-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8LM74jcIbNliE3oWGZZ8xDisnbM/Zh38F0PjyEskvBcHIsCEJUuttGcm4Ggd/OQ nqNQ1edoUxNmlhkUDKd/CQ== 0000950135-01-503580.txt : 20020410 0000950135-01-503580.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950135-01-503580 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICINES CO/ MA CENTRAL INDEX KEY: 0001113481 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 043324394 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31191 FILM NUMBER: 1791334 BUSINESS ADDRESS: STREET 1: ONE CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6172259099 10-Q 1 b40875mce10-q.txt THE MEDICINES COMPANY INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended September 30, 2001 Commission File Number 000-31191 The Medicines Company (Exact Name of Registrant as Specified in Its Charter) Delaware 04-3324394 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) One Cambridge Center, Cambridge, MA 02142 ----------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (617) 225-9099 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: As of October 31, 2001, there were 34,571,656 shares of Common Stock, $0.001 par value per share, outstanding. THE MEDICINES COMPANY TABLE OF CONTENTS PART I. FINANCIAL INFORMATION 1 ITEM 1 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 PART II. OTHER INFORMATION 22 ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 22 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 23 SIGNATURES 24 EXHIBIT INDEX 25
PART I. FINANCIAL INFORMATION ITEM 1 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THE MEDICINES COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 63,227,496 $ 36,802,356 Marketable securities 5,970,616 42,522,729 Accrued interest receivable 260,686 1,392,928 ------------- ------------- 69,458,798 80,718,013 ------------- ------------- Accounts receivable 3,011,355 -- Inventory 6,832,226 1,963,491 Prepaid expenses and other current assets 705,965 465,650 ------------- ------------- Total current assets 80,008,344 83,147,154 Fixed assets, net 1,219,183 965,832 Other assets 153,076 250,144 ------------- ------------- Total assets $ 81,380,603 $ 84,363,130 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,917,032 $ 5,987,213 Accrued expenses 7,932,670 9,136,934 ------------- ------------- Total current liabilities 12,849,702 15,124,147 Stockholders' equity: Common stock, $.001 par value, 75,000,000 shares authorized at September 30, 2001 and December 31, 2000, respectively; 34,566,441 and 30,320,455 issued and outstanding at September 30, 2001 and December 31, 2000, respectively 34,566 30,320 Additional paid-in capital 321,509,054 279,126,337 Deferred compensation (10,159,996) (13,355,694) Accumulated deficit (242,928,078) (196,560,034) Accumulated other comprehensive income (loss) 75,355 (1,946) ------------- ------------- Total stockholders' equity 68,530,901 69,238,983 ------------- ------------- Total liabilities and stockholders' equity $ 81,380,603 $ 84,363,130 ============= =============
See accompanying notes to condensed consolidated financial statements. Page 1 THE MEDICINES COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net revenue $ 3,526,234 $ -- $ 7,435,063 $ -- Operating expenses: Cost of revenue 564,835 -- 1,216,278 -- Research and development 6,325,575 6,734,799 27,229,728 23,503,579 Selling, general and administrative 8,732,412 3,562,440 27,359,289 7,339,618 ------------ ------------ ------------ ------------ Total operating expenses 15,622,822 10,297,239 55,805,295 30,843,197 Loss from operations (12,096,588) (10,297,239) (48,370,232) (30,843,197) Other income (expense): Interest income 787,659 838,606 2,852,188 1,124,331 Interest expense -- -- -- (19,390,414) Loss on sale of investments -- -- (850,000) -- ------------ ------------ ------------ ------------ Net loss (11,308,929) (9,458,633) (46,368,044) (49,109,280) Dividends and accretion to redemption value of redeemable preferred stock -- (1,624,395) -- (30,342,988) ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $(11,308,929) $(11,083,028) $(46,368,044) $(79,452,268) ============ ============ ============ ============ Basic and diluted net loss attributable to common stockholders per common share $ (0.33) $ (0.67) $ (1.43) $ (13.32) ============ ============ ============ ============ Unaudited pro forma basic and diluted net loss attributable to common stockholders per common share $ (0.33) $ (0.34) $ (1.43) $ (1.28) ============ ============ ============ ============ Shares used in computing net loss attributable to common stockholders per common share: Basic and diluted 34,502,886 16,467,030 32,382,878 5,964,852 ============ ============ ============ ============ Unaudited pro forma basic and diluted 34,502,886 27,514,031 32,382,878 23,222,614 ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements. Page 2 THE MEDICINES COMPANY CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (unaudited)
REDEEMABLE CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL --------------------------- ------------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ----------- ------------- ----------- ------------ ------------- Balance at December 31, 1999 22,962,350 85,277,413 833,400 834 339,144 Repurchase of common stock (22,205) (22) Employee stock purchases 227,525 226 286,068 Issuance of redeemable preferred stock 5,946,366 25,688,284 Dividends paid on preferred stock 1,751,241 4,898,537 Dividend from beneficial conversion of convertible debt 25,444,299 Issuance of warrants associated with debt financing 18,789,805 Issuance of common stock through initial public offering 6,900,000 6,900 101,343,162 Conversion of preferred stock to common stock (30,659,957) (115,864,234) 22,381,735 22,382 115,841,732 Deferred compensation expense associated with stock options 17,279,612 Adjustments to deferred compensation for terminations (197,485) Amortization of deferred stock compensation Net loss Currency translation adjustment Unrealized loss on marketable securities Comprehensive loss ----------- ------------- ----------- ------------ ------------- Balance at December 31, 2000 -- -- 30,320,455 30,320 279,126,337 Repurchase of common stock (10,859) (11) -- Employee stock purchases 256,845 257 583,742 Issuance of common stock through private placement 4,000,000 4,000 41,798,975 Adjustments to deferred compensation for terminations Amortization of deferred stock compensation Fair value of warrants outstanding 51,225,075 (51,225,075) Net loss Currency translation adjustment Unrealized loss on marketable securities Comprehensive loss ----------- ------------- ----------- ------------ ------------- Balance at September 30, 2001 -- $ -- 34,566,441 $ 34,566 $ 321,509,054 =========== ============= =========== ============ =============
DEFERRED COMPREHENSIVE TOTAL STOCK ACCUMULATED INCOME STOCKHOLDERS' COMPENSATION DEFICIT (LOSS) DEFICIT ------------ ------------- ------------ ------------- Balance at December 31, 1999 (94,925,028) 27,395 (94,557,655) Repurchase of common stock (22) Employee stock purchases 286,294 Issuance of redeemable preferred stock -- Dividends paid on preferred stock (4,898,537) (4,898,537) Dividend from beneficial conversion of convertible debt (25,444,299) -- Issuance of warrants associated with debt financing 18,789,805 Issuance of common stock through initial public offering 101,350,062 Conversion of preferred stock to common stock 115,864,114 Deferred compensation expense associated with -- stock options (17,279,612) -- Adjustments to deferred compensation for terminations 197,485 -- Amortization of deferred stock compensation 3,726,433 3,726,433 Net loss (71,292,170) (71,292,170) Currency translation adjustment 5,141 5,141 Unrealized loss on marketable securities (34,482) (34,482) ------------- Comprehensive loss (71,321,511) ------------ ------------- ------------ ------------- Balance at December 31, 2000 (13,356,694) (196,560,034) (1,946) 69,238,983 Repurchase of common stock (11) Employee stock purchases 583,999 Issuance of common stock through private placement 41,802,975 Adjustments to deferred compensation for terminations -- -- Amortization of deferred stock compensation 3,195,698 3,195,698 Fair value of warrants outstanding 51,225,075 (51,225,075) Net loss (46,368,044) (46,368,044) Currency translation adjustment 32,415 32,415 Unrealized loss on marketable securities 44,886 44,886 ------------- Comprehensive loss (46,290,743) ------------ ------------- ------------ ------------- Balance at September 30, 2001 $(10,159,996) $(242,928,078) $ 75,355 $ 68,530,901 ============ ============= ============ =============
See accompanying notes to condensed consolidated financial statements Page 3 THE MEDICINES COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED SEPT. 30, ---------------------------------- 2001 2000 ------------ ------------- Cash flows from operating activities: Net loss $(46,368,044) $ (49,109,280) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 355,324 178,385 Amortization of discount on convertible notes -- 19,013,486 Amortization of deferred stock compensation 3,195,698 1,539,472 Loss on sales of fixed assets 520 9,156 Changes in operating assets and liabilities: Accrued interest receivable 1,132,242 (138,184) Accounts receivable (3,011,355) -- Inventory (4,868,735) -- Prepaid expenses and other current assets (241,064) (304,611) Other assets 96,926 (135,164) Accounts payable (1,068,655) (3,916,349) Accrued expenses (1,191,672) 3,330,229 ------------ ------------- Net cash used in operating activities (51,968,815) (29,532,860) Cash flows from investing activities: Purchases of marketable securities (7,430,886) (30,057,921) Maturities and sales of marketable securities 44,025,759 541,400 Purchase of fixed assets (614,020) (420,879) ------------ ------------- Net cash provided by (used in) investing activities 35,980,853 (29,937,400) Cash flows from financing activities: Proceeds from issuance of convertible notes and warrants -- 13,348,779 Proceeds from issuances of preferred stock, net -- 6,095,338 Proceeds from issuances of common stock, net 42,386,974 101,445,745 Repurchases of common stock (11) (30) Dividends paid in cash -- (118) ------------- Net cash provided by financing activities 42,386,963 120,889,714 Effect of exchange rate changes on cash 26,139 46,315 ------------ ------------- Increase in cash and cash equivalents 26,425,140 61,465,769 Cash and cash equivalents at beginning of period 36,802,356 6,643,266 ------------ ------------- Cash and cash equivalents at end of period $ 63,227,496 $ 68,109,035 ============ =============
See accompanying notes to condensed consolidated financial statements. Page 4 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. NATURE OF BUSINESS The Medicines Company (the Company) was incorporated in Delaware on July 31, 1996. The Company is a pharmaceutical company engaged in the acquisition, development and commercialization of late-stage development drugs. As a result of the U.S. Food and Drug Administration approval of Angiomax (R) (bivalirudin) for use as an anticoagulant in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty in December 2000, and the commencement of sales of Angiomax in the first quarter of 2001, the Company is no longer considered to be a development-stage enterprise, as defined in Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises". 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments, including normal recurring accruals, considered necessary for a fair presentation of the Company's financial position, results of operations, and cash flows for the periods presented. The results of operations for the three and nine month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2001. These condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, filed with the Securities and Exchange Commission. Cash, Cash Equivalents and Marketable Securities The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of investments in money market funds, corporate bonds and taxable auction securities. These investments are carried at cost, which approximates fair value. Marketable securities consist of securities with original maturities of greater than three months. The Company classifies its marketable securities as available-for-sale. Securities under this classification are recorded at fair market value and unrealized gains and losses are included in the accumulated other comprehensive income and loss component of stockholders' equity. Page 5 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) Revenue Recognition The Company recognizes revenue from product sales when there is pervasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable, and collectibility is reasonably assured. Revenue is recorded net of applicable allowances, including estimated allowances for returns, rebates and other discounts. 3. NET LOSS AND UNAUDITED PRO FORMA NET LOSS PER SHARE The following table sets forth the computation of basic and diluted, and unaudited pro forma basic and diluted, net loss per share for the three and nine months ended September 30, 2001 and 2000. The unaudited pro forma basic and diluted net loss per share for the three and nine months ended September 30, 2000 gives effect to the conversion of redeemable convertible preferred stock and accrued dividends and convertible notes and accrued interest as if converted at the date of original issuance. All redeemable convertible preferred stock and convertible notes were converted during 2000. Accordingly, the basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share for the three and nine months ended September 30, 2001 are the same.
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, -------------------------------- --------------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ BASIC AND DILUTED Net loss $(11,308,929) $ (9,458,633) $(46,368,044) $(49,109,280) Dividends and accretion to redemption value of redeemable preferred stock -- (1,624,395) -- (30,342,988) ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $(11,308,929) $(11,083,028) $(46,368,044) $(79,452,268) ============ ============ ============ ============ Weighted average common shares outstanding 34,542,242 16,644,520 32,449,717 6,156,622 Less: unvested restricted common shares outstanding (39,356) (177,490) (66,839) (191,770) ------------ ------------ ------------ ------------ Weighted average common shares used to compute net loss per share 34,502,886 16,467,030 32,382,878 5,964,852 ============ ============ ============ ============ Basic and diluted net loss per share $ (0.33) $ (0.67) $ (1.43) $ (13.32) ============ ============ ============ ============
Page 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ------------------------------- ------------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ UNAUDITED PRO FORMA BASIC AND DILUTED Net loss $(11,308,929) $ (9,458,633) $(46,368,044) $(49,109,280) Interest expense on convertible notes -- -- -- 19,390,414 Dividends and accretion to redemption value of redeemable preferred stock -- -- -- -- ------------ ------------ ------------ ------------ Net loss to compute pro forma net loss per share $(11,308,929) $ (9,458,633) $(46,368,044) $(29,718,866) ============ ============ ============ ============ Weighted average common shares used to compute pro forma net loss per share 34,502,886 16,467,030 32,382,878 5,964,852 Weighted average number of common shares assuming the conversion of all redeemable convertible preferred stock and accrued dividends and convertible notes and accrued interest at the date of original issuance -- 11,047,001 -- 17,257,762 ------------ ------------ ------------ ------------ Weighted average common shares used to compute pro forma net loss per share 34,502,886 27,514,031 32,382,878 23,222,614 ============ ============ ============ ============ Unaudited pro forma basic and diluted pro forma net loss per share $ (0.33) $ (0.34) $ (1.43) $ (1.28) ============ ============ ============ ============
Options to purchase 4,161,465 and 2,521,316 shares of common stock as of September 30, 2001 and 2000, respectively, have not been included in the computation of diluted net loss per share, as their effect would have been antidilutive. Outstanding warrants to purchase 3,156,073 shares of common stock as of September 30, 2001 were also excluded from the computation of diluted net loss per share as their effect would have been antidilutive. During the three and nine months ended September 30, 2000, the Company issued options to purchase 636,286 and 2,247,615 shares of common stock, respectively, at exercise prices below the estimated fair value of the Company's common stock as of the date of grant of such options, based on the estimated price (as of the date of grant) of the Company's common stock in the Company's initial public offering. The total deferred compensation associated with options granted during the three and nine months ended September 30, 2000 was approximately $4.6 million and $17.3 million, respectively. The Company amortizes deferred stock compensation over the respective vesting periods of the individual stock options. The Company recorded amortization expense for deferred compensation of approximately $977,000 and $3.2 million for the three and nine months ended September 30, 2001, respectively, and $932,000 and $1.5 million for the three and nine months ended September 30, 2000, respectively. Page 7 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) 4. COMPREHENSIVE INCOME (LOSS) Comprehensive losses for the three and nine months ended September 30, 2001 were $11.4 million and $46.3 million, respectively, and for the three and nine months ended September 30, 2000 were $9.5 million and $49.2 million, respectively. Comprehensive losses are primarily comprised of net losses, unrealized losses on marketable securities and currency translation adjustments. 5. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The effective date of this statement was deferred to fiscal years beginning after June 15, 2000 by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133." The Company adopted this new standard and it did not have a material impact on the Company's financial condition or results of operations. In September 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus on Issue 00-19, "Determination of Whether Share Settlement is Within the Control of the Issuer for Purposes of Applying Issue No. 96-13, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." The consensus provides specific guidance regarding when a contract indexed to a company's own stock must be classified in stockholders' equity versus classified as an asset or liability. Any new contracts entered into after the date of consensus must comply with the consensus, and any contracts outstanding as of the September 2000 consensus date are grand fathered until June 2001 before compliance is required. Management anticipates that compliance with the consensus will not have a material impact on the Company's consolidated financial statements. 6. SHARE ISSUANCE In May 2001, the Company received net proceeds of $41.8 million from the private placement of 4.0 million shares of newly issued common stock to both new and existing stockholders at a price of $11.00 per share. Page 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We acquire, develop and commercialize biopharmaceutical products that are in late stages of development or have been approved for marketing. In December 2000, we received marketing approval from U.S. Food and Drug Administration (the "FDA") for Angiomax (bivalirudin), our lead product, for use as an anticoagulant in combination with aspirin in patients with unstable angina undergoing coronary balloon angioplasty. Coronary angioplasty is a procedure used to restore normal blood flow in an obstructed artery in the heart. In August and September 2000, we consummated our initial public offering (the "IPO") resulting in $101.4 million in net proceeds. In May 2001, we completed a private placement of 4.0 million shares of common stock resulting in net proceeds of $41.8 million. We began selling Angiomax in the United States in January 2001. Until October 1, 2001, we marketed Angiomax in the United States using a sales force contracted from Innovex, Inc., which we managed. On October 1, 2001, members of the sales force became our full-time employees rather than employees of Innovex. In addition, during September 2001 we hired additional members of the sales force, which resulted in an increase of approximately 30%. Since our inception, we have incurred significant losses. Most of our expenditures to date have been for research and development activities and selling, general and administrative expenses. Research and development expenses represent costs incurred for product acquisition, clinical trials, activities relating to regulatory filings and manufacturing development efforts. We generally outsource our clinical trials and manufacturing development activities to independent organizations to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. Selling, general and administrative expenses consist primarily of salaries and related expenses, general corporate activities and costs associated with product marketing activities. Interest expense consists of costs associated with convertible notes that were issued in 2000 and 1999 to fund our business activities. These convertible notes were converted into equity in 2000. We expect to continue to incur operating losses during the balance of 2001 and for the foreseeable future as a result of research and development activities attributable to new and existing products and costs associated with the sales and marketing of our products. We will need to generate significant revenues to achieve and maintain profitability. During the three and nine months ended September 30, 2000, we recorded deferred stock compensation on the grant of stock options of approximately $4.6 million and $17.3 million, respectively, representing the difference between the exercise price of such options and the fair market value of our common stock at the date of grant of such options. The exercise prices of these options were below the estimated fair market value of our common stock as of the date of grant based on the estimated price of our common stock in our initial public offering. We amortize deferred stock compensation over the respective vesting periods of the individual stock options. We recorded amortization expense for deferred compensation of approximately Page 9 $977,000 and $3.2 million for the three and nine months ended September 30, 2001, respectively, and $932,000 and $1.5 million for the three and nine months ended September 30, 2000, respectively. We expect to record amortization expense for the deferred compensation as follows: approximately $1.0 million for the remainder of 2001, approximately $3.8 million in 2002, approximately $3.8 million in 2003 and approximately $1.3 million in 2004. We have not generated taxable income to date. At December 31, 2000, net operating losses available to offset future taxable income for federal income tax purposes were approximately $122.2 million. If not utilized, federal net operating loss carryforwards will expire at various dates beginning in 2011 and ending 2020. We have not recognized the potential tax benefit of our net operating losses in our statements of operations. The future utilization of our net operating loss carryforwards may be limited pursuant to regulations promulgated under the Internal Revenue Code of 1986, as amended. RESULTS OF OPERATIONS Three Months Ended September 30, 2001 and 2000 Product Revenue. We had product revenue of $3.5 million for the three months ended September 30, 2001 from sales of Angiomax, which was commercially launched during the first quarter of 2001. We had no product revenue during the three months ended September 30, 2000. Cost of Revenue. Cost of revenue for the three months ended September 30, 2001 was $565,000, or 16% of product revenue. Cost of revenue includes the cost of manufacturing Angiomax, logistical costs associated with distributing Angiomax and accrued royalties. The cost of manufacturing as a percentage of product revenue was approximately 2% in the third quarter of 2001 and is expected to continue to be at, or near, this level into December 2001 as we continue to sell Angiomax that was manufactured prior to the date of FDA approval of Angiomax in December 2000 because the cost associated with the manufacture of Angiomax incurred by us prior to the date of FDA approval of Angiomax was expensed as research and development. Research and Development Expenses. Research and development expenses decreased 6% to $6.3 million for the three months ended September 30, 2001, from $6.7 million for the three months ended September 30, 2000. The decrease in research and development expenses of $409,000 was primarily due to a decrease in expenses associated with the completion of our Phase 3 trial in acute myocardial infarction, called HERO-2. The decrease in research and development expenses was partly offset by increased expenses in connection with our REPLACE trial program and expenses associated with the manufacture of Angiomax bulk product using a second-generation production process, the Chemilog process, which we will continue to expense as research and development until the FDA approves the process. