the date noted above.
Landlord:
ATTEST: BIOMEDICAL RESEARCH INSTITUTE
[SIGNATURE ILLEGIBLE]
- ------------------------- By: James L. Leef (Seal)
--------------------
Name: James L. Leef
--------------------
Title: Director
--------------------
Tenant:
ATTEST: GENVEC, INC.
[SIGNATURE ILLEGIBLE]
- ------------------------- By: Charles A. Reinhart III (Seal)
------------------------
Name: Charles A. Reinhart III
-----------------------
Title: Director of Finance
-----------------------
-4-
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
MONTH-TO-MONTH AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
(AES)
ANNUAL CONSUMER PRICE INDEX RENT INCREASE 1995
----------------------------------------------
Attached you will find a copy of March 1995, Consumer Price Index, All
Urban Consumers (CPI-U), U.S. City reflecting a 2.9% increase. This increase
will go into effective APRIL 1, 1995.
The rent is based on a charge per square foot of Seventeen dollars and
35/100 ($17.35). The total square feet is 9,050. $17.35 x 9,050 = $157,017.50
divided by 12 months = $13,084.79 per month.
Reference Page 3 of the Second Lease Amendment dated April 4, 1995, for
the description of the property and total square feet.
$ Per Square Foot Monthly Rent
----------------- ------------
FROM TO FROM TO
$16.86 $17.35 $12,715.25 $13,084.79
4-27-95 /s/ James L. Leef
- ------------------------ ------------------------
Date Lessor (James L. Leef)
4-27-95 /s/ Theresa P. Smith
- ------------------------ -------------------------
Date Witness (Theresa Smith)
This addendum, dated April 26, 1995, supersedes any previous addenda. It is
bound unto all terms and conditions of above-mentioned month-to-month agreement.
The only changes, herein affected, being chat of additional time and rate of
rental.
Attachment CPI-U
<PAGE>
THIRD LEASE AMENDMENT
This Third Lease Amendment (the "Third Amendment") is made this 19th
day of June, 1995, between BIOMEDICAL RESEARCH INSTITUTE ("BRI"), an affiliate
of AFBR, Incorporated, ("Landlord"), and GENVEC, INC., ("Tenant"), and shall be
effective as of March 1, 1995.
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
April 1, 1993 for premises containing approximately 3,343 square feet of space
(the "Premises") located at 12111 Parklawn Drive, Rockville, Maryland (the
"Building"); and
WHEREAS, the Lease was thereafter amended to extend the lease term and
add an additional 2,707 square feet of space to the Premises; and
WHEREAS, the Lease was further amended by a Second Amendment dated
April 4, 1995 (the Lease Agreement, together with all amendments is collectively
referred to as the "Lease"), under which the Lease Term was extended and Tenant
leased Expansion Premises containing approximately 3,000 square feet of space
from Landlord at 12115 Parklawn Drive, Rockville, Maryland, hereinafter referred
to as "Bay K;" and
WHEREAS, the parties wish to further amend the Lease relating to the
payment of utilities in the Expansion Premises.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration the receipt and sufficiency of which are acknowledged by
the parties hereto, the parties agree as follows:
1. PAYMENT OF UTILITIES IN THE EXPANSION PREMISES.
-----------------------------------------------
Tenant shall pay for all utilities provided to Bay K, which shall
be in the name of Tenant and separately metered, the cost of which, if any,
shall be paid by Tenant.
2. DEFINED TERMS.
--------------
Except as otherwise expressly provided herein, all defined terms
shall have the same meanings as provided in the Lease.
3. HEADINGS.
---------
Headings contained in this Amendment are for convenience only and
are not substantive to the provisions of this Amendment.
<PAGE>
4. LEASE TERM RATIFIED.
--------------------
Except as otherwise expressly provided herein, and unless
inconsistent with the terms hereof (the terms of which supersede all prior
agreements of the parties as to the Expansion Premises), all other terms,
conditions and covenants of the Lease, are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Second Amendment by
affixing their hands and seals as of the date noted above.