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 145% to $8.7 million for the three months ended September 30, 2001, from $3.6 million for the three months ended September 30, 2000. The increase in selling, general and administrative expenses of $5.2 million was primarily due to an increase in marketing and selling expenses and corporate infrastructure costs relating to the sales and marketing of Angiomax. Our selling, general and administrative expenses also increased due to the hiring that we began in Page 10 September 2001 of additional sales personnel in connection with the formation of our own sales force to market Angiomax. Other Income and Expense. Interest income decreased 6% to $788,000 for the three months ended September 30, 2001, from $839,000 for the three months ended September 30, 2000. The decrease in interest income of $51,000 was primarily due to lower cash and marketable securities balances due to operating expenses and working capital requirements and to lower available interest rates on securities. The primary source of interest income is interest income from the investment of the proceeds from our IPO in August and September 2000 and our private placement of common stock in May 2001. We had no interest expense during the three months ended September 30, 2001 and September 30, 2000. Nine Months Ended September 30, 2001 and 2000 Product Revenue. We had product revenue of $7.4 million for the nine months ended September 30, 2001 from sales of Angiomax. We had no product revenue during the nine months ended September 30, 2000. Cost of Revenue. Cost of revenue for the nine months ended September 30, 2001 was $1.2 million, or 16% of product revenue. The cost of manufacturing as a percentage of product revenue was approximately 2% for the first nine months of 2001 and is expected to continue to be at, or near, this level into December 2001 as we continue to sell Angiomax that was manufactured prior to the date of FDA approval of Angiomax in December 2000 because the cost associated with the manufacture of Angiomax incurred by us prior to date of FDA approval of Angiomax was expensed as research and development. Research and Development Expenses. Research and development expenses increased 16% to $27.2 million for the nine months ended September 30, 2001, from $23.5 million for the nine months ended September 30, 2000. The increase in research and development expenses of $3.7 million was primarily due to increased expenses associated with our REPLACE trial program, which was initiated in the fourth quarter of 2000. The increase in research and development expenses was partly offset by a decrease in expenses associated with the completion of the HERO-2 trial program. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 273% to $27.4 million for the nine months ended September 30, 2001, from $7.3 million for the nine months ended September 30, 2000. The increase in selling, general and administrative expenses of $20.0 million was primarily due to an increase in marketing and selling expenses and corporate infrastructure costs arising from an increase in activity relating to the commercial launch of Angiomax in 2001. Other Income and Expense. Interest income increased 154% to $2.8 million for the nine months ended September 30, 2001, from $1.1 million for the nine months ended September 30, 2000. The increase in interest income of $1.7 million was primarily due to interest income arising from Page 11 the investment of the proceeds from our IPO in August and September 2000 and from the sale of 4.0 million shares of our common stock in a private placement in May 2001. We had no interest expense for the nine months ended September 30, 2001. Interest expense of $19.4 million for the nine months ended September 30, 2000 was related to interest charges and amortization of discount on our convertible notes issued in October 1999 and March 2000. During the second quarter of 2001, we liquidated our $3.0 million principal investment in Southern California Edison 5 7/8% bonds, recognizing a loss of $850,000 on the sale. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2001, we had $69.2 million in cash, cash equivalents and marketable securities, as compared to $79.3 million as of December 31, 2000. In August and September 2000, we received $101.4 million in net proceeds from the sale of common stock in our IPO and received an additional $41.8 million in net proceeds in May 2001 from the sale of 4.0 million shares of our common stock in a private placement. Prior to the IPO, we had received net proceeds of $79.4 million from the private placement of equity securities, primarily redeemable convertible preferred stock, and $19.4 million from the issuance of convertible notes and warrants. During the nine months ended September 30, 2001, we used net cash of $52.0 million in operating activities. This consisted of a net loss of $46.4 million, combined with increases in total receivables of $1.9 million, inventory of $4.9 million, and decreases in accrued expenses of $1.2 million and accounts payable of $1.1 million, partly offset by non-cash amortization of deferred compensation of $3.2 million and depreciation of $355,000. The increase in inventory of $4.9 million was primarily attributed to the scheduled receipt of bulk Angiomax from our supplier, UCB Bioproducts S.A. During the nine months ended September 30, 2001, we generated approximately $36.0 million of cash from net investing activities, which consisted principally of the maturity or sale of marketable securities, partly offset by the purchase of fixed assets of $614,000, which is primarily computer related equipment. During the nine months ended September 30, 2001, we received $42.4 million from financing activities primarily from proceeds from the sale of shares of our common stock in a private placement and from employees purchasing stock under our stock plans. We expect to devote substantial resources to our research and development efforts and to our sales, marketing and manufacturing programs associated with the commercialization of our products. Our funding requirements will depend on numerous factors, including whether Angiomax is commercially successful, the progress, level and timing of our research and development activities, the cost and outcomes of regulatory reviews, the continuation or termination of third party manufacturing or sales and marketing arrangements, the cost and effectiveness of our sales and marketing programs, the status of competitive products, our ability to defend and enforce our intellectual property rights and the establishment of additional strategic or licensing arrangements with other companies or acquisitions. Page 12 We believe, based on our current operating plan, including anticipated sales of Angiomax, that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for approximately 18 months. If our existing resources are insufficient to satisfy our liquidity requirements due to slower than anticipated sales of Angiomax or otherwise, or if we acquire additional product candidates, we may need to sell additional equity or debt securities. The sale of additional equity and debt securities may result in additional dilution to our stockholders, and we cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned research, development and commercialization activities, which could harm our financial condition and operating results. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward-looking statements. There are a number of important factors that cause actual results or events to differ materially from those disclosed in the forward-looking statements we make. These important factors include the risk factors set forth below. Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of filing this Quarterly Report. Risks Related to Our Business WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY We have incurred net losses since our inception, including net losses of approximately $46.4 million for the nine months ended September 30, 2001. As of September 30, 2001, we had an accumulated deficit of approximately $242.9 million. We expect to make substantial expenditures to further develop and commercialize our products, including costs and expenses associated with clinical trials, regulatory approval and commercialization of products. As a result, we are unsure when we will become profitable, if at all. OUR BUSINESS IS VERY DEPENDENT ON THE COMMERCIAL SUCCESS OF ANGIOMAX Other than Angiomax, our products are in clinical phases of development and, even if approved by the FDA, are a number of years away from entering the market. As a result, Angiomax will account for almost all of our revenues for the foreseeable future. The commercial success of Angiomax will depend upon its acceptance by physicians, patients and other key decision-makers as a therapeutic and cost-effective alternative to heparin and other products used in Page 13 current practice. If Angiomax is not commercially successful, we will have to find additional sources of revenues or curtail or cease operations. FAILURE TO RAISE ADDITIONAL FUNDS IN THE FUTURE MAY AFFECT THE DEVELOPMENT, MANUFACTURE AND SALE OF OUR PRODUCTS Our operations to date have generated substantial and increasing needs for cash. Our negative cash flow from operations is expected to continue into the foreseeable future. The clinical development of Angiomax for additional indications, the development of our other product candidates and the acquisition and development of additional product candidates by us will require a commitment of substantial funds. Our future capital requirements are dependent upon many factors and may be significantly greater than we expect. We believe, based on our current operating plan, including anticipated sales of Angiomax, that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least 18 months. If our existing resources are insufficient to satisfy our liquidity requirements due to slower than anticipated sales of Angiomax or otherwise, or if we acquire additional product candidates, we may need to sell additional equity or debt securities. The sale of additional equity and debt securities may result in additional dilution to our stockholders, and we cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned research, development and commercialization activities, which could harm our financial condition and operating results. WE CANNOT EXPAND THE INDICATIONS FOR ANGIOMAX UNLESS WE RECEIVE FDA APPROVAL FOR EACH ADDITIONAL INDICATION. FAILURE TO EXPAND THESE INDICATIONS WILL LIMIT THE SIZE OF THE COMMERCIAL MARKET FOR ANGIOMAX We received in December 2000 approval from the FDA for the use of Angiomax as an anticoagulant in combination with aspirin in patients with unstable angina undergoing coronary balloon angioplasty. One of our key objectives is to expand the indications for which the FDA will approve Angiomax. In order to do this, we will need to conduct additional clinical trials and obtain FDA approval for each proposed indication. If we are unsuccessful in expanding the approved indications for the use of Angiomax, the size of the commercial market for Angiomax will be limited. FAILURE TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WILL PREVENT US FROM MARKETING ANGIOMAX ABROAD We intend to market our products in international markets, including Europe. In order to market our products in the European Union and many other foreign jurisdictions, we must obtain separate regulatory approvals. In February 1998, we submitted a Marketing Authorization Application to the European Agency for the Evaluations of Medicinal Products, or the EMEA, for use of Angiomax in unstable angina patients undergoing angioplasty. Following extended interaction with European regulatory authorities, the Committee of Proprietary Medicinal Products of the EMEA voted in October 1999 not to recommend Angiomax for approval in angioplasty. The United Kingdom and Ireland dissented from this decision. We have withdrawn our application to the EMEA and are in active dialog with European regulators to determine our course of action including seeking approval of Angiomax in Europe on a country-by-country basis. We may not be able to obtain approval from any or all of the jurisdictions in which we seek approval to market Angiomax. Obtaining foreign approvals may require additional trials and additional expense. Page 14 THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS MAY BE TERMINATED OR DELAYED, AND THE COSTS OF DEVELOPMENT AND COMMERCIALIZATION MAY INCREASE, IF THIRD PARTIES WHO WE RELY ON TO MANUFACTURE AND SUPPORT THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS DO NOT FULFILL THEIR OBLIGATIONS Our development and commercialization strategy entails entering into arrangements with corporate and academic collaborators, contract research organizations, distributors, third-party manufacturers, licensors, licensees and others to conduct development work, manage our clinical trials and manufacture, market and sell our products. Although we manage these services, we do not have the expertise or the resources to conduct such activities on our own and, as a result, are particularly dependent on third parties in most areas. We may not be able to maintain our existing arrangements with respect to the commercialization of Angiomax or establish and maintain arrangements to develop and commercialize any additional products on terms that are acceptable to us. Any current or future arrangements for the development and commercialization of our products may not be successful. If we are not able to establish or maintain our agreements relating to Angiomax or any additional products on terms which we deem favorable, our financial condition would be materially adversely affected. Third parties may not perform their obligations as expected. The amount and timing of resources that third parties devote to developing, manufacturing and commercializing our products may not be within our control. Furthermore, our interests may differ from those of third parties that manufacture or commercialize our products. Disagreements that may arise with these third parties could delay or lead to the termination of the development or commercialization of our product candidates, or result in litigation or arbitration, which would be time consuming and expensive. If any third party that manufactures or supports the development or commercialization of our products breaches or terminates its agreement with us, or fails to conduct its activities in a timely manner, such breach, termination or failure could: - - delay or otherwise adversely impact the development or commercialization of Angiomax, our other product candidates or any additional product candidates that we may acquire or develop; - - require us to undertake unforeseen additional responsibilities or devote unforeseen additional resources to the development or commercialization of our products; or - - result in the termination of the development or commercialization of our products. WE ARE CURRENTLY DEPENDENT ON A SINGLE SUPPLIER FOR THE PRODUCTION OF ANGIOMAX BULK DRUG SUBSTANCE AND A DIFFERENT SINGLE SUPPLIER TO CARRY OUT ALL FILL-FINISH ACTIVITIES FOR ANGIOMAX Currently, we obtain all of our Angiomax bulk drug substance from one manufacturer, UCB Bioproducts S.A., and rely on another manufacturer, Ben Venue Laboratories, Inc., to carry out all fill-finish activities for Angiomax, which includes final formulation and transfer of the drug into vials where it is then freeze-dried and sealed. The FDA requires that all manufacturers of pharmaceuticals for sale in or from the United States achieve and maintain compliance with the FDA's current Good Manufacturing Practice, or cGMP, regulations and guidelines. There are a limited number of manufacturers that operate under cGMP regulations capable of manufacturing Angiomax. The FDA has inspected Ben Venue Laboratories for cGMP compliance for the manufacture of Angiomax and UCB Bioproducts for cGMP compliance in the manufacture of Page 15 pharmaceutical ingredients generally. Ben Venue Laboratories and UCB Bioproducts have informed us that they have no material deficiencies in cGMP compliance. We do not currently have alternative sources for production of Angiomax bulk drug substance or to carry out fill-finish activities. In the event that either of our current manufacturers is unable to carry out its respective manufacturing obligations to our satisfaction, we may be unable to obtain alternative manufacturing, or obtain such manufacturing on commercially reasonable terms or on a timely basis. Any delays in the manufacturing process may adversely impact our ability to meet commercial demands for Angiomax on a timely basis and supply product for clinical trials of Angiomax. IF WE DO NOT SUCCEED IN DEVELOPING A SECOND-GENERATION PROCESS FOR THE PRODUCTION OF BULK ANGIOMAX DRUG SUBSTANCE, OUR GROSS MARGINS MAY BE BELOW INDUSTRY AVERAGES We are currently developing with UCB Bioproducts a second-generation process for the production of bulk Angiomax drug substance. This process involves limited changes to the early manufacturing steps of our current process in order to improve our gross margins on the future sales of Angiomax. If we cannot develop the process successfully or regulatory approval of the process is not obtained or is delayed, then our ability to improve our gross margins on future sales of Angiomax may be limited. CLINICAL TRIALS OF OUR PRODUCT CANDIDATES ARE EXPENSIVE AND TIME CONSUMING, AND THE RESULTS OF THESE TRIALS ARE UNCERTAIN Before we can obtain regulatory approvals for the commercial sale of any product that we wish to develop, we will be required to complete pre-clinical studies and extensive clinical trials in humans to demonstrate the safety and efficacy of such product. We are currently conducting clinical trials of Angiomax for use in the treatment of ischemic heart disease. There are numerous factors that could delay our clinical trials or prevent us from completing these trials successfully. We, or the FDA, may suspend a clinical trial at any time on various grounds, including a finding that patients are being exposed to unacceptable health risks. The rate of completion of clinical trials depends in part upon the rate of enrollment of patients. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments. In particular, the patient population targeted by some of our clinical trials may be small. Delays in future planned patient enrollment may result in increased costs and program delays. In addition, clinical trials, if completed, may not show any potential product to be safe or effective. Results obtained in pre-clinical studies or early clinical trials are not always indicative of results that will be obtained in later clinical trials. Moreover, data obtained from pre-clinical studies and clinical trials may be subject to varying interpretations. As a result, the FDA or other applicable regulatory authorities may not approve a product in a timely fashion, or at all. OUR FAILURE TO ACQUIRE AND DEVELOP ADDITIONAL PRODUCT CANDIDATES OR APPROVED PRODUCTS WILL IMPAIR OUR ABILITY TO GROW As part of our growth strategy, we intend to acquire and develop additional pharmaceutical product candidates or approved products. The success of this strategy depends upon our ability Page 16 to identify, select and acquire pharmaceutical products in late-stage development or that have been approved that meet the criteria we have established. Because we neither have, nor intend to establish, internal scientific research capabilities, we are dependent upon pharmaceutical and biotechnology companies and other researchers to sell or license product candidates to us. Identifying suitable product candidates and approved products and proposing, negotiating and implementing an economically viable acquisition is a lengthy and complex process. In addition, other companies, including those with substantially greater financial, marketing and sales resources, may compete with us for the acquisition of product candidates and approved products. We may not be able to acquire the rights to additional product candidates and approved products on terms that we find acceptable, or at all. IF WE BREACH ANY OF THE AGREEMENTS UNDER WHICH WE LICENSE COMMERCIALIZATION RIGHTS TO PRODUCTS OR TECHNOLOGY FROM OTHERS, WE COULD LOSE LICENSE RIGHTS THAT ARE IMPORTANT TO OUR BUSINESS We license commercialization rights to products and technology that are important to our business, and we expect to enter into additional licenses in the future. For instance, we acquired our first three products through exclusive licensing arrangements. Under these licenses we are subject to commercialization and development, sublicensing, royalty, insurance and other obligations. If we fail to comply with any of these requirements, or otherwise breach these license agreements, the licensor may have the right to terminate the license in whole or to terminate the exclusive nature of the license. In addition, upon the termination of the license we may be required to license to the licensor the intellectual property that we developed. OUR ABILITY TO MANAGE OUR BUSINESS EFFECTIVELY COULD BE HAMPERED IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND CONSULTANTS The biopharmaceutical industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on our ability to attract and retain qualified personnel for the acquisition, development and commercialization activities we conduct or sponsor. If we lose one or more of the members of our senior management, including our executive chairman, Dr. Clive A. Meanwell, or our chief executive officer, David M. Stack, or other key employees or consultants, our business and operating results could be seriously harmed. Our ability to replace these key employees may be difficult and may take an extended period of time because of the limited number of individuals in the biotechnology industry with the breadth of skills and experience required to develop and commercialize products successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate such additional personnel. WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING, DEVELOPING OR COMMERCIALIZING COMPETING PRODUCTS BEFORE OR MORE SUCCESSFULLY THAN WE DO The biopharmaceutical industry is highly competitive. Our success will depend on our ability to acquire and develop products and apply technology and our ability to establish and maintain a market for our products. Potential competitors in the United States and other countries include major pharmaceutical and chemical companies, specialized biotechnology firms, universities and other research institutions. Many of our competitors have substantially greater research and development capabilities and experience, and greater manufacturing, marketing and financial resources than we do. Accordingly, our competitors may develop products or other novel technologies that are more effective, safer or less costly than existing products or technologies or Page 17 products or technologies that are being developed by us or may obtain FDA approval for products more rapidly than we are able. Technological development by others may render our products or product candidates noncompetitive. We may not be successful in establishing or maintaining technological competitiveness. BECAUSE THE MARKET FOR THROMBIN INHIBITORS IS COMPETITIVE, OUR PRODUCT MAY NOT OBTAIN WIDESPREAD USE We have positioned Angiomax as a replacement for heparin, which is widely used and inexpensive, for use in patients with ischemic heart disease. Because heparin is inexpensive and has been widely used for many years, medical decision-makers may be hesitant to adopt our alternative treatment. In addition, due to the high incidence and severity of cardiovascular diseases, the market for thrombin inhibitors is large and competition is intense and growing. There are a number of thrombin inhibitors currently on the market, awaiting regulatory approval and in development, including orally administered agents. THE LIMITED RESOURCES OF THIRD-PARTY PAYERS MAY LIMIT THE USE OF OUR PRODUCTS In general, anticoagulant drugs may be classified in three groups: drugs that directly or indirectly