Landlord:
ATTEST: BIOMEDICAL RESEARCH INSTITUTE
/s/ Theresa P. Smith By: /s/ James L. Leef (Seal)
- ------------------------- -----------------------------
Name: James L. Leef Ph.D.
---------------------------
Title: Director
--------------------------
Tenant:
ATTEST: GENVEC, INC.
[SIGNATURE ILLEGIBLE] By: /s/ Charles A. Reinhart III (Seal)
- ------------------------- -----------------------
Name: Director of Finance and Admin
------------------------------
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
MONTH-TO-MONTH AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH
INSTITUTE (AES)
ANNUAL CONSUMER PRICE INDEX RENT INCREASE 1996
----------------------------------------------
Attached you will find a copy of February 1996, Consumer Price Index, All
-------------------------
Urban Consumers (CPI-U), U.S. City reflecting a 2.7% increase. This increase
- ----------------------------------
will go into effective APRIL 1, 1996.
The rent is based on a charge per square foot of Seventeen dollars and
82/100 ($17.82). The total square feet is 9,050. $17.82 x 9,050 = $161,271.00
divided by 12 months = $13,439.25 per month.
Reference Page 3 of the Second Lease Amendment dated April 4, 1995, for the
description of the property and total square feet.
$ Per Square Foot Monthly Rent
----------------- ------------
FROM TO FROM TO
$17.35 $17.82 $13,084.79 $13,439.25
3-26-96 /s/ James L. Leef
- ----------------------- -----------------------
Date Lessor (James L. Leef)
3-26-96 /s/ Theresa P. Smith
- ----------------------- -----------------------
Date Witness (Theresa Smith)
This addendum, dated March 25, 1996, supersedes any previous addenda. It is
bound unto all terms and conditions of above-mentioned month-to-month agreement.
The only changes, herein affected, being that of additional time and rate of
rental.
Please note that the Certificate of Insurance expires May 21, 1996. Please
forward an renewal certificate as soon as your plan renews.
The Lease for the Premises and the Expansion Premises will be extended as
of March 1, 1995, on a month-to-month basis, with Tenant s right to terminated
such monthly tenancy limited by the provision of Section 5 on Page 3 of the
Second Lease Amendment.
Attachment CPI-U
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
ADDENDUM #7
-----------
LEASE AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
EFFECTIVE NOVEMBER 1, 1996
The addendum is to add additional 2,321 square feet of space to the
Premises; and change Section 5 on Page 3 of the fourth amendment.
<TABLE>
<CAPTION>
DESCRIPTION SQUARE FOOTAGE REQUIRED NOTICE
- ----------- -------------- ---------------
<S> <C> <C>
Bay K 3,000 45 days
Orig. 2nd Floor (north) 3,343 60 days
ADD: NORTH SIDE OF BLDG. " "
ROOM 206 A 217 " "
ROOM 206 B 110 " "
ROOM 206 C 32 " "
ROOM 206 D 175 = ADD 534 SQ. FT. "
Sitek Upstairs (south) 1,730 30 days
ADD: SOUTH SIDE OF BLDG. " "
ROOM 215 (SOUTH) 540 " "
ROOM 213 (BACKLAB) 242 " "
2 HALLS & CRANNY 292 " "
WALK-IN 215B 85 " "
WASTE CLOSET 215A 67 = ADD 1,226 SQ. FT. 30 days
Sitek downstairs (south) 977 30 days
ADD: NORTH SIDE OF BLDG.
ROOM 104 A 260 " "
ROOM 104 B 165 " "
ROOM 104 C 130 " "
MINUS ROOM 101J (100) " "
ROOM 123 106 = ADD 561 SQ. FT. "
From 9,050 sq. ft. + 2,321 sq. ft = 11,371 sq. ft. @ $17.82 per sq. ft. = $16,885.94 per month.