target and inhibit thrombin, drugs that target and inhibit platelets and drugs that break down fibrin. Because each group of anticoagulants acts on different components of the clotting process, we believe that there will be continued clinical work to determine the best combination of drugs for clinical use. We expect Angiomax to be used with aspirin alone or in conjunction with other therapies. Although we are not positioning Angiomax as a direct competitor to platelet inhibitors or fibrinolytic drugs, platelet inhibitors and fibrinolytic drugs may compete with Angiomax for the use of hospital financial resources. Many U.S. hospitals receive a fixed reimbursement amount per procedure for the angioplasties and other treatment therapies they perform. Because this amount is not based on the actual expenses the hospital incurs, U.S. hospitals may have to choose among Angiomax, platelet inhibitors and fibrinolytic drugs. FLUCTUATIONS IN OUR OPERATING RESULTS COULD AFFECT THE PRICE OF OUR COMMON STOCK Our operating results may vary from period to period based on the amount and timing of sales of Angiomax to customers in the United States, the availability and timely delivery of a sufficient supply of Angiomax, the timing and expenses of clinical trials, the availability and timing of third-party reimbursement and the timing of approval for our product candidates. If our operating results do not match the expectations of securities analysts and investors as a result of these and other factors, the trading price of our common stock may fluctuate. Risks Related to Our Industry IF WE DO NOT OBTAIN FDA APPROVALS FOR OUR PRODUCTS OR COMPLY WITH GOVERNMENT REGULATIONS, WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS AND MAY BE SUBJECT TO STRINGENT PENALTIES Except for Angiomax, which has been approved for sale in the United States and New Zealand, we do not have a product approved for sale in the United States or any foreign market. We must obtain approval from the FDA in order to sell our product candidates in the United States and from foreign regulatory authorities in order to sell our product candidates in other countries. We must successfully complete our clinical trials and demonstrate manufacturing capability before we can file with the FDA for approval to sell our products. The FDA could require us to repeat clinical trials as part of the regulatory review process. Delays in obtaining or failure to obtain regulatory approvals may: Page 18 - - delay or prevent the successful commercialization of any of our product candidates; - - diminish our competitive advantage; and - - defer or decrease our receipt of revenues or royalties. The regulatory review and approval process is lengthy, expensive and uncertain. Extensive pre-clinical data, clinical data and supporting information must be submitted to the FDA for each additional indication to obtain such approvals, and we cannot be certain when we will receive these regulatory approvals, if ever. In addition to initial regulatory approval, our products and product candidates will be subject to extensive and rigorous ongoing domestic and foreign government regulation. Any approvals, once obtained, may be withdrawn if compliance with regulatory requirements is not maintained or safety problems are identified. Failure to comply with these requirements may also subject us to stringent penalties. WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN PATENT PROTECTION FOR OUR PRODUCTS, AND WE MAY INFRINGE THE PATENT RIGHTS OF OTHERS The patent positions of pharmaceutical and biotechnology companies like us are generally uncertain and involve complex legal, scientific and factual issues. Our success depends significantly on our ability to: - - obtain patents; - - protect trade secrets; - - operate without infringing the proprietary rights of others; and - - prevent others from infringing our proprietary rights. We may not have any patents issued from any patent applications that we own or license. If patents are granted, the claims allowed may not be sufficiently broad to protect our technology. In addition, issued patents that we own or license may be challenged, invalidated or circumvented. Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States are maintained in secrecy until patents issue, others may have filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications. In all, we exclusively license 10 issued U.S. patents and a broadly filed portfolio of corresponding foreign patents and patent applications. We have not yet filed any independent patent applications. We may not hold proprietary rights to some patents related to our product candidates. In some cases, others may own or control these patents. As a result, we may be required to obtain licenses under third-party patents to market some of our product candidates. If licenses are not available to us on acceptable terms, we will not be able to market these products. Page 19 We may become a party to patent litigation or other proceedings regarding intellectual property rights. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. If any patent litigation or other intellectual property proceeding in which we are involved is resolved unfavorably to us, we may be enjoined from manufacturing or selling our products without a license from the other party, and we may be held liable for significant damages. We may not be able to obtain any required license on commercially acceptable terms, or at all. IF WE ARE NOT ABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US We rely significantly upon unpatented proprietary technology, information, processes and know-how. We seek to protect this information by confidentiality agreements with our employees, consultants and other third-party contractors, as well as through other security measures. We may not have adequate remedies for any breach by a party to these confidentiality agreements. In addition, our competitors may learn or independently develop our trade secrets. WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS IF WE ARE UNABLE TO OBTAIN INSURANCE AT ACCEPTABLE COSTS AND ADEQUATE LEVELS OR OTHERWISE PROTECT OURSELVES AGAINST POTENTIAL PRODUCT LIABILITY CLAIMS Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of human healthcare products. Product liability claims might be made by consumers, health care providers or pharmaceutical companies or others that sell our products. These claims may be made even with respect to those products that are manufactured in licensed and regulated facilities or otherwise possess regulatory approval for commercial sale. These claims could expose us to significant liabilities that could prevent or interfere with the development or commercialization of our products. Product liability claims could require us to spend significant time and money in litigation or pay significant damages. We are currently covered, with respect to our commercial sales in the United States and New Zealand and our clinical trials, by primary product liability insurance in the amount of $20.0 million per occurrence and $20.0 million annually in the aggregate on a claims-made basis. This coverage may not be adequate to cover any product liability claims. As we commercialize our products, we may wish to increase our product liability insurance. Product liability coverage is expensive. In the future, we may not be able to maintain or obtain such product liability insurance on reasonable terms, at a reasonable cost or in sufficient amounts to protect us against losses due to product liability claims. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is confined to our cash, cash equivalents and marketable securities. We place our investments in high-quality financial instruments, primarily money market funds and corporate debt securities with maturities or auction dates of less than one year, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. At September 30, 2001, we held $69.2 million in cash, cash equivalents, and marketable securities, all due within one year, which had an average interest rate of approximately 4.0%. We do not believe that a 10% increase or decrease in interest rates in effect at September 30, 2001 would have a material impact on our results of operations or cash flows. Page 20 Most of our transactions are conducted in U.S. dollars. We do have certain development and commercialization agreements with vendors located outside the United States. Transactions under certain of these agreements are conducted in U.S. dollars, subject to adjustment based on significant fluctuations in currency exchange rates. Transactions under certain other of these agreements are conducted in the local foreign currency. We do not believe that a 10% increase or decrease in foreign currency exchange rates would have a material impact on our results of operations or cash flows. Page 21 PART II. OTHER INFORMATION ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS In our IPO, we sold 6.9 million shares of common stock (including an over-allotment option of 900,000 shares) pursuant to a Registration Statement on Form S-1 (File No. 333-37404) that was declared effective by the Securities and Exchange Commission on August 7, 2000. Of the aggregate net proceeds of approximately $101.4 million from the IPO, from August 7, 2000 through September 30, 2001, we used approximately $79.0 million for general corporate purposes, including operations, working capital and capital expenditures, with the remaining $22.4 million in proceeds invested in cash, cash equivalents and marketable securities. Of the approximately $79.0 million, we have paid approximately $332,000 to Stack Pharmaceuticals, Inc., and approximately $6.3 million to Innovex, Inc. Prior to becoming our President and Chief Executive Officer, David M. Stack was the President and General Partner of Stack Pharmaceuticals and a Senior Advisor to the Chief Executive Officer of Innovex. Other than these payments, none of the net proceeds of the IPO has been paid by us, directly or indirectly, to any director, officer or general partner of us, or any of their associates, or to any person owning ten percent or more of any class of our equity securities, or any of our affiliates. Page 22 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this Quarterly Report, which Exhibit Index is incorporated herein by this reference. (b) Reports on Form 8-K On July 26, 2001, the Company filed a Current Report on Form 8-K with the SEC in connection with its announcement of financial results for the quarter and six-month periods ended June 30, 2001. On September 4, 2001, the Company filed a Current Report on Form 8-K with the SEC in connection with its announcement of the results of the Hirulog Early Reperfusion/Occlusion-2, or HERO-2, clinical trial program. On September 27, 2001, the Company filed a Current Report on Form 8-K with the SEC in connection with its announcement of the election of Clive A. Meanwell to the position of Executive Chairman and promotion of David M. Stack to President and Chief Executive Officer. Page 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MEDICINES COMPANY Date: November 14, 2001 By: /s/ Peyton J. Marshall ------------------------------ Peyton J. Marshall Chief Financial Officer Page 24 EXHIBIT INDEX
Exhibit Number Description -------------- ----------- 10.1 Assignment and Assumption of Lease, dated October 18, 2001, by and between the Registrant and Stack Pharmaceuticals, Inc. 10.2 Termination Agreement, dated November 1, 2001, by and between the Registrant and Stack Pharmaceuticals, Inc. relating to the Services Agreement dated April 1, 2000, as amended. 10.3 Amendment to Employment Agreement, dated July 10, 2001, by and between the Registrant and David M. Stack. 10.4 Amended and Restated Employment Agreement, dated November 1, 2001, by and between the Registrant and David M. Stack.
Page 25 EX-10.1 3 b40875mcex10-1.txt ASSIGNMENT & ASSUMPTION OF LEASE EXHIBIT 10.1 ASSIGNMENT AND ASSUMPTION OF LEASE THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is made this 18th day of October, 2001 from STACK PHARMACEUTICALS, INC., having an office at 5 Sylvan Way, Parsippany, New Jersey 07054 ("Assignor") to THE MEDICINES COMPANY, having an office at 5 Sylvan Way, Parsippany, New Jersey 07054 ("Assignee"). W-I-T-N-E-S-S-E-T-H WHEREAS, Assignor is the tenant under a lease dated February 28, 2000 (the "Lease"), between Assignor and MACK-CALI MORRIS REALTY, L.L.C., whose address is 11 Commerce Drive, Cranford, New Jersey 07016 ("Landlord") for certain property consisting of approximately 2,358 rentable square feet of second floor space in the office building located at 5 Sylvan Way, Parsippany, New Jersey and further identified on Schedule A attached hereto (the "Premises"); and WHEREAS, Assignor has agreed to assign and Assignee has agreed to assume all of Assignor's right, title and interest, as tenant, in and to the Lease and the Premises. NOW, THEREFORE, for valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, it is agreed: 1. ASSIGNMENT BY ASSIGNOR. Assignor hereby assigns to Assignee, its heirs, successors and assigns, all of Assignor's right, title and interest in and to the Lease and Premises, effective as of November 1, 2001 (the "Effective Date"). 2. ASSUMPTION BY ASSIGNEE. As of the Effective Date, Assignee hereby assumes the Lease and all conditions, covenants, and obligations thereunder imposed on Assignor and agrees to keep and perform all such conditions, covenants and obligations in the manner and within the time periods set forth in the Lease. 3. USE. Assignee shall use the Premises for general office purposes in accordance with the Lease. 4. NOTICES. As of the Effective Date, all notices to the tenant required by the Lease shall be forwarded to The Medicines Company, 5 Sylvan Way, Parsippany, New Jersey 07054, attention: Mr. David Stack. INTENDING TO BE LEGALLY BOUND, this Assignment has been duly executed as of the date first above appearing. WITNESS: ASSIGNOR: STACK PHARMACEUTICALS, INC. /S/ MELINDA POPOLLA BY: /S/ DAVID STACK - ------------------------ ------------------------------ NAME: DAVID STACK TITLE: PRESIDENT ASSIGNEE: THE MEDICINES COMPANY /S/ KAREN A. WEBER BY: /S/ GLENN SBLENDORIO - ------------------------ ------------------------------ NAME: GLENN SBLENDORIO TITLE: SVP BUSINESS DEVELOPMENT LEASE FROM: MACK-CALI MORRIS REALTY L.L.C. LESSOR TO: STACK PHARMACEUTICALS, INC. LESSEE BUILDING: 5 SYLVAN WAY PARSIPPANY, NEW JERSEY TABLE OF CONTENTS 1. DESCRIPTION........................................................... 4 2. TERM.................................................................. 4 3. BASIC RENT............................................................ 4 4. USE AND OCCUPANCY..................................................... 4 5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL............................. 4 6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS................................ 7 7. ACTIVITIES INCREASING FIRE INSURANCE RATES............................ 7 8. ASSIGNMENT AND SUBLEASE............................................... 7 9. COMPLIANCE WITH RULES AND REGULATIONS................................. 10 10. DAMAGES TO BUILDING................................................... 10 11. EMINENT DOMAIN........................................................ 11 12. INSOLVENCY OF LESSEE.................................................. 11 13. LESSOR'S REMEDIES ON DEFAULT.......................................... 12 14. DEFICIENCY............................................................ 12 15. SUBORDINATION OF LEASE................................................ 13 16. SECURITY DEPOSIT...................................................... 13 17. RIGHT TO CURE LESSEE'S BREACH......................................... 14 18. MECHANIC'S LIENS...................................................... 14 19. RIGHT TO INSPECT AND REPAIR........................................... 14 20. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION................ 14 21. INTERRUPTION OF SERVICES OR USE....................................... 15 22. BUILDING STANDARD OFFICE ELECTRICAL SERVICE........................... 15 23. ADDITIONAL RENT....................................................... 16 24. LESSEE'S ESTOPPEL..................................................... 19 25. HOLDOVER TENANCY...................................................... 19 26. RIGHT TO SHOW PREMISES................................................ 19 27. LESSOR'S WORK - LESSEE'S DRAWINGS..................................... 19 28. WAIVER OF TRIAL BY JURY............................................... 20 29. LATE CHARGE........................................................... 20 30. LESSEE'S INSURANCE.................................................... 20
i 31. NO OTHER REPRESENTATIONS.............................................. 22 32. QUIET ENJOYMENT....................................................... 22 33. INDEMNITY............................................................. 22 34. ARTICLE HEADINGS...................................................... 22 35. APPLICABILITY TO HEIRS AND ASSIGNS.................................... 22 36. OUTSIDE PARKING SPACES................................................ 23 37. LESSOR'S LIABILITY FOR LOSS OF PROPERTY............................... 23 38. PARTIAL INVALIDITY.................................................... 23 39. LESSEE'S BROKER....................................................... 23 40. PERSONAL LIABILITY.................................................... 23 41. NO OPTION............................................................. 24 42. DEFINITIONS........................................................... 24 43. LEASE COMMENCEMENT.................................................... 25 44. NOTICES............................................................... 25 45. ACCORD AND SATISFACTION............................................... 25 46. EFFECT OF WAIVERS..................................................... 25 47. LEASE CONDITION....................................................... 25 48. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE............................ 25 49. LESSOR'S RESERVED RIGHT............................................... 26 50. CORPORATE AUTHORITY................................................... 26 51. AFTER-HOURS USE....................................................... 26 52. LESSEE'S EXPANSION/RELOCATION......................................... 26 53. BUILDING PERMIT....................................................... 27
ii LEASE, is made the 28th day of February, 2000 between Mack-Cali Morris Realty L.L.C. ("Lessor") whose address is c/o Mack-Cali Realty Corporation, 11 Commerce Drive, Cranford, New Jersey 07016 and STACK PHARMACEUTICALS, INC. ("Lessee") with an office at 1 Robin Drive, Oak Ridge NJ 07438. PREAMBLE BASIC LEASE PROVISIONS AND DEFINITIONS In addition to other terms elsewhere defined in this Lease, the following terms whenever used in this Lease shall have only the meanings set forth in this section, unless such meanings are expressly modified, limited or expanded elsewhere herein. 1. ADDITIONAL RENT shall mean all sums in addition to Fixed Basic Rent payable by Lessee to Lessor pursuant to the provisions of the Lease. 2. BASE PERIOD COSTS shall mean the following: A. Base Operating Costs: Those Operating Costs incurred during Calendar Year 2000. B. Base Real Estate Taxes: Those Real Estate Taxes incurred during Calendar Year 2000. C. Base Utility and Energy Costs: Those Utility and Energy Costs incurred during Calendar Year 2000. 3. BUILDING shall mean 5 Sylvan Way, Parsippany, New Jersey. 4. BUILDING HOLIDAYS shall be those shown on Exhibit E. 5. BUILDING HOURS shall be Monday through Friday, 8:00 a.m. to 6:00 p.m., but excluding those holidays as set forth on Exhibit E attached hereto and made a part hereof, except that Common Facilities, lighting in the Building and Office Building Area shall be maintained for such additional hours as, in Lessor's sole judgment, is necessary or desirable to insure proper operating of the Building and Office Building Area. 6. COMMENCEMENT DATE is that date which is the earlier of (i) the date upon which Lessee, or anyone claiming under or through Lessee, commences using the Premises for the conduct of business or (ii) the date which is thirty-one (31) days after the date of this Lease. 7. DEMISED PREMISES OR PREMISES shall be deemed to be 2,358 gross rentable square feet on the second (2nd) floor as shown on Exhibit A hereto, which includes an allocable share of the Common Facilities as defined in Article 42(b). 8. EXHIBITS shall be the following, attached to this Lease and incorporated herein and made a part hereof. Exhibit A Location of Premises Exhibit A-1 Office Building Area Exhibit B Rules and Regulations Exhibit C Lessee's Work Exhibit C-1 Air Conditioning & Heating Design Standards Exhibit D Cleaning Services Exhibit E Building Holidays Exhibit F Tenant Estoppel Certificate Exhibit G Commencement Date Agreement Exhibit H Letter of Credit Form 1 9. EXPIRATION DATE shall be the last day of the month in which the day before the fifth (5th) anniversary of the Commencement Date occurs. 10. FIXED BASIC RENT shall mean: THREE HUNDRED FORTY-SEVEN THOUSAND EIGHT HUNDRED FIVE AND 0/100 DOLLARS ($347,805.00) for the Term payable as follows: A. Yearly Rate: $69,561.00 B. Monthly Installment: $ 5,796.75 11. LESSEE'S BROKER shall mean Peter Elliot New Jersey L.L.C. 12. LESSEE'S PERCENTAGE shall be 1.6% subject to adjustment as provided for in Article 42(d). 13. OFFICE BUILDING AREA is as set forth on Exhibit A-1. 14. PARKING SPACES shall mean a total of nine (9) unassigned surface parking spaces. 15. PERMITTED USE shall be general office use and for no other purpose. 16. POSSESSION DATE shall be the date of this Lease. At anytime after the Possession Date and prior to the Commencement Date, Lessee and its agents, servants, employees and contractors may enter the Premises for purposes of performing Lessee's work and alterations in compliance with Exhibit C attached hereto. Such entry shall constitute the agreement of Lessee that none of such parties nor their work, equipment, or materials will interfere with the work of Lessor in the Premises. All terms and conditions, other than the obligation to pay Basic Rent, shall be in full force and effect from the Possession Date to the Commencement Date. 17. SECURITY DEPOSIT shall be in the amount of THIRTY-FIVE THOUSAND SEVENTY-FIVE AND 25/100 DOLLARS ($35,075.25). Lessee may deliver to Lessor, in lieu of the cash deposit set forth in this paragraph an irrevocable negotiable letter of credit issued by and drawn upon such commercial bank selected by Lessee and acceptable to Lessor (at its sole discretion) and in form and content acceptable to Lessor (also at its sole discretion) (the form attached hereto as Exhibit H shall be deemed acceptable to Lessor) for the account of Lessor, in the amount of THIRTY-FIVE THOUSAND SEVENTY-FIVE AND 25/100 DOLLARS ($35,075.25). Said letter of credit shall be for a term of not less than 1 year and shall be renewed by Lessee (without notice from Lessor) no later than 45 days prior to its expiration, and the expiration of each replacement thereof, until Lessor shall be required to return the security to Lessee pursuant to the terms of this Lease but in no event earlier than 90 days after the Expiration Date, and each such renewed letter of credit shall be delivered to Lessor no later than 45 days prior to the expiration of the letter of credit then held by Lessor. If any portion of the security deposit shall be utilized by Lessor in the manner permitted by this Lease, Lessee shall, within five (5) days after request by Lessor, replenish the security account by depositing with Lessor, in cash or by letter of credit, an amount equal to that utilized by Lessor. Failure of Lessee to comply strictly with the provisions of this paragraph shall constitute a material breach of this Lease and Lessor shall be entitled to present the letter of credit then held by it for payment (without notice to Lessee). If the cash security is converted into a letter of credit, the provisions with respect to letters of credit shall apply (with the necessary changes in points of detail) to such letter of credit deposit. In the event of a bank failure or insolvency affecting the letter of credit, Lessee shall replace same within 20 days after being requested to do so by Lessor. Provided that this Lease is in full force and effect, Lessee has complied with each of its obligations under this Lease and the net worth of Lessee on each of the Reduction Dates (as such term is defined below) is not less than the net worth of Lessee on the date of this Lease, then on the last day of each of the first three Lease Years (each such date being a "Reduction Date"), the security deposit shall be reduced by SEVEN THOUSAND EIGHT HUNDRED TWENTY-SEVEN AND 25/100 DOLLARS ($7,827.25), so that the security deposit for the last two (2) Lease Years shall be ELEVEN THOUSAND FIVE HUNDRED NINETY-THREE AND 50/100 ($11,593.50). 