</TABLE>
This addendum, dated this date of September 25, 1996, supersedes any
previous addenda. It is bound unto all terms and conditions of above-mentioned
lease agreement. The only changes, herein affected, being that of additional
space and an updated copy of the Attachments Tenant Rules and Regulations.
----------------------------
<PAGE>
It is agreed that this addendum is legally binding to both parties as of
September 25, 1996.
Landlord:
BIOMEDICAL RESEARCH INSTITUTE
-----------------------------
Attest:/s/ Theresa P. Smith BY:/s/ James L. Leef
---------------------- --------------------------
Name: James L. Leef, Ph.D
Title: Director
Date: September 25, 1996
(seal):
*************************************
Tenant:
GENVEC, INC.
------------
Attest: [SIGNATURE ILLEGIBLE] BY:/s/ Charles A. Reinhart III
---------------------- ----------------------------
Name: Charles A. Reinhart III
Title: Director of Finance and
Administration
Date: September 25, 1996
(seal):
<PAGE>
ATTACHMENT I
------------
TENANT RULES AND REGULATIONS
----------------------------
Below you will find information regarding general rules which must be followed
here at the Parklawn Buildings.
1) ACCIDENTS: All accidents occurring in the common areas including hallways
---------
and parking lots must be reported to the Administrative office immediately.
Any accidents occurring in the laboratory should be reported to the Safety
Officer, Teresa Ponioi.
2) AIR LINE FILTER: A hydrophobic filter must be placed on ALL vacuum lines.
---------------
See the BRI Safety Officer, Teresa Ponio. This is for the safety of the
personnel and the protection of the vacuum system.
3) ANIMAL FACILITIES: See Dr. Lewis or Dr. Leef for access. Charges for this
-----------------
service will be based on the number of cages per day housed in the
facilities. Protective clothing must be worn at all times.
4) AUTOCLAVE: You must sign up for its use for no more than two consecutive
---------
hours of time. See the office staff for the sign up sheet. Again, all the
tenants must have access to this facility so DON'T use the autoclave for
more than 2 hours at a time. Authorization can be granted for use of the
autoclave after hours or on weekends.
Each company is responsible for it's materials. To autoclave material:
Place your items in an autoclave bag with the autoclave tape and label
stating the material is sterile. After sterilizing place the autoclave bag
in the large trash receptacle available in the room. NEVER discard the red
bags in the trash receptacle or dumpster. The red bags are only to be used
for material which is to be picked up for incineration. If you need
additional supplies please see Teresa Ponio, our Safety Officer.
5) CANVASSING, SOLICITING AND PEDDLING: Canvasing, soliciting and peddling in
-----------------------------------
the Building are prohibited, and Tenants shall cooperate to prevent such
activities.
6) COMMITTEES: All tenants must assign a person(s) having authority to speak
----------
for the tenant to the following committees, attendance is mandatory: The
general laboratory Safety Committee and The Animal Care and Use Committee:
You will be notified of the time and date of the meetings which are held at
least once a quarter.
7) COMMON AREAS are for the use of all personnel and are not to be unduly used
------------
by any one individual; Tenant shall use the Common Area only as a means of
ingress and egress, Tenants shall permit no loitering by any persons upon
Common Areas or elsewhere within the Building. The common Areas and roof
of the Building are not for the use of the general
<PAGE>
public, and Landlord shall in all cases retain the right to control or
prevent assess thereto by all persons whose presences, in the judgement of
Landlord, shall be prejudicial to the safety, character, reputation or
interest of the Building and it's tenants. Tenants shall not enter or
install equipments in the mechanical rooms, air conditioning rooms,
electrical closets, janitorial closets, or similar areas or go upon the
roof of the Building without the prior written consent of the Landlord.