2 18. TERM shall mean five (5) years from the Commencement Date, plus the number of days, if any, to have the lease expire on the last day of a calendar month, unless extended pursuant to any option contained herein. 3 W I T N E S S E T H For and in consideration of the covenants herein contained, and upon the terms and conditions herein set forth, Lessor and Lessee agree as follows: 1. DESCRIPTION: Lessor hereby leases to Lessee, and Lessee hereby hires from Lessor, the Premises as defined in the Preamble which includes an allocable share of the Common Facilities, as shown on the plan or plans, initialed by the parties hereto, marked Exhibit A attached hereto and made part of this Lease in the Building as defined in the Preamble, (hereinafter called the "Building") which is situated on that certain parcel of land (hereinafter called "Office Building Area") as described on Exhibit A-1 attached hereto and made part of this Lease, together, with the right to use in common with other lessees of the Building, their invitees, customers and employees, those public areas of the Common Facilities as hereinafter defined. 2. TERM: The Premises are leased for a term to commence on the Commencement Date, and to end at 12:00 midnight on the Expiration Date, all as defined in the Preamble. 3. BASIC RENT: The Lessee shall pay to the Lessor during the Term, the Fixed Basic Rent as defined in the Preamble (hereinafter called "Fixed Basic Rent") payable in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. The Fixed Basic Rent shall accrue at the Yearly Rate as defined in the Preamble and shall be payable, in advance, on the first day of each calendar month during the Term at the Monthly Installments as defined in the Preamble, except that a proportionately lesser sum may be paid for the first and last months of the Term of this Lease if the Term commences on a day other than the first day of the month, in accordance with the provisions of this Lease herein set forth. Lessor acknowledges receipt from Lessee of the first monthly installment by check, subject to collection, for Fixed Basic Rent for the first month of the Lease Term. Lessee shall pay Fixed Basic Rent, and any Additional Rent as hereinafter provided, to Lessor at Lessor's above stated address, or at such other place as Lessor may designate in writing, without demand and without counterclaim, deduction or set off. 4. USE AND OCCUPANCY: Lessee shall use and occupy the Premises for the Permitted Use as defined in the Preamble. If at any time during the Term of this Lease, Lessee adopts a policy prohibiting Lessee, its employees, agents or invitees from smoking within the Premises, Lessee shall establish a designated area within the Premises where Lessee shall permit smoking. Lessee shall establish such designated area at Lessee's sole expense in accordance with Article 6 of this Lease. Such designated area shall include, among other things, adequate area, ventilation and fire safety equipment. Lessee hereby acknowledges that such designated area is necessary and reasonable to prevent smoking by Lessee, Lessee's employees, agents and invitees in unauthorized areas of the Building or Common Facilities in violation of relevant fire and safety laws and regulations and to prevent fire hazards within the Premises. 5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL: (a) Lessee shall commit no act of waste and shall take good care of the Premises and the fixtures and appurtenances therein, and shall, in the use and occupancy of the Premises, 4 conform to all laws, orders and regulations of the federal, state and municipal governments or any of their departments affecting the Premises and with any and all environmental requirements resulting from the Lessee's particular use of the Premises, this covenant to survive the expiration or sooner termination of the Lease. Notwithstanding anything to the contrary contained in the Lease, Lessee shall not be required to make any repairs, alterations or modifications to the Premises as a result of any laws, orders and regulations of the federal, state and municipal governments or any of their departments affecting the Premises unless the need for such repairs, alterations or modifications arises from the particular manner in which Lessee uses the Premises, and repairs, alterations or modifications to the Premises as a result of any laws, orders and regulations of the federal, state and municipal governments or any of their departments affecting the Premises which are required of all owners and tenants generally, and do not arise from the particular manner in which an owner or tenant uses its premises, shall be undertaken by and at the sole cost and expense of Lessor and same may be included in Operating Costs pursuant to Article 23 of this Lease. Lessor shall, subject to the same being included in Operating Costs (except as expressly excluded in the immediately preceding sentence), make all necessary repairs to the Premises, Common Facilities and to the assigned parking areas, if any, except where the repair has been made necessary by misuse or neglect by Lessee or Lessee's agents, servants, visitors or licensees, in which event Lessor shall nevertheless make the repair but Lessee shall pay to Lessor, as Additional Rent, immediately upon demand, the costs therefor. All improvements made by Lessee to the Premises, which are so attached to the Premises, shall become the property of Lessor upon installation. Not later than the last day of the Term, Lessee shall, at Lessee's expense, remove all Lessee's personal property and those improvements made by Lessee which have not become the property of Lessor, including trade fixtures, cabinetwork, movable paneling, partitions and the like; repair all injury done by or in connection with the installation or removal of said property and improvements; and surrender the Premises in as good condition as they were at the beginning of the Term, reasonable wear and damage by fire, the elements, casualty or other cause not due to the misuse or neglect by Lessee, Lessee's agents, servants, visitors or licensees excepted. All other property of Lessee remaining on the Premises after the last day of the Term of this Lease shall be conclusively deemed abandoned and may be removed by Lessor, and Lessee shall reimburse Lessor for the cost of such removal. Lessor may have any such property stored at Lessee's risk and expense. ENVIRONMENTAL (b) COMPLIANCE WITH ENVIRONMENTAL LAWS. Lessee shall, at Lessee's own expense, promptly comply with each and every federal, state, county and municipal environmental law, ordinance, rule, regulation, order, directive and requirement, now or hereafter existing ("Environmental Laws"), applicable to the Premises, Lessee, Lessee's operations at the Premises, or all of them, except if there is any violation of Environmental Laws with regard to the Premises existing at the date of this Lease, Lessor shall comply therewith at its sole cost and expense, which shall not be included in Operating Costs. (c) ISRA COMPLIANCE. Lessee shall, at Lessee's own expense, comply with the Industrial Site Recovery Act, N.J. S.A. 13:1K-6 et seq., the regulations promulgated thereunder and any amending and successor legislation and regulations ("ISRA"), if and to the extent the need for such compliance is triggered by Lessee having become an Industrial Establishment (as defined in ISRA) with respect to its use of the Premises. (d) INFORMATION TO LESSOR. At no expense to Lessor, Lessee shall promptly provide all information and sign all documents reasonably requested by Lessor with respect to compliance with Environmental Laws. (e) LESSOR AUDIT. Lessee shall permit Lessor and its representatives access to the Premises, from time to time, to conduct an environmental assessment, investigation and sampling, all at Lessee's own expense. (f) LESSEE REMEDIATION. Should any assessment, investigation or sampling reveal the existence of any spill, discharge or placement of Contaminants in, on, under, or 5 about, or migrating from or onto the Premises, the Building or the Office Building Area, as a result of the action or omission of Lessee or a "Lessee Representative," then, in addition to being in default under this Lease and Lessor having all rights available to Lessor under this Lease and by law by reason of such default, Lessee shall, at Lessee's own expense, in accordance with Environmental Laws, undertake all action required by Lessor and any governmental authority, including, without limitation, promptly obtaining and delivering to Lessor an unconditional No Further Action Letter. For purposes of this Article, the term "Lessee's Representative" shall mean any shareholder, officer, director, member, partner, employee, agent, licensee, assignee, sublessee or invitee of Lessee, or any third party for whom Lessee is legally responsible. In no event shall any of Lessee's remedial action involve engineering or institutional controls, a groundwater classification exception area or well restriction area, and Lessee's remedial action shall meet the most stringent published or unpublished remediation standards for soil, surface water, groundwater and drinking water. Promptly upon completion of all required investigatory and remedial activities, Lessee shall, at Lessee's own expense, to Lessor's satisfaction, restore the affected areas of the Premises, the Building or the Office Building Area, as the case may be, from any damage or condition caused by the investigatory or remedial work. (g) ENVIRONMENTAL QUESTIONNAIRE. Upon Lessor's request, contemporaneously with the signing and delivery of this Lease, and thereafter upon renewal of the lease, if at all, Lessee shall complete, execute and deliver to Lessor an environmental questionnaire in form and substance reasonably satisfactory to Lessor. (h) ENVIRONMENTAL DOCUMENTS AND CONDITIONS. For purposes of this Article, the term "Environmental Documents" shall mean all environmental documentation concerning the Building or the Office Building Area, of which the Premises is a part, or its environs, in the possession or under the control of Lessee, including, without limitation, plans, reports, correspondence and submissions. During the term of this Lease and subsequently, promptly upon receipt by Lessee or Lessee's Representatives, Lessee shall deliver to Lessor all Environmental Documents concerning or generated by or on behalf of Lessee, whether currently or hereafter existing. In addition, Lessee shall promptly notify Lessor of any environmental condition of which Lessee has knowledge, which may exist in, on, under, or about, or may be migrating from or onto the Building or the Office Building Area. (i) LESSOR'S RIGHT TO PERFORM LESSEE'S OBLIGATIONS. Notwithstanding anything to the contrary set forth in this Lease, in the event, pursuant to this Lease, Lessee is required to undertake any sampling, assessment, investigation or remediation with respect to the Premises, the Building or the Office Building Area, as the case may be, then, at Lessor's discretion, Lessor shall have the right, upon notice to Lessee, from time to time, to perform such activities at Lessee's expense if Lessee has failed to do so with reasonable promptness, and all sums reasonably incurred by Lessor shall be paid by Lessee, as Additional Rent, upon demand. (j) INDEMNITY. Lessee shall indemnify, defend and hold harmless Lessor, Lessor's officers, directors, shareholders, employees and personal or legal representatives from and against any and all claims, liabilities, losses, damages, penalties and costs, foreseen or unforeseen, including, without limitation, counsel, engineering and other professional or expert fees, which an indemnified party may incur resulting directly or indirectly, wholly or partly from Lessee's actions or omissions with regard to Lessee's obligations under this Article. (k) SURVIVAL. This Article shall survive the expiration or earlier termination of this lease. Lessee's failure to abide by the terms of this Article shall be restrainable or enforceable, as the case may be, by injunction. (l) INTERPRETATION. The obligations imposed upon Lessee under subparagraphs (a) through (j) above are in addition to and are not intended to limit, but to expand upon, the obligations imposed upon Lessee under this Article 5. As used in this Article, the term "Contaminants" shall include, without limitation, any regulated substance, toxic substance, hazardous substance, hazardous waste, pollution, pollutant, contaminant, 6 petroleum, asbestos or polychlorinated biphenyls, as defined or referred to in any Environmental Laws. Where a law or regulation defines any of these terms more broadly then another, the broader definition shall apply. 6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS: Lessee shall not, without first obtaining the written consent of Lessor, make any alterations, additions or improvements in, to or about the Premises. 7. ACTIVITIES INCREASING FIRE INSURANCE RATES: Lessee shall not do or suffer anything to be done on the Premises which will increase the rate of fire insurance on the Building. 8. ASSIGNMENT AND SUBLEASE: Provided Lessee is not in default of this Lease beyond notice and expiration of applicable grace periods, Lessee may assign or sublease the within Lease to any party subject to the following: a. In the event Lessee desires to assign this Lease or sublease all or part of the Premises to any other party, the terms and conditions of such assignment or sublease shall be communicated to the Lessor in writing no less than sixty (60) days prior to the effective date of any such sublease or assignment, and, prior to such effective date, the Lessor shall have the option, exercisable in writing to the Lessee, to: (i) sublease such space from Lessee at the lower rate of (a) the rental rate per rentable square foot of Fixed Basic Rent and Additional Rent then payable pursuant to this Lease or (b) the terms set forth in the proposed sublease, (ii) recapture in the case of subletting, that portion of the Premises to be sublet or all of the Premises in the case of an assignment ("Recapture Space") so that such prospective sublessee or assignee shall then become the sole Lessee of Lessor hereunder, or (iii) recapture the Recapture Space for Lessor's own use and the within Lessee shall be fully released from any and all obligations hereunder with respect to the Recapture Space. b. In the event that the Lessor elects not to recapture the Lease or relet the Premises as hereinabove provided, the Lessee may nevertheless assign this Lease or sublet the whole or any portion of the Premises, subject to the Lessor's prior written consent, which consent shall not be unreasonably withheld or delayed, on the basis of the following terms and conditions: i. The Lessee shall provide to the Lessor the name and address of the assignee or sublessee. ii. The assignee shall assume, by written instrument, all of the obligations of this Lease, and a copy of such assumption agreement shall be furnished to the Lessor within ten (10) days of its execution. Any sublease shall expressly acknowledge that said sublessee's rights against Lessor shall be no greater than those of Lessee. Lessee further agrees that notwithstanding any such subletting, no other and further subletting of the Premises by Lessee or any person claiming through or under Lessee shall or will be made except upon compliance with and subject to the provisions of this Article 8. iii. Each sublease shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subordinate, and that in the event of default by Lessee under this Lease, Lessor may, at its option, take over all of the right, title and interest of Lessee, as sublessor, under such sublease, and such sublessee shall, at Lessor's option, attorn to Lessor pursuant to the then executory provisions of such sublease, except that Lessor shall not (i) be liable for any previous act or omission of Lessee under such 7 sublease or, (ii) be subject to any offset not expressly provided in such sublease which theretofore accrued to such sublease to which Lessor has not specifically consented in writing or by any previous prepayment of more than one month's rent. iv. The Lessee and each assignee shall be and remain liable for the observance of all the covenants and provisions of this Lease, including, but not limited to, the payment of Fixed Basic Rent and Additional Rent reserved herein, through the entire Term of this Lease, as the same may be renewed, extended or otherwise modified. v. The Lessee and any assignee shall promptly pay to Lessor any consideration received for any assignment and/or all of the rent, as and when received, in excess of the Rent required to be paid by Lessee for the area sublet computed on the basis of an average square foot rent for the gross square footage Lessee has leased. vi. In any event, the acceptance by the Lessor of any rent from the assignee or from any of the subtenants or the failure of the Lessor to insist upon a strict performance of any of the terms, conditions and covenants herein shall not release the Lessee herein, nor any assignee assuming this Lease, from any and all of the obligations herein during and for the entire Term of this Lease. vii. In Lessor's reasonable judgment, the proposed assignee or subtenant is engaged in a business or activity, and the Premises, or the relevant part thereof, will be used in a manner, which (a) is in keeping with the then standard of the Building and (b) is limited to the use of the Premises as general offices. viii. The proposed assignee or subtenant shall be an entity which has existed for at least one (1) year and is not then an occupant of any part of the Building or any other building then owned by Lessor within a five-mile radius of the Building. ix. The proposed assignee or subtenant is not an entity or a person with whom Lessor is or has been, within the preceding twelve (12) month period, negotiating to lease space in the Building. x. There shall not be more than one (1) subtenant in the Premises. xi. Lessee shall not advertise the subtenancy for less than the then current market rent per rentable square foot for the Premises as though the Premises were vacant. xii. Lessee shall not have (a) publicly advertised the availability of the Premises without prior notice to and approval by Lessor, nor shall any advertisement state the name (as distinguished from the address) of the Building or (b) listed the Premises for subletting or assignment with other than a broker, agent or representative who waives any entitlement to a commission or other fee from Lessor in the event of a recapturing of the Premises; xiii. The proposed occupancy shall not, in Lessor's reasonable opinion, increase the density of population using the Demised Premises to exceed one (1) person per 250 gross rentable square feet of space or exceed the parking allocation presently provided for in this Lease; xiv. The proposed assignee or subtenant shall only use the Premises for general offices and shall not be engaged in any of the following: (a) educational, including but not limited to, instructional facilities and correspondence schools; (b) employment agencies; 8 (c) model agencies; (d) photographic studios or laboratories; (e) spas, health, physical fitness or exercise salons; (f) small loan offices, (g) real estate brokerage or real estate sales offices open to the general public or construction offices; (h) medical or dental facilities, including professional offices, treatment facilities, dispensaries or laboratories; (i) federal, state or local government offices; (j) so-called boiler room operations; (k) retail stock brokerage offices; and (l) religious organizations making facilities available to congregations for uses other than business purposes. xv. The proposed assignee or subtenant shall not be entitled, directly or indirectly, to diplomatic or sovereign immunity and shall be subject to the service of process in, and the jurisdiction of, the state courts of New Jersey. xvi. Lessor shall require a FIVE HUNDRED AND 00/100 DOLLAR ($500.00) payment to cover its handling charges for each request for consent to any sublet or assignment prior to its consideration of the same. Lessee acknowledges that its sole remedy with respect to any assertion that Lessor's failure to consent to any sublet or assignment is unreasonable shall be the remedy of specific performance and Lessee shall have no other claim or cause of action against Lessor as a result of Lessor's actions in refusing to consent thereto. [See Following Page 9A] c. If Lessee is a corporation other than a corporation whose stock is listed and traded on a nationally recognized stock exchange, the provisions of Subsection a. shall apply to a transfer (however accomplished, whether in a single transaction or in a series of related or unrelated transactions) of stock (or any other mechanism such as, by way of example, the issuance of additional stock, a stock voting agreement or change in class(es) of stock) which results in a change of control of Lessee as if such transfer of stock (or other mechanism) which results in a change of control of Lessee were an assignment of this Lease, and if Lessee is a partnership or joint venture, said provisions shall apply with respect to a transfer (by one or more transfers) of an interest in the distributions of profits and losses of such partnership or joint venture (or other mechanism, such as, by way of example, the creation of additional general partnership or limited partnership interests) which results in a change of control of such a partnership or joint venture, as if such transfer of an interest in the distributions of profits and losses of such partnership or joint venture which results in a change of control of such partnership or joint venture were an assignment of this Lease; but said provisions shall not apply to transactions with a corporation or other entity into or with which Lessee is merged or consolidated or to which all or substantially all of Lessee's assets are transferred or to any corporation or other entity which controls or is controlled by Lessee or is under common control with Lessee, provided that in the event of such merger, consolidation or transfer of all or substantially all of Lessee's assets (i) the successor to Lessee has a net worth computed in accordance with generally accepted accounting principles at least equal to the greater of (1) the net worth of Lessee immediately prior to such merger, consolidation or transfer, or (2) the net worth of Lessee herein named on the date of this Lease, and (ii) proof satisfactory to Lessor of such net worth shall have been delivered to Lessor at least 10 days prior to the effective date of any such transaction. d. In the event that any or all of Lessee's interest in the Premises and/or this Lease is transferred by operation of law to any trustee, receiver, or other representative or agent of Lessee, or to Lessee as a debtor in possession, and subsequently any or all of Lessee's interest in the Premises and/or this Lease is offered or to be offered by Lessee or any trustee, receiver, or other representative or agent of Lessee as to its estate or property (such person, firm or entity being hereinafter referred to as the "Grantor"), for assignment, conveyance, lease, or other disposition to a person, firm 9 The following shall be deemed added to Section 8(b)(xvi) of this Lease: Notwithstanding the foregoing, if it is judicially determined that Lessor has acted in bad faith, Lessee's remedies shall not be limited to specific performance as set forth above. -9A- or entity other than Lessor (each such transaction being hereinafter referred to as a "Disposition"), it is agreed that Lessor has and shall have a right of first refusal to purchase, take, or otherwise acquire, the same upon the same terms and conditions as the Grantor thereof shall accept upon such Disposition to such other person, firm, or entity; and as to each such Disposition the Grantor shall give written notice to Lessor in reasonable detail of all of the terms and conditions of such Disposition within twenty (20) days next following its determination to accept the same but prior to accepting the same, and Grantor shall not make the Disposition until and unless Lessor has failed or refused to accept such right of first refusal as to the Disposition, as set forth herein. Lessor shall have sixty (60) days next following its receipt of the written notice as to such Disposition in which to exercise the option to acquire Lessee's interest by such Disposition, and the exercise of the option by Lessor shall be effected by notice to that effect sent to the Grantor; but nothing herein shall require Lessor to accept a particular Disposition or any Disposition, nor does the rejection of any one such offer of first refusal constitute a waiver or release of the obligation of the Grantor to submit other offers hereunder to Lessor. In the event Lessor accepts such offer of first refusal, the transaction shall be consummated pursuant to the terms and conditions of the Disposition described in the notice to Lessor. In the event Lessor rejects such offer of first refusal, Grantor may consummate the Disposition with such other person, firm, or entity; but any decrease in price of more than two percent (2%) of the price sought from Lessor or any change in the terms of payment for such Disposition shall constitute a new transaction requiring a further option of first refusal to be given to Lessor hereunder. e. Without limiting any of the provisions of Articles 12 and 13, if pursuant to the Federal Bankruptcy Code (herein referred to as the "Code"), or any similar law hereafter enacted having the same general purpose, Lessee is permitted to assign this Lease notwithstanding the restrictions contained in this Lease, adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean the deposit of cash security in an amount equal to the sum of one year's Fixed Basic Rent plus an amount equal to the Additional Rent for the calendar year preceding the year in which such assignment is intended to become effective, which deposit shall be held by Lessor for the balance of the Term, without interest, as security for the full performance of all of Lessee's obligations under this Lease, to be held and applied in the manner specified for security in Article 16. f. Except as specifically set forth above, no portion of the Premises or of Lessee's interest in this Lease may be acquired by any other person or entity, whether by assignment, mortgage, sublease, transfer, operation of law or act of the Lessee, nor shall Lessee pledge its interest in this Lease or in any security deposit required hereunder. 