After initial construction of space, no tenant shall install any radio or
television antenna, loudspeakers, or other devise on the roof or exterior
walls of the Building.
8) CONFERENCE ROOM: You must schedule its use; See the office staff for the
---------------
availability of the room.
9) CONTRACTING: Anytime your company requires outside contracting in the
-----------
building you must notify BRI of the work you plan on doing, or the work
that has been completed. ALL work conducted must meet the specification of
the fire, state or building codes. If you elect to make repairs at your
expense, BRI must be notified so it may inspect the work to make sure it
conforms to code standards. Also, advise the BRI office if the contractor
expects to be here after normal business hours. It is the responsibility
of the Tenant to assure that any outside contractor has proof of liability
insurance and workmans compensation coverage.
10) COPIER: You have access to the copier; a 15 cent charge per page will be
------
billed to your company monthly. See the office staff for your access
number.
11) DISPUTES: Should a dispute arise between tenants it is hoped that the
--------
tenants can resolve the dispute amicably. Should third party intervention
be desired the BRI Administration will serve as such third party. However,
every effort should be exhausted to solve the dispute before third party
intervention is requested because such third party opinion will be binding.
12) EQUIPMENT, FURNISHING, ETC. will not be stored in hallway,
---------------------------
landings,.stairs, load dock or any common area. This is in violation of
fire safety code.
13) EQUIPMENT: All equipment and any other devise of any unusual electrical or
---------
mechanical nature shall be placed by Tenant in the Demised premises in
settings that are structurally safe.
14) FACSIMILE MACHINE: Facsimile number: (301) 881-7640, the use fee is $1.00
-----------------
per page (incoming or outgoing).
15) FIRE SAFETY PROCEDURES: See the attachment 3.
----------------------
16) 1ST FLOOR MENS ROOM: A shower is available.
-------------------
17) FREEZER SPACE: Freezer space is available through Don Dover or Jerry Mouer
-------------
at the Freezer repository for a monthly charge. The phone number is (301)
881-4513.
<PAGE>
18) GLASSWARE STERILIZING: Companies must have prior authorization from Dr.
---------------------
Leef to use this facility. There is a charge to use the glassware
facilities.
19) GUEST PROCEDURES: All guests must sign in at the guest desk in the lobby.
----------------
20) HEATER OTHER THAN THE BUILDING HEAT: The only devices that are not
-----------------------------------
acceptable to the fire safety code is electric resistant heaters (any
glowing red strip). The Tenants may have window air/heat conditioner only
if they properly secure the apparatus to the building and have made
provisions in the installation that the building security is not breached.
In addition such installation must be inspected and approved by BRI
personnel.
21) HOLD HARMLESS: Tenant(s) will supply Landlord with a "HOLD HARMLESS"
------------- -------------
agreement for the use of any of the "common equipment" or areas. Landlord
also requires a Certificate of Insurance (general liability coverage) for
their company with a minimum of $1,000,000 of coverage. The Certificate of
Insurance must accompany your lease. It will be the responsibility of the
tenant to provide the Administrative Office with the renewal agreement each
year.
22) INSECTICIDES: Tenant agrees not to use or cause to have used any
------------
insecticides to control insect populations since tenant recognized the
Landlord's research involves raising insects for life cycles. Insecticides
could interrupt these cycles disastrously.
23) JANITORIAL CLEANING: Special cleaning will be done upon request for an
-------------------
additional fee. The janitor is responsible for the routine cleaning of the
laboratories such as the trash removal, care of the floors and vacuuming in
the offices. Please notify us, in writing, of any times we should not We
will attempt to accommodate your request.
24) KEYS: All the OUTSIDE doors are keyed the same and under no circumstances
----
are keys to be transferred. Obtain keys from the Administrative staff. If
you lose your key report it immediately, there is a $10 per key replacement
fee. If you change any locks, you must give us a copy of the key
immediately. This is necessary in case of fire or other emergency. The
exterior doors must remained locked after normal business hours including
holidays and weekends. Do not prop any doors open unless you remain at the
door. Do not let guests or vendors access the building. Refer all guest
or vendors to the lobby. Under no circumstance are children (under the age
of 18) permitted in the laboratory areas unless they have a work permit.