9. COMPLIANCE WITH RULES AND REGULATIONS: Lessee shall observe and comply with the rules and regulations hereinafter set forth in Exhibit B attached hereto and made a part hereof and with such further reasonable rules and regulations as Lessor may prescribe, on written notice to the Lessee, for the safety, care and cleanliness of the Building and the comfort, quiet and convenience of other occupants of the Building. Lessee shall not place a load upon any floor of the Premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Lessor reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Lessee, at Lessee's expense, in settings sufficient, in Lessor's judgement, to absorb and prevent vibration, noise and annoyance. 10. DAMAGES TO BUILDING: If the Building is damaged by fire or any other cause to such extent the cost of restoration, as reasonably estimated by Lessor, will equal or exceed twenty-five percent (25%) of the 10 replacement value of the Building (exclusive of foundations) just prior to the occurrence of the damage, then Lessor may, no later than the sixtieth (60th) day following the date of damage, give Lessee a notice of election to terminate this Lease, or if the cost of restoration will equal or exceed fifty percent (50%) of such replacement value and if the Premises shall not be reasonably usable for the purpose for which they are leased hereunder, or if restoration of the damage will require more than one hundred eighty (180) days to complete or if such damage is not fully repaired and reasonable access to the Premises restored within one hundred eighty (180) days from the date of damage, subject, however, to Force Majeure, then, in any such event, Lessee may, no later than the sixtieth (60th) day following the date of damage or following the end of said one hundred eighty (180) day period, give Lessor a notice of election to terminate this Lease. In either said event of election, this Lease shall be deemed to terminate on the thirtieth (30th) day after the giving of said notice, and Lessee shall surrender possession of the Premises within a reasonable time thereafter, and the Fixed Basic Rent, and any Additional Rent, shall be apportioned as of the date of said surrender and any Fixed Basic Rent or Additional Rent paid for any period beyond said date shall be repaid to Lessee, If the cost of restoration shall not entitle Lessor to terminate this Lease, or if, despite the cost, Lessor does not elect to terminate this Lease, Lessor shall restore the Building and the Premises with reasonable promptness, subject to Force Majeure, and Lessee shall have no right to terminate this Lease. Lessor need not restore fixtures and improvements owned by Lessee. In any case in which use of the Premises is affected by any damage to the Building, there shall be either an abatement or an equitable reduction in Fixed Basic Rent, depending on the period for which and the extent to which the Premises are not reasonably usable for the purpose for which they are leased hereunder. The words "restoration" and "restore" as used in this Article 10 shall include repairs. If the damage results from the fault of the Lessee, Lessee's agents, servants, visitors or licensees, Lessee shall not be entitled to any abatement or reduction in Fixed Basic Rent, except to the extent of any rent insurance received by Lessor. 11. EMINENT DOMAIN: If Lessee's use of the Premises is materially affected due to the taking by eminent domain of (a) the Premises or any part thereof or any estate therein; or (b) any other part of the Building; then, in either event, this Lease shall terminate on the date when title vests pursuant to such taking. The Fixed Basic Rent, and any Additional Rent, shall be apportioned as of said termination date and any Fixed Basic Rent or Additional Rent paid for any period beyond said date, shall be repaid to Lessee. Lessee shall not be entitled to any part of the award for such taking or any payment in lieu thereof, but Lessee may file a separate claim for any taking of fixtures and improvements owned by Lessee which have not become the Lessor's property, and for moving expenses, provided the same shall, in no way, affect or diminish Lessor's award. In the event of a partial taking which does not effect a termination of this Lease but does deprive Lessee of the use of a portion of the Premises, there shall either be an abatement or an equitable reduction of the Fixed Basic Rent, and an equitable adjustment reducing the Base Period Costs as hereinafter defined depending on the period for which and the extent to which the Premises so taken are not reasonably usable for the purpose for which they are leased hereunder. 12. INSOLVENCY OF LESSEE: Either (a) the appointment of a receiver to take possession of all or substantially all of the assets of Lessee, or, (b) a general assignment by Lessee for the benefit of creditors, or, (c) any action taken or suffered by Lessee under any insolvency or bankruptcy act, shall constitute a default of this Lease by Lessee, and Lessor may terminate this Lease forthwith and upon notice of such termination Lessee's right to possession of the Premises shall cease, and Lessee shall then quit and surrender the Premises to Lessor but Lessee shall remain liable as hereinafter provided in Article 14 hereof. 11 13. LESSOR'S REMEDIES ON DEFAULT: If Lessee defaults in the payment of Fixed Basic Rent, or any Additional Rent, or default in the performance of any of the other covenants and conditions hereof or permits the Premises to become deserted, abandoned or vacated, Lessor may give Lessee notice of such default, and if Lessee does not cure any Fixed Basic Rent or Additional Rent default within five (5) days or other default within fifteen (15) days after giving of such notice (or if such other default is of such nature that it cannot be completely cured within such period, Lessee does not commence such curing within such fifteen (15) days and thereafter proceed with reasonable diligence and in good faith to cure such default), then Lessor may terminate this Lease on not less than ten (10) days notice to Lessee, and on the date specified in said notice, Lessee's right to possession of the Premises shall cease but Lessee shall remain liable as hereinafter provided. If this Lease shall have been so terminated by Lessor pursuant to Articles 12 or 13 hereof, Lessor may at any time thereafter resume possession of the Premises by any lawful means and remove Lessee or other occupants and their effects. Lessee shall pay to Lessor, on demand, such expenses as Lessor may incur, including, without limitation, court costs and reasonable attorney's fees and disbursements, in enforcing the performance of any obligation of Lessee under this Lease. 14. DEFICIENCY: In any case where Lessor has recovered possession of the Premises by reason of Lessee's default, Lessor may, at Lessor's option, occupy the Premises or cause the Premises to be redecorated, altered, divided, consolidated with other adjoining premises or otherwise changed or prepared for reletting, and may relet the Premises or any part thereof, as agent of Lessee or otherwise, for a term or terms to expire prior to, at the same time as or subsequent to, the original Expiration Date of this Lease, at Lessor's option and receive the rent therefor. Rent so received shall be applied first to the payment of such expenses as Lessor may have incurred in connection with the recovery of possession, redecorating, altering, dividing, consolidating with other adjoining premises, or otherwise changing or preparing for reletting, and the reletting, including brokerage and reasonable attorney's fees, and then to the payment of damages in amounts equal to the Fixed Basic Rent and Additional Rent hereunder and to the costs and expenses of performance of the other covenants of Lessee as herein provided. Lessee agrees, in any such case, whether or not Lessor has relet, to pay to Lessor damages equal to the Fixed Basic Rent and Additional Rent from the date of such default to the date of expiration of the term demised and other sums herein agreed to be paid by Lessee, less the net proceeds of the reletting, if any, received by Lessor during the remainder of the unexpired term hereof, as ascertained from time to time, and the same shall be payable by Lessee on the several rent days above specified. Lessee shall not be entitled to any surplus accruing as a result of any such reletting. In reletting the Premises as aforesaid, Lessor may grant rent concessions, and Lessee shall not be credited therewith. No such reletting shall constitute a surrender and acceptance or be deemed evidence thereof. If Lessor elects, pursuant hereto, actually to occupy and use the Premises or any part thereof during any part of the balance of the Term as originally fixed or since extended, there shall be allowed against Lessee's obligation for rent or damages as herein defined, during the period of Lessor's occupancy, the reasonable value of such occupancy, not to exceed, in any event, the Fixed Basic Rent and Additional Rent herein reserved and such occupancy shall not be construed as a release of Lessee's liability hereunder. Alternatively, in any case where Lessor has recovered possession of the Premises by reason of Lessee's default, Lessor may at Lessor's option, and at any time thereafter, and without notice or other action by Lessor, and without prejudice to any other rights or remedies it might have hereunder or at law or equity, become entitled to recover from Lessee, as Damages for such breach, in addition to such other sums herein agreed to be paid by Lessee, to the date of re-entry, expiration and/or dispossess, an amount equal to the difference between the Fixed Basic Rent and Additional Rent reserved in this Lease from the date of such default to the date of Expiration of the original Term demised and the then fair and reasonable rental value of the Premises for the same period. Said Damages shall become due and payable to Lessor immediately upon such breach of this Lease and without regard to whether this Lease be terminated or not, and if this Lease be terminated, without regard to the manner in which it is terminated. In the computation of such Damages, the difference 12 between an installment of Fixed Basic Rent and Additional Rent thereafter becoming due and the fair and reasonable rental value of the Premises for the period for which such installment was payable shall be discounted to the date of such default at the rate of not more than six percent (6%) per annum. Lessee hereby waives all right of redemption to which Lessee or any person under Lessee might be entitled by any law now or hereafter in force. Lessor's remedies hereunder are in addition to any remedy allowed by law. 15. SUBORDINATION OF LEASE: This Lease shall, at Lessor's option, or at the option of any holder of any underlying lease or holder of any mortgages or trust deed, be subject and subordinate to any such underlying leases and to any such mortgages or trust deed which may now or hereafter affect the real property of which the Premises form a part, and also to all renewals, modifications, consolidations and replacements of said underlying leases and said mortgages or trust deed. Although no instrument or act on the part of Lessee shall be necessary to effectuate such subordination, Lessee will, nevertheless, execute and deliver such further instruments confirming such subordination of this Lease as may be desired by the holders of said mortgages or trust deed or by any of the lessors under such underlying leases. Lessee hereby appoints Lessor attorney-in-fact, irrevocably, to execute and deliver any such instrument for Lessee. If any underlying lease to which this Lease is subject terminates, Lessee shall, on timely request, attorn to the owner of the reversion. 16. SECURITY DEPOSIT: In the event of the insolvency of Lessee, or in the event of the entry of a judgment in any court against Lessee which is not discharged within thirty (30) days after entry, or in the event a petition is filed by or against Lessee under any chapter of the bankruptcy laws of the State of New Jersey or the United States of America, then in such event, Lessor may require the Lessee to deposit Security Deposit in an amount which in Lessor's sole judgment would be sufficient to adequately assure Lessee's performance of all of its obligations under this Lease including all payments subsequently accruing. Failure of Lessee to deposit the security required by this Article 16 within ten (10) days after Lessor's written demand shall constitute a material breach of this Lease by Lessee. If Lessor applies any part of said Security Deposit to cure any default of Lessee, Lessee shall, on demand, deposit with Lessor the amount so applied so that Lessor shall have the full Security Deposit on hand at all times during the Term of this Lease. In the event of a bona fide sale, subject to this Lease, Lessor shall have the right to transfer the Security Deposit to the vendee, and Lessor shall be considered released by Lessee from all liability for the return of the Security Deposit; and lessee agrees to look solely to the new lessor for the return of the Security Deposit, and it is agreed that this shall apply to every transfer or assignment made of the Security Deposit to the new lessor. Provided this Lease is not in default, the Security Deposit (less any portions thereof used, applied or retained by Lessor in accordance with the provisions of this Article 16), shall be returned to Lessee after the expiration or sooner termination of this Lease and after delivery of the entire Premises to Lessor in accordance with the provisions of this Lease. Lessee covenants that it will not assign or encumber or attempt to assign or encumber the Security Deposit and Lessor shall not be bound by any such assignment, encumbrance or attempt thereof. Lessee may deliver to Lessor, in lieu of the cash deposit set forth in this Article an irrevocable negotiable letter of credit in the form and amount set forth in Paragraph 16 of the Preamble. Said letter of credit shall be for a term of not less than 1 year and shall be renewed by Lessee (without notice from Lessor) no later than 45 days prior to its expiration, and the expiration of each replacement thereof, until Lessor shall be required to return the security to Lessee pursuant to the terms of this lease but in no event earlier than 90 days after the Expiration Date, and each such renewed letter of credit shall be delivered to Lessor no later than 45 days prior to the expiration of the letter of credit then held by Lessor. If any portion of the security deposit shall be utilized by Lessor in the manner permitted by this lease, Lessee shall, within 5 days after 13 request by Lessor, replenish the security account by depositing with Lessor, in cash or by letter of credit, an amount equal to that utilized by Lessor. Failure of Lessee to comply strictly with the provisions of this Article shall constitute a material breach of this lease and Lessor shall be entitled to present the letter of credit then held by it for payment (without notice to Lessee). If the cash security is converted into a letter of credit, the provisions with respect to letters of credit shall apply (with the necessary changes in points of detail) to such letter of credit deposit. In the event of a bank failure or insolvency affecting the letter of credit, Lessee shall replace same within 20 days after being requested to do so by Lessor. 17. RIGHT TO CURE LESSEE'S BREACH: If Lessee breaches any covenant or condition of this Lease, Lessor may, on reasonable notice to Lessee (except that no notice need be given in case of emergency), cure such breach at the expense of Lessee and the reasonable amount of all expenses, including attorney's fees, incurred by Lessor in so doing (whether paid by Lessor or not) shall be deemed Additional Rent payable on demand. 18. MECHANIC'S LIENS: Lessee shall, within fifteen (15) days after notice from Lessor, discharge or satisfy by bonding or otherwise any mechanic liens for materials or labor claimed to have been furnished to the Premises on Lessee's behalf. 19. RIGHT TO INSPECT AND REPAIR: Lessor may enter the Premises but shall not be obligated to do so (except as required by any specific provision of this Lease) at any reasonable time on reasonable notice to Lessee (except that no notice need be given in case of emergency) for the purpose of inspection or the making of such repairs, replacement or additions in, to, on and about the Premises or the Building, as Lessor deems necessary or desirable. Lessee shall have no claims or cause of action against Lessor by reason thereof. In no event shall Lessee have any claim against Lessor for interruption of Lessee's business, however occurring, including but not limited to that arising from the negligence of Lessor, its agents, servants or invitees, or from defects, errors or omissions in the construction or design of the Premises and/or the Building, including the structural and non-structural portions thereof. 20. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION: Subject to intervening laws, ordinances, regulations and executive orders, while Lessee is not in default under any of the provisions of this Lease, Lessor agrees to furnish, except on holidays, as set forth on Exhibit E attached hereto and made a part hereof: a. The cleaning services, as set forth on Exhibit D attached hereto and made a part hereof, and subject to the conditions therein stated. Except as set forth on Exhibit D, Lessee shall pay the cost of all other cleaning services required by Lessee. b. Heating, ventilating and air conditioning (herein "HVAC") as appropriate for the season, and as set forth on Exhibit C-l, attached hereto and made a part hereof, together with Common Facilities lighting and electric energy all during Building Hours, as defined in the Preamble. c. Cold and hot water for drinking and lavatory purposes. d. Elevator service during Building Hours (if the Building contains an elevator or elevators for the use of the occupants thereof). e. Restroom supplies and exterior window cleaning when reasonably required. 14 f. Notwithstanding the requirements of Exhibit C-1 (as to HVAC) or D or any other provision of this Lease, Lessor shall not be liable for failure to furnish any of the aforesaid services when such failure is due to Force Majeure, as hereinafter defined. Lessor shall not be liable, under any circumstances, including, but not limited to, that arising from the negligence of Lessor, its agents, servants or invitees, or from defects, errors or omissions in the construction or design of the Premises and/or the Building, including the structural and non-structural portions thereof, for loss of or injury to Lessee or to property, however occurring, through or in connection with or incidental to the furnishings of, or failure to furnish, any of the aforesaid services or for any interruption to Lessee's business, however occurring. 21. INTERRUPTION OF SERVICES OR USE: Interruption or curtailment of any service maintained in the Building or at the Office Building Area, if caused by Force Majeure, as hereinafter defined, shall not entitle Lessee to any claim against Lessor or to any abatement in rent, and shall not constitute a constructive or partial eviction, unless Lessor fails to take measures as may be reasonable under the circumstances to restore the service without undue delay. If the Premises are rendered untenantable in whole or in part, for a period of ten (10) consecutive business days, by the making of repairs, replacements or additions, other than those made with Lessee's consent or caused by misuse or neglect by Lessee, or Lessee's agents, servants, visitors or licensees, there shall be a proportionate abatement of Rent from and after said tenth (10th) consecutive business day and continuing for the period of such untenantability. In no event shall Lessee be entitled to claim a constructive eviction from the Premises unless Lessee shall first have notified Lessor in writing of the condition or conditions giving rise thereto, and if the complaints be justified, unless Lessor shall have failed, within a reasonable time after receipt of such notice, to remedy, or commence and proceed with due diligence to remedy such condition or conditions, all subject to Force Majeure as hereinafter defined. 22. BUILDING STANDARD OFFICE ELECTRICAL SERVICE: The cost of electric current which is supplied by the Lessor for use by the Lessee in the Premises, other than for heating or air conditioning purposes, shall be reimbursed to the Lessor at terms, classification and rates normally charged by the public utilities corporation serving that part of the municipality where the subject Premises are located. a. From and after the Commencement Date, Lessee agrees to pay as Additional Rent an estimated electrical charge of $.10 per square foot per month, payable on the first day of each and every month, until such time as an electrical survey can be performed pursuant to Article 22(b) below. b. Lessee agrees that an independent electrical engineering consultant shall make a survey of electric power demand of the electric lighting fixtures and the electric equipment of Lessee used in the Premises to determine the average monthly electric consumption thereof, and the costs of said survey shall be borne by Lessee. The cost of such survey shall not exceed $350.00. The findings of said consultant as to the average monthly electric consumption of Lessee shall, unless objected to by Lessee within forty-five (45) days, be conclusive and binding on Lessor and Lessee. After Lessor's consultant has submitted its report, Lessee shall pay to Lessor, within ten (10) days after demand therefor by Lessor, the amount (based on the monthly consumption found by such consultant) as owing from the Lease Term's Commencement Date, and the then expired months, to include the then current month and thereafter adjusted for the estimated electrical charges already paid pursuant to Article 22(a), on the first day of every month, in advance, the amount set forth as the monthly consumption in said report. Said amounts shall be treated as Additional Rent due hereunder. Proportionate sums shall be payable for periods of less than a full month if the Term commences or ends on any other than the first or last day of the month. If Lessee objects to said findings, Lessee shall nevertheless pay and continue to pay the amount determined by Lessor's consultant until the issue is finally resolved, but Lessee may, at its expense, seek the services of an independent electrical consultant who shall make a survey as provided above. If Lessor's and 15 Lessee's consultant cannot agree as to Lessee's consumption within thirty (30) days of Lessee's consultant's findings either Lessor or Lessee may request the American Arbitration Association in Somerset, New Jersey to appoint an electrical engineering consultant whose decision shall be final and binding on Lessor and Lessee, and whose cost shall be shared equally. Upon the issue being finally resolved, any overpayment made by Lessee shall be promptly refunded. c. In the event that there shall be an increase or decrease in the rate schedule (including surcharges or demand adjustments), of the public utility for the supply of Building Standard Office Electrical Service, or the imposition of any tax with respect to such service or increase in any such tax following the Lease Term's commencement, the Additional Rent payable hereunder shall be adjusted equitably to reflect the increase or decrease in rate or imposition or increase in the aforesaid tax. All computations shall be made on the basis of Lessee's surveyed usage as if a meter exclusively measuring such usage to the Premises was in place. d. Lessee covenants that it shall notify Lessor immediately upon the introduction of any office equipment or lighting different from that on the Premises as of Lessor's electrical survey or in addition to the aforesaid equipment or lighting on the Premises as of said survey. The introduction of any new or different equipment or lighting shall be cause for, at Lessor's election, a resurveying of the Premises at Lessee's expense. Lessor reserves the right to inspect the Premises to insure compliance with this provision. e. Lessor shall not be liable in any way to Lessee for any loss, damage or expense which Lessee may sustain or incur as a result of any failure, defect or change in the quantity or character of electrical energy available for redistribution to the Premises pursuant to this Article 22 nor for any interruption in the supply, and Lessee agrees that such supply may be interrupted for inspection, repairs and replacement and in emergencies. In any event, the full measure of Lessor's liability for any interruption in the supply due to Lessor's acts or omissions shall be an abatement of Fixed Basic Rent and Additional Rent, unless Lessor fails to take such measures as may be reasonable under the circumstances to restore such service without undue delay. In no event shall Lessor be liable for any business interruption suffered by Lessee. f. Lessor, at Lessee's expense, shall furnish and install all replacement lighting tubes, lamps, ballasts and bulbs required in the Premises. Lessee, however, shall have the right to furnish and/or install any or all of the items mentioned in this Article 22(f). g. Lessee's use of electrical service as contemplated herein shall be during Building Hours, and any use in excess of said Building Hours shall result in an adjustment as set forth in Article 22(a) hereof to reflect such additional consumption. 23. ADDITIONAL RENT: It is expressly agreed that Lessee will pay in addition to the Fixed Basic Rent provided in Article 3 hereof, an Additional Rent to cover Lessee's Percentage as defined in the Preamble, of the increased cost to Lessor, for each of the categories enumerated herein, over the "Base Period Costs," as defined in the Preamble for said categories. a. OPERATING COST ESCALATION -- If the Operating Costs incurred for the Building in which the Premises are located and Office Building Area for any Lease Year or Partial Lease Year during the Lease Term shall be greater than the Base Operating Costs (adjusted proportionately for periods less than a Lease Year), then Lessee shall pay to Lessor, as Additional Rent, Lessee's Percentage of all such excess Operating Costs. Operating Costs shall include, by way of illustration and not of limitation: personal property taxes; management fees; labor, including all wages and salaries; social security taxes, and other taxes which may be levied against Lessor upon such wages and salaries; supplies; repairs and maintenance; maintenance and service contracts; painting; wall and window washing; laundry and towel service; tools and equipment (which are not required to be capitalized for federal income tax purposes); 16 fire and other insurance; trash removal; lawn care; snow removal and all other items properly constituting direct operating costs according to standard accounting practices (hereinafter collectively referred to as the "Operating Costs"), but not including depreciation of Building or equipment; interest; income or excess profits taxes; wages, salaries and other compensation, to employees above the level of property manager; alterations or improvements for any other tenant; services furnished to other tenants and not to Lessee; costs reimbursed by insurance; expenses relating to the leasing of space in the Building including advertising, real estate brokerage and leasing commissions; legal, accounting and professional fees incurred for solicitation, negotiation and enforcement of leases; expenditures for financing and refinancing; any fee or expenditure paid to a related party in excess of the amount which would be paid in an arm's length transaction for materials or services of comparable quality; costs of maintaining the Lessor's corporate existence or Lessor's general corporate overhead or general administrative expenses; franchise taxes; any expenditures required to be capitalized for federal income tax purposes, unless said expenditures are for the purpose of reducing Operating Costs within the Building and Office Building Area, or those which under generally applied real estate practice are expensed or regarded as deferred expenses or are required under any governmental or quasi-governmental law, statute, ordinance, rule, order, requirements or regulation, in which event the costs thereof shall be included. The Base Operating Costs shall as be as defined in the Preamble. b. FUEL, UTILITIES AND ELECTRIC COST ESCALATION (hereinafter referred to as "Utility and Energy Costs") -- If the Utility and Energy Costs, including any fuel surcharges or adjustments with respect thereto, incurred for water, sewer, gas, electric, other utilities and heating, ventilating and air conditioning for the Building, to include all leased and leasable areas (not separately billed or metered within the Building) and Common Facilities electric, lighting, water, sewer and other utilities for the Building and Office Building Area, for any Lease Year or Partial Lease Year, during the Term, shall be greater than the Base Utility and Energy Costs (adjusted proportionately for periods less than a Lease Year), then Lessee shall pay to Lessor as Additional Rent, Lessee's Percentage as hereinafter defined, of all such excess Utility and Energy Costs. As used in this Article 23, the Base Utility and Energy Costs shall be as defined in the Preamble. c. TAX ESCALATION -- If the Real Estate Taxes for the Building and Office Building Area at which the Premises are located for any Lease Year or Partial Lease Year, during the Lease Term, shall be greater than the Base Real Estate Taxes (adjusted proportionately for periods less than a Lease Year), then Lessee shall pay to Lessor as Additional Rent, Lessee's Percentage as hereinafter defined, of all such excess Real Estate Taxes. As used in this Article 23(c), the words and terms which follow mean and include the following: i. "Base Real Estate Taxes" shall be as defined in the Preamble. ii. "Real Estate Taxes" shall mean the property taxes and assessments imposed upon the Building and Office Building Area, or upon the rent, as such, payable to the Lessor, including, but not limited to, real estate, city, county, village, school and transit taxes, or taxes, assessments, or charges levied, imposed or assessed against the Building and Office Building Area by any other taxing authority, whether general or specific, ordinary or extraordinary, foreseen or unforeseen. If due to a future change in the method of taxation, any franchise, income or profit tax shall be levied against Lessor in substitution for, or in lieu of, or in addition to, any tax which would otherwise constitute a Real Estate Tax, such franchise, income or profit tax shall be deemed to be a Real Estate Tax for the purposes hereof; conversely, any additional real estate tax hereafter imposed in substitution for, or in lieu of, any franchise, income or profit tax (which is not in substitution for, or in lieu of, or in addition to, a Real Estate Tax as hereinbefore provided) shall not be deemed a Real Estate Tax for the purposes hereof. 17 d. LEASE YEAR -- As used in this Article 23, Lease Year shall mean a calendar year. Any portion of the Term which is less than a Lease Year as hereinbefore defined, that is, from the Commencement Date through the following December 31, and from the last January 1, falling within the Term to the end of the Term, shall be deemed a "Partial Lease Year." Any reference in this Lease to a Lease Year shall, unless the context clearly indicates otherwise, be deemed to be a reference to a Partial Lease Year if the period in question involves a Partial Lease Year. e. PAYMENT -- At any time, and from time to time, after the establishment of the Base Period Costs for each of the categories referred to above, Lessor shall advise Lessee in writing of Lessee's Percentage share with respect to each of the categories as reasonably estimated for the next twelve (12) month period (or proportionate part thereof if the last period prior to the Lease's expiration is less than twelve (12) months) as then known to the Lessor, and thereafter, the Lessee shall pay as Additional Rent, Lessee's Percentage share of these costs for the then current period affected by such advice (as the same may be periodically reasonably revised by Lessor as additional costs are incurred) in equal monthly installments, such new rates being applied to any months, for which the Fixed Basic Rent shall have already been paid which are affected by the Operating Cost Escalation and/or Utility and Energy Cost Escalation and/or Tax Escalation Costs above referred to, as well as the unexpired months of the current period, the adjustment for the then expired months to be made at the payment of the next succeeding monthly rental, all subject to final adjustment at the expiration of each Lease Year as defined in Article 23(d) hereof (or Partial Lease Year if the last period prior to the Lease's termination is less than twelve (12) months). However, Lessor shall be reimbursed by Lessee monthly during the first year of the Term for additional Utility and Energy Cost Escalations resulting from an increase in the monthly rate over the Base Utility Rate. In the event the last period prior to the Lease's termination is less than twelve (12) months, the Base Period Costs during said period shall be proportionately reduced to correspond to the duration of said final period. f. BOOKS AND REPORTS -- For the protection of Lessee, Lessor shall maintain books of account which shall be open to Lessee and its representatives at all reasonable times so that Lessee can determine that such Operating, Utility and Energy and Real Estate Tax Costs have, in fact, been paid or incurred. Lessee's representatives shall mean only (i) Lessee's employees or (ii) a Certified Public Accounting firm. At Lessor's request, Lessee shall execute a confidentiality agreement reasonably acceptable to Lessor prior to any examination of Lessor's books and records. In the event Lessee disputes any one or more of said charges, Lessee shall attempt to resolve such dispute with Lessor, provided that if such dispute shall not be satisfactorily settled between Lessor and Lessee, the dispute shall be referred by either party to an independent certified public accountant to be mutually agreed upon, and if such an accountant cannot be agreed upon, The American Arbitration Association may be asked by either party to select an arbitrator, whose decision on the dispute will be final and binding upon both parties, who shall jointly share any cost of such arbitration. Pending resolution of said dispute the Lessee shall pay to Lessor the sum so billed by Lessor subject to its ultimate resolution as aforesaid. g. RIGHT OF REVIEW -- Once Lessor shall have finally determined said Operating, Utility and Energy or Real Estate Tax Costs at the expiration of a Lease Year, then as to the item so established, Lessee shall only be entitled to dispute said charge as finally established for a period of six (6) months after such charge is finally established, and Lessee specifically waives any right to dispute any such charge at the expiration of said six (6) month period. h. OCCUPANCY ADJUSTMENT -- If, with respect to Operating Cost Escalation, as established in Article 23(a) hereof, and Utility and Energy Cost Escalation, as established in Article 23(b) hereof, the Building is less than ninety-five percent (95%) occupied during the establishment of the respective Base Periods, then the Base Costs incurred with respect to said Operating Cost or Utility and Energy Cost 18 shall be adjusted during any such period within the Base Period so as to reflect ninety-five percent (95%) occupancy. Similarly, if during any Lease Year or Partial Lease Year, subsequent to the Base Period the Building is less than ninety-five percent (95%) occupied, then the actual costs incurred for Operating Cost and Utility and Energy Cost shall be increased during any such period to reflect ninety-five percent (95%) occupancy so that at all times after the Base Period the Operating Cost or Utility and Energy Cost shall be actual costs, but in the event less than ninety-five percent (95%) of the Building is occupied during all or part of the Lease Year involved, the Operating Cost or Utility and Energy Cost shall not be less than that which would have been incurred had ninety-five percent (95%) of the Building been occupied. The aforesaid adjustment shall only be made with respect to those items that are in fact affected by variations in occupancy levels. 24. LESSEE'S ESTOPPEL: Lessee shall, from time to time, on not less that ten (10) days prior written request by Lessor, execute, acknowledge and deliver to Lessor a written statement certifying that the Lease is unmodified and in full force and effect, or that the Lease is in full force and effect as modified and listing the instruments of modification; the dates to which the rents and charges have been paid; and, to the best of Lessee's knowledge, whether or not Lessor is in default hereunder, and if so, specifying the nature of the default. It is intended that any such statement delivered pursuant to this Article 24 may be relied on by a prospective purchaser of Lessor's interest or mortgagee of Lessor's interest or assignee of any mortgage of Lessor's interest. Lessee shall also execute and deliver the form "Lessee Estoppel Certificate" attached hereto as Exhibit F. Upon request from Lessee, Lessor shall execute and deliver to Lessee an estoppel certificate reasonably satisfactory to Lessor. 25. HOLDOVER TENANCY: If Lessee holds possession of the Premises after the Expiration Date of this Lease, Lessee shall (i) become a tenant from month to month under the provisions herein provided, but at one hundred and fifty percent (150%) of the monthly Fixed Basic Rental for the last month of the Term, plus the Additional Rent, for the first month of Lessee's holding over and two hundred percent (200%) of the monthly Fixed Basic Rent for the last month of the Term, plus the Additional Rent, thereafter, which shall continue as provided in the Lease which sum shall be payable in advance on the first day of each month, and without the requirement for demand or notice by Lessor to Lessee demanding delivery of possession of said Premises, and such tenancy shall continue until terminated by Lessor, or until Lessee shall have given to Lessor, at least sixty (60) days prior to the intended date of termination, a written notice of intent to terminate such tenancy, which termination date must be as of the end of a calendar month; and (ii) indemnify Lessor against loss or liability resulting from the delay by Lessee in so surrendering the Premises including, without limitation, any claims made by any succeeding occupant founded on such delay. Lessee's obligations under this Section shall survive the expiration or sooner termination of the Lease. The time limitations described in this Section 25 shall not be subject to extension for Force Majeure. 26. RIGHT TO SHOW PREMISES: Lessor may show the Premises to prospective purchasers and mortgagees; and during the twelve (12) months prior to termination of this Lease, to prospective tenants, during Building Hours on reasonable notice to Lessee. 27. LESSOR'S WORK - LESSEE'S DRAWINGS: Lessor shall deliver, and Lessee shall accept, the Premises in its "AS-IS" condition. All work to be performed by Lessee hereunder shall be performed in accordance with Exhibit C attached hereto and made a part hereof. 19 28. WAIVER OF TRIAL BY JURY: To the extent such waiver is permitted by law, the parties waive trial by jury in any action or proceeding brought in connection with this Lease or the Premises. 29. LATE CHARGE: Anything in this Lease to the contrary notwithstanding, at Lessor's option, Lessee shall pay a "Late Charge" of eight percent (8%) of any installment of Fixed Basic Rent or Additional Rent paid more than five (5) days after the due date thereof, to cover the extra expense involved in handling delinquent payments, said Late Charge to be considered Additional Rent. The amount of the Late Charge to be paid by Lessee shall be reassessed and added to Lessee's obligations for each successive monthly period until paid. Notwithstanding anything in this Section to the contrary, Lessor shall waive a Late Charge one time during each Lease Year provided, however, the installment of Fixed Basic Rent or Additional Rent so due is paid by the fifteenth (15th) day of the month. Payment received subsequent to the fifteenth (15th) of the month during these grace periods shall require a Late Charge to be reassessed and added to Lessee's obligations hereunder. 30. LESSEE'S INSURANCE: a. Lessee covenants to provide at Lessee's cost and expense on or before the earlier of (i) the Commencement Date, or (ii) Lessee's taking actual possession for the purpose of completing any improvement work, and to keep in full force and effect during the entire Term and so long thereafter as Lessee, or anyone claiming by, through or under Lessee, shall occupy the Premises, insurance coverage as follows: i. Commercial General Liability insurance with contractual liability endorsements with respect to the Premises and the business of Lessee in which Lessee shall be adequately covered under limits of liability of not less than THREE MILLION AND 00/100 DOLLARS ($3,000,000.00) combined single limit per occurrence for bodily or personal injury (including death) and property damage. Such insurance may be carried (x) under a blanket policy covering the Premises and other locations of Lessee, if any, provided that each such policy shall in all respects comply with this Article and shall specify that the portion of the total coverage of such policy that is allocated to the Premises is in the amounts required pursuant to this Article 30 and (y) under a primary liability policy of not less than ONE MILLION AND 00/100 DOLLARS ($1,000,000.00) and the balance under an umbrella policy. Notwithstanding anything to the contrary contained in this Lease, the carrying of insurance by Lessee in compliance with this Article 30 shall not modify, reduce, limit or impair Lessee's obligations and liability under Article 33 hereof. ii. Fire and Extended Coverage, Vandalism, Malicious Mischief, Sprinkler Leakage and Special Extended Coverage Insurance in an amount adequate to cover the cost of replacement of all personal property, decoration, trade fixtures, furnishings, equipment in the Premises and all contents therein. Lessor shall not be liable for any damage to such property of Lessee by fire or other peril includable in the coverage afforded by the standard form of fire insurance policy with extended coverage endorsement attached (whether or not such coverage is in effect), no matter how caused, it being understood that the Lessee will look solely to its insurer for reimbursement. iii. Worker's Compensation Insurance in the minimum statutory amount covering all persons employed by Lessee. iv. Said limits shall be subject to periodic review and Lessor reserves the right to increase said coverage limits if, in the reasonable opinion of Lessor, said 20 coverage becomes inadequate and is less than that commonly maintained by tenants in similar buildings in the area by tenants making similar uses. On or before the Commencement Date, and thereafter at Lessor's request, Lessee shall provide Lessor evidence of the insurance coverage required herein in the form of a duplicate original insurance policy, an insurance binder (countersigned by the insurer), or Evidence of Insurance (in form ACORD 27 with respect to property insurance and ACORD 25-S with respect to liability insurance) for each of the insurance policies Lessee is required to carry in compliance with its obligations under this Lease. b. All of the aforesaid insurance under subparagraph (a)(i) above shall (i) name Lessor as an additional insured; (ii) be written by one or more responsible insurance companies licensed in the State of New Jersey satisfactory to Lessor and in form satisfactory to Lessor; (iii) contain endorsements substantially as follows: "It is understood and agreed that the insurer will give to Lessor, or any successor lessor, c/o Mack-Cali Realty Corporation, 11 Commerce Drive, Cranford, New Jersey, thirty (30) days prior written notice of any material change in or cancellation of this policy."; (iv) shall be written on an "occurrence" basis and not on a "claims made" basis. c. Lessee shall be solely responsible for payment of premium and Lessor (or its designee) shall not be required to pay any premium for such insurance. Lessee shall deliver to Lessor at least fifteen (15) days prior to the expiration of such policy, either a duplicate original or a certificate it being the intention of the parties hereto that the insurance required under the terms hereof shall be continuous during the entire Term of this Lease and any other period of time during which pursuant to the Term hereof, said insurance is required. Any insurance carried by Lessee shall be in excess of and will not contribute with the insurance carried by Lessor for injuries or damage arising out of the Premises. d. Lessee agrees, at its own cost and expense, to comply with all rules and regulations of the National Fire Protection Association (NFPA) National Fire Code. If, at any time or from time to time, as a result of or in connection with any failure by Lessee to comply with the foregoing sentence or any act or omission or commission by Lessee, its employees, agents, contractors or licensees, or a result of or in connection with the use to which the Premises are put (notwithstanding that such use may be for the purposes hereinbefore permitted or that such use may have been consented to by Lessor), the fire insurance rate(s) applicable to the Premises shall be higher than that which would be applicable for a business office legally permitted therein, Lessee agrees that it will pay to Lessor as Additional Rent, such portion of the premiums for all Lessor's fire insurance policies in force with respect to the building and the contents of any occupant thereof as shall be attributable to such higher rate(s). e. Lessor makes no representation that the limits of liability specified to be carried by Lessee or Lessor under the terms of this Lease are adequate to protect Lessee against Lessee's undertaking under this Article 30, and in the event Lessee believes that any such insurance coverage called for under this Lease is insufficient, Lessee shall provide, at is own expense, such additional insurance as Lessee deems adequate. f. In the event the Premises or its contents are damaged or destroyed by fire or other insured casualty, (i) Lessor, to the extent of the coverage of Lessor's policies of fire insurance, hereby waives its rights, if any, against Lessee with respect to such damage or destruction, even if said fire or other casualty shall have been caused, in whole or in part, by the negligence of the Lessee, and (ii) Lessee, to the extent of the coverage of Lessee's policies of fire insurance with extended coverage, hereby waives its rights, if any, against Lessor with respect to such damage, or destruction, even if said fire or other casualty shall have been caused, in whole or in part, by the negligence of Lessor; provided, however, such waivers of subrogation shall only be effective with respect to loss or damage occurring during such time as Lessor's or Lessee's policies of fire insurance (as the case may be) shall contain a clause or endorsement providing in substance that the aforesaid waiver of subrogation shall not prejudice the type and amount of coverage under such policies or the right of Lessor 21 or Lessee (as the case may be) to recover thereunder. If, at any time, Lessor's or Lessee's insurance carrier refuses to write insurance which contains a consent to the foregoing waiver of subrogation, Lessor or Lessee, as the case may be, shall notify the party thereof in writing, and upon the giving of such notice, the provisions of this Section shall be null and void as to any casualty which occurs after such notice. If Lessor's or Lessee's insurance carrier shall make a charge for the incorporation of the aforesaid waiver of subrogation in its policies, then the party requesting the waiver shall promptly pay such charge to the other party upon demand. In the event the party requesting their waiver fails to pay such charge upon demand, the other party shall be released of its obligation to supply such waiver. [See following page 22] g. Should Lessee fail to maintain the insurance coverage as set forth in this Article 30, then Lessee shall be in default hereunder and shall be deemed to have breached its covenants as set forth herein. 