The Administrative office is open from 8 to 5 pm Monday through Friday,
except holiday(s) and weekends.
25) LEASEHOLD IMPROVEMENTS will remain the property of the Landlord unless
----------------------
otherwise agreed in writing.
26) LIGHT FIXTURE REPLACEMENT: Any new or replacement of light fixtures must
-------------------------
be energy efficient with special ballast and backdrops. BRI is in an
energy saving program with PEPCO. Please see Administration for approval.
<PAGE>
27) LUNCH ROOM: People use ice from the ice machine for their drinks, always
----------
use the ice scoop so the ice remains clean. Do not wear laboratory coats,
gloves or bring lab materials into this room. Our staff will clean the
refrigerator each Friday. All food and containers will be discarded. We
recycle aluminum cans and card-board boxes only. The microwave is for food
only and you must cover your dish. The coffee is available to guest and
staff at cost.
28) MAINTENANCE OF THE BUILDING: All work orders should be directed to the
---------------------------
Repository staff at 881-4513. Regular maintenance involves repair and
maintenance of ceilings, walls and floors inclusive of utilities. All
other special maintenance work will be charged on the basis of parts, labor
and overhead. No work on the ceilings, walls and floors is not to be done
without the written consent of the Administrative office.
29) MAINTENANCE OF BRI'S FURNISHING OR EQUIPMENT: ALL equipment, freezers,
--------------------------------------------
walk-ins, furniture will be the tenants responsibility to repair and to
return in condition when the tenant is through using said material.
Exceptions to this rule may be made on a case by case basis. If repairs
are required on our equipment, the tenant(s) must notify Administrative
office in writing that such repair are necessary. The tenant is
responsible for incurred cost. BRI reserves the right to request equipment
return upon 30 day written notice. See Attachment 5.
30) MATERIAL DATA SAFETY SHEETS (MSDS): All tenants must notify the
----------------------------------
Administrative Office in writing of the location of their MSDS.
31) MEDICAL WASTE: All tenants are responsible for the removal of their
-------------
medical waste. See the office staff for a vendor.
32) OBSTRUCT OR INTERFERE: Tenants shall not obstruct or interfere with the
---------------------
rights of other tenants of the Building, or of persons have business in the
building, or in any way conduct any activity within the Demised Premises
which will create excessive traffic or noise anywhere in the Building.
33) OFFICE SUPPORT: You will be charged for Secretarial/receptionist, accounts
--------------
payable, mail distribution, the use of the guest telephone in the lobby and
bookkeeping services according to your use.
34) PARKING: The building area is 30,000 square feet and has 53 legal parking
-------
spaces. Thus, there is one (1) parking space for each 566 square feet of
leased space. Because more permits will be issued than there are spaces
available, parking is on a first come, first serve basis. Please see
Attachment 4 for specific parking rules.
35) PLUMBING: Tenants shall not use the washrooms, restrooms and plumbing
--------
fixtures of the Building, and appurtenance thereto, for any other purposes
than the purpose for which they were constructed, and Tenants shall not
deposit any sweepings, rubbish, rags or other improper substances therein.
If Tenants or Tenant's servants, employees, agents, contractors,
<PAGE>
jobber, licenses, invitee, guests or visitors cause any damage to such
washrooms restrooms, plumbing fixtures or appurtenances, such damage shall
be repaired at Tenant's expense, and Landlord shall not be responsible
therefore.
36) READING ROOM: When the conference room is being used this room is
------------
available; it seats 6 people. You must acquire authorization to use this
room.
37) TELEPHONE CHARGES: See the office staff for the long distance access code.
-----------------
38) THERMOSTAT CONTROL: All thermostats will be set at 68 degrees. Do not
------------------
change the settings without notifying maintenance.
39) TRASH REMOVAL: No broken glass bottles, glass pipettes, red hazard bags or
-------------
any sharp materials are to be placed in the regular trash. The only
material which will be removed from the lab or office is what is in the
trash receptacle. Break down all card-board boxes and place the boxes in
the hallway for disposal. Tenants shall not deposit any trash, refuse,
cigarettes, or other substances of any kind within or out of the Building,
except in the refuse containers provided therefore. No material shall be
placed in the trash receptacles if such material is of such nature that it
may not be disposed of in the ordinary and customary manner of removing and
disposing of office building trash and garbage without being in violation
of any law or ordinance governing such disposal. No tenant shall cause any
unnecessary labor by reason of such tenant's carelessness or indifference
in the preservation of good order and cleanliness.
40) EXCEPTIONAL USE OF UTILITIES: Incremental increases for utilities
----------------------------
(inclusive of electric, gas, water) will be accessed if a given tenant
requires an unusual demand. This will be agreed to by both Landlord and
Tenant.
41) INTERRUPTION OF UTILITIES: A memo will be issued 24 hours in advance
-------------------------
except in case of emergency.
42) WALK-IN +4 DEGREE AND -20 WALK-IN SPACE: This is a common area but all
---------------------------------------
materials MUST be labeled with the name of contact person, phone number and
a brief description of items. Item(s) with no manufacturer label must have
an identification label with the following: name, description, and any
harmful elements. All the building tenants use this walk-in so if you need
additional space, contact Don Dover at the Repository 881-4513.
43) WINDOWS: Tenant shall may install or permit the installation of any
-------
awnings, shades, mylar films or sun filters on windows. Prior written
authorization is required. Tenants shall cooperate with Landlord in
obtaining maximum effectiveness of the cooling system of the Building by
closing drapes and other window coverings when the sun's rays fall upon
windows of the Demised Premises. Tenant shall not obstruct, alter or impel
the operation of Landlord's heating, ventilating, air conditioning,
electrical, fans, safety or lighting systems.
<PAGE>
ATTACHMENT 3
------------
FIRE SAFETY DRILL
-----------------
1) An audible alarm will sound throughout the building.
2) Immediately secure any procedure you may currently be performing. Do not
leave something running which, in and or itself, could create a hazard.
Turn out the lights if possible and close the door as you vacate the room,
but do not lock the door.
3) Get out of the building via the nearest exit, but never go up the stairs to
do this.
4) Always proceed to the parking lot and form departmental or company groups.
Each group must have a person able to confirm that everyone in the group is
present. When the personnel survey is complete, please report the results
to the BRI Safety Officer.
5) We are told by the Fire Department that:
a) We should be able to vacate our building within 1 to 1.5 minutes after
the alarm has been sounded.
b) Not responding to the fire alarm is a serious offense and must be
dealt with accordingly.
c) A brief report of the fire drills will be recorded and made available
to the Fire Department when they make periodic inspections of the building.
<PAGE>
ATTACHMENT 4
------------
PARKING PERMIT RULES
--------------------
1) The parking permits will be issued to an individual. This permit is a car
pool permit and can be transferred from one car to another.
2) Each company will be responsible for their records. These records should
contain the permit number and to whom the permit was issued. Visitors must
have a permit to park in the lot.
3) It must be displayed at all times on the rear view mirror.
4) It is suggested you have the permits returned to you upon termination of an
employee.
5) The building area is 30,000 square feet and has 53 legal parking spaces.
Thus, there is one (1) parking space for each 566 square feet of leased
space. Because more permits will be issued than there are spaces
available, parking is on a first come, first serve basis.
6) Biomedical Research Institute will not be responsible for any damages
incurred if a vehicle is towed away. We also will not be responsible for
any damage to or stolen items from cars parked in the lot.