31. NO OTHER REPRESENTATIONS: No representations or promises shall be binding on the parties hereto except those representations and promises contained herein or in some future writing signed by the party making such representation(s) or promise(s). 32. QUIET ENJOYMENT: Lessor covenants that if, and so long as, Lessee pays Fixed Basic Rent, and any Additional Rent as herein provided, and performs Lessee's covenants hereof, Lessor shall do nothing to affect Lessee's right to peaceably and quietly have, hold and enjoy the Premises for the Term herein mentioned, subject to the provisions of this Lease. 33. INDEMNITY: Lessee shall defend, indemnify and save harmless Lessor and its agents against and from: (a) any and all claims (i) arising from (x) the conduct or management by Lessee, its subtenants, licensees, its or their employees, agents, contractors or invitees on the Premises or of any business therein, or (y) any work or thing whatsoever done, or any condition created (other than by Lessor, its agents or contractors for Lessor's or Lessee's account) in or about the Premises during the Term of this Lease, or during the period of time, if any, prior to the Commencement Date that Lessee may have been given access to the Premises, (z) any default by Lessee under the terms, covenants and conditions of this Lease or (ii) arising from any negligent or otherwise wrongful act or omission of Lessee or any of its subtenants or licensees or its or their employees, agents, contractors or invitees, and (b) all costs, expenses and liabilities including attorneys fees and disbursements incurred in or in connection with each such claim, action or proceeding brought thereon. In case any action or proceeding be brought against Lessor by reason of any such claim, Lessee, upon notice from Lessor, shall resist and defend such action or proceeding. 34. ARTICLE HEADINGS: The article headings in this Lease and position of its provisions are intended for convenience only and shall not be taken into consideration in any construction or interpretation of this Lease or any of its provisions. 35. APPLICABILITY TO HEIRS AND ASSIGNS: The provisions of this Lease shall apply to, bind and inure to the benefit of Lessor and Lessee, and their respective heirs, successors, legal representatives and assigns. It is understood that the term "Lessor" as used in this Lease means only the owner, a mortgagee in possession or a term lessee of the Building, so that in the event of any sale of the Building 22 Section 30(f) of this Lease shall be deemed deleted in its entirety and the following substituted in place thereof: Lessor and Lessee shall procure a clause in, or endorsement on, each of their policies for fire or extended coverage insurance covering the Premises or personal property, fixtures or equipment located therein, pursuant to which the insurance company waives subrogation or consents to a waiver of right of recovery against the other party. Lessor and Lessee agree not to make claims against, or seek to recover from, the other party for loss or damage to its property or property of others covered by such insurance. To the extent Lessee shall be a self-insurer, Lessee waives the right of recovery, if any, against Lessor, its agents and employees, for loss, damages or destruction of Lessee's property. 22A or of any lease thereof, or if a mortgagee shall take possession of the Premises, the Lessor herein shall be and hereby is entirely freed and relieved of all covenants and obligations of Lessor hereunder accruing thereafter, and it shall be deemed without further agreement that the purchaser, the term lessee of the Building, or the mortgagee in possession has assumed and agreed to carry out any and all covenants and obligations of Lessor hereunder. 36. OUTSIDE PARKING SPACES: Lessee's occupancy of the Premises shall include the use of the number of outside parking spaces as set forth in the Preamble, all of which will be unassigned. Lessor shall not be responsible for any damage or theft of any vehicle in the parking area and shall not be required to keep parking spaces clear of unauthorized vehicles or to otherwise supervise the use of the parking area. Lessee shall, upon request, promptly furnish to Lessor the license numbers of the cars operated by Lessee and its subtenants, licensees, invitees, concessionaires, officers and employees. If any vehicle of the Lessee, or of any subtenant, licensee, concessionaire, or of their respective officers, agents or employees, is parked in any part of the Common Facilities other than the employee parking areas) designated therefor by Lessor, Lessee shall pay to Lessor such penalty as may be fixed by Lessor from time to time. All amounts due under the provisions of this Article 36 shall be deemed to be Additional Rent. 37. LESSOR'S LIABILITY FOR LOSS OF PROPERTY: Lessor shall not be liable for any loss of property from any cause whatsoever, including but not limited to theft or burglary from the Premises, and any such loss arising from the negligence of Lessor, its agents, servants or invitees, or from defects, errors or omissions in the construction or design of the Premises and/or the Building, including the structural and non-structural portions thereof, and Lessee covenants and agrees to make no claim for any such loss at any time. 38. PARTIAL INVALIDITY: If any of the provisions of this Lease, or the application thereof to any person or circumstances, shall to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision or provisions to persons or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and every provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 39. LESSEE'S BROKER: Lessee represents and warrants to Lessor that its broker, as defined in the Preamble, is the sole broker with whom Lessee has negotiated in bringing about this Lease and Lessee agrees to indemnify and hold Lessor and its mortgagees) harmless from any and all claims of other brokers and expenses in connection therewith arising out of or in connection with the negotiation of or the entering into this Lease by Lessor and Lessee. In no event shall Lessor's mortgagees) have any obligation to any broker involved in this transaction. In the event that no broker was involved as aforesaid, then Lessee represents and warrants to the Lessor that no broker brought about this transaction, and Lessee agrees to indemnify and hold Lessor harmless from any and all claims of any broker arising out of or in connection with the negotiations of, or entering into of, this Lease by Lessee and Lessor. 40. PERSONAL LIABILITY: Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessor, that there shall be absolutely no personal liability on the part of Lessor, its 23 constituent members (to include but not be limited to, officers, directors, partners and trustees) their respective successors, assigns or any mortgagee in possession (for the purposes of this Article, collectively referred to as "Lessor"), with respect to any of the terms, covenants and conditions of this Lease, and that Lessee shall look solely to the equity of Lessor in the Building for the satisfaction of each and every remedy of Lessee in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, such exculpation of liability to be absolute and without any exceptions whatsoever. 41. NO OPTION: The submission of this Lease Agreement for examination does not constitute a reservation of, or option for, the Premises, and this Lease Agreement becomes effective as a Lease Agreement only upon execution and delivery thereof by Lessor and Lessee. 42. DEFINITIONS: a. AFFILIATE -- Affiliate shall mean any corporation related to Lessee as a parent, subsidiary or brother-sister corporation so that such corporation and such party and other corporations constitute a controlled group as determined under Section 1563 of the Internal Revenue Code of 1986, as amended and as elaborated by the Treasury Regulations promulgated thereunder or any business entity in which Lessee has more than a fifty percent (50%) interest. b. COMMON FACILITIES -- Common Facilities shall mean the non-assigned parking areas; lobby; elevator(s); fire stairs; public hallways; public lavatories; all other general Building facilities that service all Building tenants; air conditioning rooms; fan rooms; janitors' closets; electrical closets; telephone closets; elevator shafts and machine rooms; flues; stacks; pipe shafts and vertical ducts with their enclosing walls. Lessor may at any time close temporarily any Common Facilities to make repairs or changes therein or to effect construction, repairs or changes within the Building, or to discourage non-tenant parking, and may do such other acts in and to the Common Facilities as in its judgement may be desirable to improve the convenience thereof, but shall always in connection therewith, endeavor to minimize any inconvenience to Lessee. c. FORCE MAJEURE -- Force Majeure shall mean and include those situations beyond Lessor's reasonable control, including by way of example and not by way of limitation, acts of God; accidents; repairs; strikes; shortages of labor, supplies or materials; inclement weather; or, where applicable, the passage of time while waiting for an adjustment or insurance proceeds. Any time limits required to be met by either party hereunder, whether specifically made subject to Force Majeure or not, except those related to the payment of Fixed Basic Rent or Additional Rent, shall, unless specifically stated to the contrary elsewhere in this Lease, be automatically extended by the number of days by which any performance called for is delayed due to Force Majeure. d. LESSEE'S PERCENTAGE -- The parties agree that Lessee's Percentage, as defined in the Preamble, reflects and will be continually adjusted to reflect the ratio of the gross square feet of the area rented to Lessee (including an allocable share of all Common Facilities) [the numerator] as compared with the total number of gross square feet of the entire Building (or additional buildings that may be constructed within the Office Building Area) [the denominator] measured outside wall to outside wall, but excluding therefrom any storage areas. Lessor shall have the right to make changes or revisions in the Common Facilities of the Building so as to provide additional leasing area. Lessor shall also have the right to construct additional buildings in the Office Building Area for such purposes as Lessor may deem appropriate, and subdivide the lands for that purpose if necessary, and upon so doing, the Office Building Area shall become the subdivided lot on which the Building in which the Premises is located. However, if any service provided for in Article 23(a) or any 24 utility provided for in Article 23(b) is separately billed or separately metered within the Building, then the square footage so billed or metered shall be subtracted from the denominator and the Lessee's proportionate share for such service and/or utility shall be separately computed, and the Base Costs for such item shall not include any charges attributable to said square footage. Lessee understands that as a result of changes in the layout of the Common Facilities from time to time occurring due to, by way of example and not by way of limitation, the rearrangement of corridors, the aggregate of all Building tenant proportionate shares may be equal to, less than or greater than one hundred percent (100%). 43. LEASE COMMENCEMENT: The Commencement Date of this Lease, as defined in the Preamble to this Lease, shall occur regardless of Lessee's failure to complete the tenant improvement work pursuant to Exhibit C attached hereto. 44. NOTICES: Any notice by either party to the other shall be in writing and shall be deemed to have been duly given only if (i) delivered personally or (ii) sent by registered mail or certified mail return receipt requested in a postage paid envelope addressed or (iii) sent by nationally recognized overnight delivery service, if to Lessee, at the above described Building; if to Lessor, at Lessor's address as set forth above; or, to either at such other address as Lessee or Lessor, respectively, may designate in writing. Notice shall be deemed to have been duly given, if delivered personally, on delivery thereof, if mailed, upon the tenth (10th) day after the mailing thereof or if sent by overnight delivery service, the next business day. 45. ACCORD AND SATISFACTION: No payment by Lessee or receipt by Lessor of a lesser amount than the rent and additional charges payable hereunder shall be deemed to be other than a payment on account of the earliest stipulated Fixed Basic Rent and Additional Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment for Fixed Basic Rent or Additional Rent be deemed an accord and satisfaction, and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance of such Fixed Basic Rent and Additional Rent or pursue any other remedy provided herein or by law. 46. EFFECT OF WAIVERS: No failure by Lessor to insist upon the strict performance of any covenant, agreement, term or condition of this Lease, or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial rent during the continuance of any such breach, shall constitute a waiver of any such breach or of such covenant, agreement, term or condition. No consent, or waiver, express or implied, by Lessor to or of any breach of any covenant, condition or duty of Lessee shall be construed as a consent or waiver to or of any other breach of the same or any other covenant, condition or duty, unless in writing signed by Lessor. 47. LEASE CONDITION: Intentionally Omitted. 48. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE: Lessee agrees to give any mortgagees and/or trust deed holders, by registered mail, a copy of any notice of default served upon Lessor, provided that, prior to such notice, Lessee has 25 been notified in writing (by way of notice of assignment of rents and leases or otherwise) of the address of such mortgagees and/or trust deed holders. Lessee further agrees that, if Lessor shall have failed to cure such default within the time provided for in this Lease, then the mortgagees and/or trust deed holders shall have an additional thirty (30) days within which to cure such default, or if such default cannot be cured within that time, then such additional time as may be necessary, if within such thirty (30) days, any mortgagee and/or trust deed holder has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued. 49. LESSOR'S RESERVED RIGHT: Lessor and Lessee acknowledge that the Premises are in a Building which is not open to the general public. Access to the Building is restricted to Lessor, Lessee, their agents, employees and contractors and to their invited visitors. In the event of a labor dispute including a strike, picketing, informational or associational activities directed at Lessee or any other tenant, Lessor reserves the right unilaterally to alter Lessee's ingress and egress to the Building or make any change in operating conditions to restrict pedestrian, vehicular or delivery ingress and egress to a particular location. 50. CORPORATE AUTHORITY: If Lessee is a corporation, Lessee represents and warrants that this Lease has been duly authorized and approved by the corporation's Board of Directors. The undersigned officers and representatives of the corporation represent and warrant that they are officers of the corporation with authority to execute this Lease on behalf of the corporation, and within fifteen (15) days of execution hereof, Lessee will provide Lessor with a corporate resolution confirming the aforesaid. 51. AFTER-HOURS USE: Lessee shall be entitled to make use of said Standard Electric Service and HVAC beyond the Building Hours, at Lessee's sole cost and expense, provided Lessee shall notify the Lessor by 3:00 p.m. on the day that Lessee shall require said overtime use if said overtime use is required on any weekday, and by 3:00 p.m. on Friday for Saturday and/or Sunday overtime use. It is understood and agreed that Lessee shall pay the sum of SIXTY AND 00/100 DOLLARS ($60.00) per hour for air-conditioning service and FORTY-FIVE AND 00/100 DOLLARS ($45.00) per hour for heating services, plus such additional percentage increase of the aforesaid hourly sum computed by measuring the percentage increase between the rate in effect (including fuel surcharges or adjustments) during the month for which such overtime use is requested and the Base Rate. The Base Rate for purposes hereof shall be the average of the rates in effect (including surcharges and/or adjustments) during Calendar Year 2000. In no event shall the Lessee pay less than the sum of SIXTY AND 00/100 DOLLARS ($60.00) per hour for such overtime air-conditioning service or less than FORTY-FIVE AND 00/100 DOLLARS ($45.00) per hour for such overtime heating service. 52. LESSEE'S EXPANSION/RELOCATION: The Lessor, in its sole discretion, shall have the right one time during the initial term of this Lease to change the location of the Premises to other space (the "Substituted Leased Premises") within the Building, subject to the terms and conditions set forth below. a. The Substituted Leased Premises shall contain a minimum floor area of approximately the same number of square feet as are contained in the Premises; and the square footage of any Common Facilities attributable to the Substituted Leased 26 Premises shall be approximately the same as that of the Common Facilities attributable to the Premises. b. If the total square footage comprised by the Substituted Leased Premises and its attributable Common Facilities exceed the total of the Premises and its attributable Common Facilities, the Lessee shall not be required to pay any increase in the Fixed Basic Rent and Lessee's Percentage shall not be increased. If, however, such total square footage shall be less, Lessee's Fixed Basic Rent and Lessee's Percentage shall be decreased proportionately. c. The Lessor shall give the Lessee not less than forty-five (45) days prior notice of Lessor's decision to relocate the Lessee; and the Lessee agrees that no later than forty-five (45) days from the date of its receipt of such notice it shall relocate to the Substituted Leased Premises. d. The Lessor shall bear and pay for the cost and expense of any such relocation; provided, however, that the Lessee shall not be entitled to any compensation for damages for any interference with or interruption of its business during or resulting from such relocation. The Lessor shall make reasonable efforts to minimize such interference. e. In connection with any such relocation, the Lessor shall, at its own cost and expense, furnish and install in (or, if practicable, relocate to) the Substituted Leased Premises all walls, partitions, floors, floor coverings, ceilings, fixtures, wiring and plumbing, if any, (as distinguished from trade fixtures, equipment, furniture, furnishings and other personal property belonging to Lessee) required for the Lessee's proper use and occupancy thereof, all of which items shall be comparable in quality to those situated in the Premises. f. The payments of new monthly minimum rent shall commence on the earlier of ten (10) days after Lessor has completed the physical relocation and installation of permanent improvements in the Substituted Leased Premises or the date that Lessee first opens for business in the Substituted Leased Premises. g. Lessor and Lessee shall promptly execute an amendment to this Lease reciting the relocation of the Premises and any changes in the monthly minimum rent payable hereunder. 53. BUILDING PERMIT: Intentionally Omitted. 54. LESSOR'S INSURANCE: During the Term, Lessor shall maintain the following insurance, insuring Lessor and any mortgagee, as their respective interests may appear: (x) insurance against damage to the Building and Office Building Area by all risks of direct physical loss in an amount equivalent to the full replacement cost thereof; (y) comprehensive general liability insurance against claims for bodily injury and property damage occurring in or about the Common Facilities in amounts customarily carried by owners of similar buildings in the Morris County, New Jersey area; and (z) insurance against such other hazards as, from time to time, are then commonly insured against for buildings similarly situated in amounts normally carried with respect thereto. All insurance maintained pursuant to this Article 54 may be effected by blanket insurance policies. EACH PARTY AGREES that it will not raise or assert as a defense to any obligation under the Lease or this Agreement or make any claim that the Lease or this Agreement is invalid or unenforceable due to any failure of this document to comply with ministerial requirements including, but not limited to, requirements for corporate seals, attestations, witnesses, notarizations, or other similar requirements, and each party hereby waives the right to assert any such defense or make any claim of invalidity or unenforceability due to any of the foregoing. 27 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written. LESSOR: LESSEE: MACK-CALI MORRIS REALTY L.L.C. STACK PHARMACEUTICALS, INC. By: Parsippany Office Associates L.L.C. By: Mack-Cali Realty, L.P., managing member By: Mack-Cali Realty Corporation, its general partner By: /s/ John Jay Crandall By: /s/ David Stack ----------------------------- -------------------------------- John Jay Crandall Name: David Stack Vice President, Leasing NJ/PA Title: President 28 EXHIBIT A LOCATION OF PREMISES STACK PHARMACEUTICALS, INC. [Drawing of Second Floor of Morris County Financial Center indicating location of Stack Pharmaceuticals, Inc.] Exhibit A - Page 1 EXHIBIT A-1 OFFICE BUILDING AREA BEGINNING at a concrete monument found on the southerly right of way line of Sylvan Way, at the northeasterly corner of Lot 4.02, Block 202 as shown on the present tax map of Parsippany Troy Hills (said Lot 4.02 being lands now or formerly of Dun's Marketing Services, Inc.). And from said point running; thence: 1. Along the southwesterly line of Sylvan Way, South 66 degrees 11 minutes 14 seconds East, 6.74 feet to an angle point in same; thence 2. Continuing along said line, South 81 degrees 13 minutes 00 seconds East, 342.21 feet to a concrete monument; thence 3. Along the northwesterly line of Lot 3.04, Block 202, South 25 degrees 47 minutes 00 seconds West, 805.84 feet to a concrete monument found buried 1.2 feet below the surface on the northeasterly line of Lot 3.03, Block 202; thence 4. Along said line, North 81 degrees 13 minutes 00 seconds West, 238.74 feet to an iron pipe found; thence 5. Continuing along said line, North 65 degrees 28 minutes 00 seconds West, 105.72 feet to a concrete monument found; thence 6. Along the division line between Lot 4.02 and 4.03, Block 202, North 25 degrees 47 minutes 00 seconds East, 777.66 feet to the point or place of BEGINNING. BEING COMMONLY KNOWN AS Lot 4.03, Block 202 on the Tax Map of the Township of Parsippany - Troy Hills. Exhibit A-1 - Page 1 EXHIBIT B RULES AND REGULATIONS 1. OBSTRUCTION OF PASSAGEWAYS: The sidewalks, entrance, passages, courts, elevators, vestibules, stairways, corridors and public parts of the Building shall not be obstructed or encumbered by Lessee or used by Lessee for any purpose other than ingress and egress. If the Premises are situated on the ground floor with direct access to the street, then Lessor shall, at Lessor's expense, keep the sidewalks and curbs directly in front of the Premises clean and free from ice, snow and refuse. 