7) If a vehicle is towed for no permit, BRI will not be responsible for the
towing bill.
8) Visitors must be issued a permit.
9) Vehicles must be parked in a legal parking space.
10) No vehicle is allowed to park in the loading dock or zones.
11) The towing company telephone number is on the signs at the entrances to the
parking lot.
12) No vehicles will be left in the parking lot that needs repair. The vehicle
will be towed at owners expense.
<PAGE>
ATTACHMENT 5
------------
MAINTENANCE OF BRI EQUIPMENT
----------------------------
Below are the procedures for the repair of BRI Is equipment in tenant use.
1) The tenant is responsible for the repair of ALL BRI EQUIPMENT in tenant's
possession.
2) The equipment is to be returned to BRI in good working order and will be
examined and accepted by BRI Administrative personnel in writing.
Exceptions to the status of equipment will be made on a case by case basis.
3) If the equipment needs repair BRI must be notified that the repair is/was
necessary. BRI may require that certain equipment must have prior written
approval. If BRI bids to do the repairs and if the bid is accepted BRI
will be reimbursed for servicing the equipment.
4) No BRI equipment shall leave this building without the prior written
consent of BRI.
5) Once a year, the BRI Office Manager or designee will coordinate a walk-
thorough (physical inventory) of all BRI equipment in possession of tenant.
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
ADDENDUM # 8
------------
LEASE AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
------ -----------------------------
EFFECTIVE DATE OF CHANGE: JANUARY 15, 1997
----------------
SECTION 5 (PAGE 3): This addendum is to deduct 106 square feet of space for Room
123 (1/st/ Floor) which changes ADDENDUM #7. TOTAL SQUARE FEET FROM 11,371 TO
11,265
SECTION 3 (PAGE 2): RENT FOR PREMISES AND EXPANSION PREMISES. Tenant shall pay
Landlord as Rent for the Premises and Expansion Premises, in legal tender...
The annual sum of $202,631.28 divided by 12 months = $16,885.94 change to
$200,742.30 divided by 12 months = $16,728.53.
SECTION XIII DEFAULT: (1/ST /SENTENCE) If Tenant shall violate any covenant,
including the covenant to pay rent ... (last sentence) the Premises during, the
Term.
Monthly rents are due and payable to the Landlord's Office on the first of each
month. Payments not received by the Landlord within ten (10) days of the due
date shall incur a five percent (5%) late charge. Any account not settled within
thirty (30) days shall, in addition, incur a one and one-half percent (1 1/2%)
per month service change on that outstanding balance.
This addendum, dated this February 27, 1997, supersedes any previous
addenda. It is bound unto all terms and conditions of the above-mentioned lease
agreement. The only changes, herein affected, being that of less space and an
LATE PAYMENT OF RENT statement.
It is agreed that this addendum is legally binding to both parties as of:
January 15, 1997.
Landlord
BIOMEDICAL RESEARCH INSTITUTE
-----------------------------
Attest:/s/ Theresa Smith BY: /s/ James L. Leef
---------------------- ------------------------
Name: James L. Leef, Ph.D
Title: Director
Date: February 28, 1997
<PAGE>
Tenant:
GENVEC, INC.
------------
Attest:[SIGNATURE ILLEGIBLE] By:/s/ Charles A. Reinhart III
---------------------- ----------------------------
Name: Charles A. Reinhart III
Title: Director of Finance and
Administration
Date: February 28, 1997
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
ADDENDUM #9
LEASE AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
EFFECTIVE DATE OF CHANGE: APRIL 1, 1997
Attached you will find a copy of the Consumer Price Index all Urban Consumers
(CPI-U) Analysis ending January 1997. The CPI reflects a .03% increase.
<TABLE>
<CAPTION>
Annual Monthly $ per square foot
------ ------- -----------------
<S> <C> <C> <C>
From: $200,742.30 $16,728.53 $17.82
To: $206,764.57 $17,230.38 $18.35
</TABLE>
This addendum, dated March 28, 1997, supersedes any previous addenda. It is
bound unto all terms and conditions of the above-mentioned lease agreement.
It is agreed that this addendum is legally binding to both parties as of:
APRIL 1, 1997.
Landlord:
BIOMEDICAL RESEARCH INSTITUTE
-----------------------------
Attest:/s/ Theresa P. Smith By:/s/ James L. Leef
---------------------- ---------------------------
Name: James L. Leef, Ph.D
Title: Director
Date: March 28, 1997
Tenant:
GENVEC, INC.
------------
Attest:[SIGNATURE ILLEGIBLE] By:/s/ Charles A. Reinhart III
---------------------- ---------------------------
Name: Charles A. Reinhart III
Title: Director of Finance and
Administration
Date: 4/1/97
<PAGE>
[LETTERHEAD OF BIOMEDICAL RESEARCH INSTITUTE APPEARS HERE]
GENVEC, INC ADDENDUM # 10
LEASE AGREEMENT BETWEEN GENVEC AND BIOMEDICAL RESEARCH INSTITUTE
EFFECTIVE DATE OF CHANGE: SEPTEMBER 1, 1997
EXPANSION TO PREMISES:
This addendum is to add 3,000 square feet to the lease agreement for 12115
Parklawn Drive, Bay "L". Total square feet from 11,265 to 14,265 at $18.35 per
square foot.
RENT FOR PREMISES AND EXPANSION PREMISES:
14,265 at $18.35 per square foot = $261,762.75 divided by 12 months = $21,813.56
per month.
TENANT IMPROVEMENTS:
Tenant agrees to accept the Expansion Premises in there "as is" condition except
for a door joining BAY "K" to BAY "L" will be permitted. The door will be
installed at BRI's expense. The location of the door will be mutually agreed
upon, in accordance with building codes.
TERMINATION OF AGREEMENT:
Notwithstanding anything to the contrary contained in this Amendment and the
Lease, Tenant shall have the right to partially terminated the Lease for the
Premises and the Expansion Premises, after delivering prior written notice of
its intention to Landlord, in accordance with the following schedule:
The addition of Bay "L" will be under the same lease agreements and amendments
which pertain to the addition of Bay "K".
Bay "L" (3,000) square feet will require a 45 days notice. See Page 3 of the
Second Lease Amendment. It is clear from that language that this forty-five (45)
days for BAY "L" stands as a separate entity.
Tenant may terminate it's obligations with respect to each of the foregoing
areas of the Premises in any order in which it deems appropriate; provided,
however, that (a) in no event may Tenant give concurrent notices for more than
one (1) area, and (b) it's right to terminate it's obligations for any other
area will not accrue until alter it's notice of termination for a previously
terminated area has expired.
<PAGE>
Page 2 of 2 Addendum # 10
PAYMENT OF UTILITIES:
Tenant shall pay for all utilities provided to BAY "L", which shall be in the
name of Tenant and separately metered, the cost of which, if any shall be paid
by Tenant.
This addendum, dates this 19th day of August, 1997, supersedes any previous
addenda. It is bound unto all terms and conditions of the above-mentioned lease
agreement. The only changes, herein affected, being that of additional space.
It is agreed that this addendum is legally binding to both parties as of the
date signed.
LANDLORD: BIOMEDICAL RESEARCH INSTITUTE
Name: /s/ James L. Leef
------------------------------
James L. Leef, Ph.D., Director
Date: August 20, 1997
TENANT: GENVEC, INC.
Name: /s/ Paul H. Fischer
-----------------------------------------
Paul H. Fischer, Ph.D., President and CEO
Date: ________________________
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
EXHIBIT 23.1
The Board of Directors
GenVec, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
McLean, Virginia
June 18, 1998