2. WINDOWS: Windows in the Premises shall not be covered or obstructed by Lessee. No bottles, parcels or other articles shall be placed on the window sills, in the halls, or in any other part of the Building other than the Premises. No article shall be thrown out of the doors or windows of the Premises. 3. PROJECTIONS FROM BUILDING: No awnings, air-conditioning units, or other fixtures shall be attached to the outside walls or the window sills of the Building or otherwise affixed so as to project from the Building, without prior written consent of Lessor. 4. SIGNS: No sign or lettering shall be affixed by Lessee to any part of the outside of the Premises, or any part of the inside of the Premises so as to be clearly visible from the outside of the Premises, without the prior written consent of Lessor, which shall not be unreasonably withheld. However, Lessee shall have the right to place its name on any door leading into the Premises the size, color and style thereof to be subject to the Lessor's approval. Lessee shall not have the right to have additional names placed on the Building directory without Lessor's prior written consent. 5. FLOOR COVERING: Lessee shall not lay linoleum or other similar floor covering so that the same shall come in direct contact with the floor of the Premises. If linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt shall first be fixed to the floor by a paste or other material that may easily be removed with water, the use of cement or other similar adhesive material being expressly prohibited. 6. INTERFERENCE WITH OCCUPANTS OF BUILDING: Lessee shall not make, or permit to be made, any unseemly or disturbing noises or odors and shall not interfere with other tenants or those having business with them. Lessee will keep all mechanical apparatus in the Premises free of vibration and noise which may be transmitted beyond the limits of the Premises. 7. LOCK KEYS: No additional locks or bolts of any kind shall be placed on any of the doors or windows by Lessee. Lessee shall, on the termination of Lessee's tenancy, deliver to Lessor all keys to any space within the Building either furnished to or otherwise procured by Lessee, and in the event of the loss of any keys finished, Lessee shall pay to Lessor the cost thereof. Lessee, before closing and leaving the Premises, shall ensure that all windows are closed and entrance doors locked. Nothing in this Paragraph 7 shall be deemed to prohibit Lessee from installing a burglar alarm within the Premises, provided; (1) Lessee obtain's Lessor's consent which will not be unreasonably withheld or delayed; (2) Lessee supplies Lessor with copies of the plans and specifications of the system; (3) such installation shall not damage the Building; and (4) all costs of installation shall be borne solely by Lessee. 8. CONTRACTORS: No contract of any kind with any supplier of towels, water, toilet articles, waxing, rug shampooing, venetian blind washing, furniture polishing, lamp servicing, cleaning of electrical fixtures, removal of waste paper, rubbish, garbage, or other like service shall be entered into by Lessee, nor shall any machine of any kind be installed in the Building or the Office Building Area, other than ordinary office business machines, without the prior written consent of the Lessor. Lessee shall not employ any persons other than Lessor's janitors for the purpose of cleaning the Premises without prior written consent of Lessor. Lessor shall not be responsible to Lessee for any loss of property from the Premises however occurring, or for any damage to the effects of Lessee by such janitors or any of its employees, or by any other person or any other cause. Exhibit B - Page 1 9. PROHIBITED ON PREMISES: Lessee shall not conduct, or permit any other person to conduct, any auction upon the Premises, manufacture or store goods, wares or merchandise upon the Premises without the prior written approval of Lessor, except the storage of usual supplies and inventory to be used by Lessee in the conduct of his business, permit the Premises to be used for gambling, make any unusual noises in the Building, permit to be played musical instrument on the Premises, permit any radio to be played, or television, recorded or wired music in such loud manner as to disturb or annoy other tenants, or permit any unusual odors to be produced on the Premises. Lessee shall not permit any portion of the Premises to be occupied as an office for a public stenographer or typewriter, or for the storage, manufacture, or sale of intoxicating beverages, narcotics, tobacco in any form or as a barber or manicure shop. Canvassing, soliciting and peddling in the Building and the Office Building Area are prohibited and Lessee shall cooperate to prevent the same. No bicycles, vehicles or animals of any kind shall be brought into or kept in or about the Premises. 10. PLUMBING ELECTRIC AND TELEPHONE WORK: Plumbing facilities shall not be used for any purpose other than those for which they were constructed; and no sweepings, rubbish, ashes, newspaper or other substances of any kind shall be thrown into them. Waste and excessive or unusual amounts of electricity or water is prohibited. When electric wiring of any kind is introduced, it must be connected as directed by Lessor, and no stringing or cutting of wires will be allowed, except by prior written consent of Lessor, and shall be done by contractors approved by Lessor. The number and locations of telephones, telegraph instruments, electrical appliances, call boxes, etc. shall be subject to Lessor's approval. 11. MOVEMENT OF FURNITURE FREIGHT OR BULKY MATTER: The carrying in or out of freight, furniture or bulky matter of any description must take place during such hours as Lessor may from time to time reasonably determine and only after advance notice to the superintendent of the Building. The persons employed by Lessee for such work must be reasonably acceptable to the Lessor. Lessee may, subject to these provisions, move freight, furniture, bulky matter, and other material into or out of the Premises on Saturdays between the hours of 9:00 a.m. and 1:00 p.m., provided Lessee pays additional costs, if any, incurred by Lessor for elevator operators or security guards, and for any other expenses occasioned by such activity of Lessee. If, at least three (3) days prior to such activity, Lessor requests that Lessee deposit with Lessor, as security of Lessee's obligations to pay such additional costs, a sum of which Lessor reasonably estimates to be the amount of such additional cost, the Lessee shall deposit such sum with Lessor as security of such cost. There shall not be used in the Building or Premises, either by Lessee or by others in the delivery or receipt of merchandise, any hand trucks except those equipped with rubber tires and side guards, and no hand trucks will be allowed in the elevators without the consent of the superintendent of the Building. 12. SAFES AND OTHER HEAVY EQUIPMENT: Lessor reserves the right to prescribe the weight and position of all safes and other heavy equipment so as to distribute properly the weight thereof and to prevent any unsafe condition from arising. 13. ADVERTISING: Lessor shall have the right to prohibit any advertising by Lessee which in Lessor's reasonable opinion tends to impair the reputation of the Building or its desirability as a building for offices, and upon written notice from Lessor, Lessee shall refrain from or discontinue such advertising. 14. NON-OBSERVANCE OR VIOLATION OF RULES BY OTHER TENANTS: Lessor shall not be responsible to Lessee for non-observance or violation of any of these rules and regulations by any other tenant. 15. AFTER HOURS USE: Lessor reserves the right to exclude from the Building between the hours of 6:00 p.m. and 8:00 a.m. and at all hours on Saturdays, Sundays and Building Holidays, all persons who do not present a pass to the Building signed by the Lessee. Each Lessee shall be responsible for all persons for whom such a pass is issued and shall be liable to the Lessor for the acts of such persons. 16. PARKING: Lessee and its employees shall park their cars only in those portions of the parking area designated by Lessor. Exhibit B - Page 2 17. Lessor hereby reserves to itself any and all rights not granted to Lessee hereunder, including, but not limited to, the following rights which are reserved to Lessor for its purposes in operating the Building: a) the exclusive right to the use of the name of the Building for all purposes, except that Lessee may use the name as its business address and for no other purposes; and b) the right to change the name or address of the Building, without incurring any liability to Lessee for doing so; and c) the right to install and maintain a sign on the exterior of the Building; and d) the exclusive right to use or dispose of the use of the roof of the Building; and e) the right to limit the space on the directory of the Building to be allotted to Lessee; and f) the right to grant to anyone the right to conduct any particular business or undertaking in the Building. 18. The Lessee shall be responsible for initiating, maintaining and supervising all health and safety precautions and/or programs required by Law in connection with the Lessee's use and occupancy of the Premises. 19. The Lessee shall not store, introduce or otherwise permit any material known to be hazardous within the Premises, other than normal office cleaners and substances used in ordinary office machines. Any material within the Premises which is determined to be hazardous shall be removed and properly disposed of by the Lessee at the Lessee's sole expense. -- END -- Exhibit B - Page 3 EXHIBIT C LESSEE'S WORK AND ALTERATIONS 1. Lessee may make the alterations required for Lessee's use of the Premises (hereinafter the ("Work") after the Possession Date subject to the following: a. Lessee, at its sole cost and expense, shall prepare and submit to Lessor, for Lessor's and governmental approval, the following descriptive information, detailed architectural and engineering drawings and specifications (hereinafter the "Plans") for the Work. The Plans shall be as complete and finished as required to completely describe the Work and shall include, but not be limited to, the following: i. Demolition Plans (if required for Lessor's approval and/or by any applicable governmental authority) depicting all existing conditions to be removed, abandoned or cut patched. ii. Architectural floor plans (if required for Lessor's approval and/or by any applicable governmental authority) depicting partition locations and types; door location, size, and hardware types. iii. Structural plans (if required for Lessor's approval and/or by any applicable governmental authority) depicting new structural components and their connections to existing elements. iv. Electrical plans (if required for Lessor's approval and/or by any applicable governmental authority) depicting all new and existing electrical wiring, devices, fixtures and equipment. v. Mechanical plans (if required for Lessor's approval and/or by any applicable governmental authority) depicting all new plumbing, piping, heating, ventilating, air conditioning equipment, and duct work and its connections to existing elements. vi. Life Safety System plans (if required for Lessor's approval and/or by any applicable governmental authority) depicting all new or altered alarm system fixtures, devices, detectors and wiring within the Premises and their connection to existing systems. vii. Coordinated reflected ceiling plan (if required for Lessor's approval and/or by any applicable governmental authority) showing ceiling systems and materials and all of the above items and their proximity to one another. viii. Finish plans showing locations and types of all interior finishes with a schedule of all proposed materials and manufacturers. The Plans shall provide for all systems and construction components complying with the requirements of all governmental authorities and insurance bodies having jurisdiction over the Building. b. The Plans for the Work are subject to Lessor's prior written approval which shall not be unreasonably withheld, provided, however, that Lessor may in any event disapprove the Plans if they are incomplete, inadequate or inconsistent with the terms of the Lease or with the quality and architecture of the Building. Lessor agrees to approve or disapprove the Plans within three (3) business days of receipt of same (the "Lessor's Approval Period"). If Lessor disapproves the Plans or any portion thereof, Lessor shall promptly notify Lessee thereof and of the revisions which Lessor reasonably requires in order to obtain Lessor's approval Lessee shall, at its sole cost and expense, submit the Plans, in such form as may be necessary, with the appropriate governmental agencies for obtaining required permits and certificates. Any changes required by any governmental agency affecting the Work or the Plans Exhibit C - Page 1 shall be complied with by Lessee in completing said Work at Lessee's sole cost and expense. Lessee shall submit completed Plans to Lessor simultaneously with Lessee's submission of said plans to the local building department. 2. Lessor shall permit Lessee to solicit competitive pricing and select its own general and/or individual subcontractors to perform the Work in its sole cost subject to the following: a. All general contractors shall be subject to Lessor's prior written approval, which shall not be unreasonably withheld. b. Lessor's general contractor shall be requested, but not required, to submit a price for the Work. c. Lessee shall instruct all approved general contractors to exclusively use Lessor's Base Building Sub-Contractors for heating, ventilation, air conditioning, electrical, fire suppression and life safety systems (hereinafter "Building Systems"). Other subcontractors may be used only when specifically approved in writing by Lessor, which approval shall not be unreasonably withheld or delayed. d. The Base Building Sub-Contractors and their respective trades are set forth in Paragraph 7 below. e. Lessee notifies Lessor in writing of Lessee's selection of general and subcontractors. f. All costs associated with the bidding process soliciting competitive pricing will be at the sole cost and expense of the Lessee. 3. If Lessee accepts the pricing of Lessor's general contractor and elects to use Lessor's general contractor to perform the Work, (i) Lessee and Lessor's general contractor will enter into a separate agreement, substantially similar to AIA Document A101, and Lessor's general contractor shall become Lessee's agent and (ii) Lessor shall waive all supervisory fees. Lessor hereby agrees that change orders shall be on the basis of cost plus ten percent (10%) for supervision services plus ten percent (10%) for overhead. 4. If Lessee does not accept the pricing of Lessor's general contractor and subject to this Paragraph 4, elects to engage another general contractor, or individual sub-contractors, Lessee shall, at its sole cost and expense, complete the Work. Lessee shall complete such Work through its own contractors in accordance with the following terms and conditions: a. Lessee's workmen and mechanics shall work in harmony and not interfere with the labor employed by Lessor, Lessor's mechanics or contractors or by any other Lessee or their mechanic or contractors, if any. If at any time Lessee and/or its contractors cause disharmony or interference with the operation of the Building, Lessor shall give forty-eight (48) hours written notice to Lessee and within twenty-four (24) hours Lessee shall resolve any dispute so that the tenor of the construction process and the operation of the Building is returned to that which existed prior to Lessor s notice. Such entry by Lessee's contractors shall be deemed controlled by all of the terms, covenants, provisions and conditions of the Lease. b. Prior to the commencement of the Work, Lessee shall provide Lessor with evidence of Lessee's contractors and sub-contractors carrying such worker's compensation, general liability, personal and property insurance required by law and in amounts no less than the amounts set forth in Paragraph 8 herein. Lessor shall not be liable in any way for any injury, loss or damage which may occur to any portion of the Work, Lessee's decorations, or installments so made, the same being solely at Lessee's risk, c. In the event Lessor approves the use of subcontractors other than Lessor's Base Building sub-contractors, all proposed Building System work, including the preparation of the plans and specifications identified herein, shall be approved by Lessor's engineers (the "Engineering Review"), and any cost thereof shall be Lessee's responsibility. Exhibit C - Page 2 d. Lessor shall afford Lessee and its contractors the opportunity to use the Building facilities at reasonable cost in order to enable Lessee and its contractors to perform the Work, provided however, that Lessee and its contractors shall remain responsible for the scheduling and transportation of materials and equipment used in the performance of such work. Lessee shall give Lessor adequate prior notice with regard to the scheduling and transportation of materials in and out of the Building. Lessor shall furnish water, electricity, heat and ventilation during the performance of the Work during regular construction trade hours of 8:00 a.m. to 5:00 p.m., Monday through Friday, exclusive of trade holidays. Scavenger service shall be provided by Lessor at Lessee's expense. e. All plans, changes to the plans and work installed by Lessee and its sub- contractors shall require inspections to be made by Lessor's Base Building Sub- Contractors at Lessee's or Lessee's contractors expense (the "Inspection Fees"). The Base Building Sub-Contractors shall supply Lessor with certification that work so preformed has been completed in accordance with the Plans which have been previously approved by Lessor. If a Base Building Sub-Contractor is selected and actually installs the work, the Inspection Fees described in this paragraph with respect to such work shall not be required. f. Lessee shall be responsible for all cleaning and removal of debris necessitated by the performance of the Work. If Lessee fails to provide such cleaning and removal, the same may be performed by Lessor on Lessee's behalf and Lessee will pay Lessor an amount equal to the contractor's charge therefore, plus twenty percent (20%) thereof. g. Neither the outside appearance nor the strength of the Building or of any of its structural parts shall be affected by the Work. h. The proper functioning of any of the Building Systems shall not be adversely affected or the usage of such systems by Lessee shall not be materially increased above the projected usage of such systems indicated by the current plans and specifications of the Building. i. Lessee and its general and sub-contractors shall be bound by and observe all of the conditions and covenants contained in the Lease and this Exhibit A. j. Lessor shall designate a "Project Manager" as its representative in the Building who shall be responsible for coordination and supervision of the Work as it pertains to the daily operation of the Building. The Project Manager and his subordinates shall be granted access to the Premises at all times during the construction period. Lessee shall pay to Lessor, within ten (10) business days of billing, all reasonable costs applicable to Lessor's supervisory and coordination work during the construction period. k. Lessee agrees to pay Lessor five percent (5%) of the contract awarded to Lessee's general contractor and/or any subcontractors to reimburse Lessor for coordination, supervision, and utility costs. 5. Any part of the Work within the Premises shall become the property of the Lessor upon installation. Furthermore, with respect to any material and installation which is part of the Work, Lessee shall not be entitled to remove, pledge or sell same unless otherwise agreed to in writing by Lessor and Lessee. No refund, credit, or removal of said items shall be permitted at the termination of the Lease. Items installed that are not integrated in any such way with other common building materials do not fall under this provision (Example: shelving, furniture, trade fixtures). 6. Lessor shall provide a cash contribution of SEVENTEEN THOUSAND SIX HUNDRED EIGHTY-FIVE AND 00/100 DOLLARS ($17,685.00) ("Lessor's Construction Allowance") for payment of the costs associated with the completion of The Work. Lessor's Construction Allowance shall be payable within fifteen (15) days of Lessor's receipt of the following: a. Copy of the Certificate of Occupancy (temporary and permanent) issued by the local Exhibit C - Page 3 construction official, if required by any applicable authority; b. AIA Document G704, Certificate of substantial completion issued and signed by Lessee's Architect, if Lessee is required to prepare the Plans discussed in Section 1 hereof; c. Release of Lien statements from the general and all sub-contractors associated with the Work; and d. Lessee shall provide Lessor a set of reproducible drawings of the Plans and a "CAD" file (in DWG or DXF format) of the "As-Built" Plans, if Lessee is required to prepare the Plans discussed in Section 1 hereof. 7. The Base Building Sub-Contractors are: FIRE SPRINKLER CONTRACTOR "To be provided by Lessor upon request from Lessee." ELECTRICAL CONTRACTOR "To be provided by Lessor upon request from Lessee." PLUMBING CONTRACTOR "To be provided by Lessor upon request from Lessee." HVAC CONTRACTOR "To be provided by Lessor upon request from Lessee." 8. Lessee's Contractor's Insurance: a. The Lessee shall require any and all contractors of the Lessee performing work on or about the Premises to obtain and/or maintain specific insurance coverage for events which could occur while operations are being performed and which could occur after the completion of the work. The insurance coverage of the contractor shall be at least equal to the coverage required by Article 30 of the Lease and the contractor shall name Lessor and, if requested, Mortgagee as additional insureds on all policies of liability insurance. b. The contractor shall purchase and maintain such insurance as will protect itself and Lessor and Lessee from claims set forth below which may arise out of or result from its operations under the contract and after contract completion with Lessee, whether such operations are performed by the contractor or by any subcontractor or by anyone directly or indirectly employed by any of them or by anyone for whose acts any of them may be liable. The insurance coverage shall include but not be limited to protection for: i. Claims under Workers or Workmens Compensation, Disability Benefits, and other Employee Benefit Acts; ii. Claims for damages because of bodily injury, occupational sickness, disease or death of its employees; iii. Claims for damages because of bodily injury, sickness, disease, or death of any person other than its employees; iv. Claims for damages insured by the usual personal injury liability coverages which are sustained by (i) any person as a result of an offense directly or indirectly related to the employment of such person by the contractor, or (ii) by any other person; v. Claims for damages, other than to the work itself, because of injury to or destruction of tangible property, including loss of use resulting therefrom; vi. Claims for damages because of bodily injury or death of any person and/or Exhibit C - Page 4 property damage arising out of the ownership, maintenance, or use of any motor vehicle; and vii. Claims which include the foregoing, but not limited thereto, which may occur while operations are being performed and claims which may occur after operations are completed. c. Lessee shall secure evidence of Lessee's contractor's insurance coverage adequate to protect Lessor and Lessee. d. The contract between the Lessee and its contractor shall require that the Lessee's contractor hold the Lessor harmless in a form and manner equal to the indemnity agreement in Article 12, "Indemnification" of the Lease agreement. e. Lessee shall cause to be executed a waiver of all rights their contractors have or may have against Lessor and any Mortgagee involved in the Premises in any way, for damages caused by fire or other perils so insured. f. If request by Lessor, Lessee shall obtain and furnish surety in a form satisfactory to Lessor, covering the faithful performance of the work and the payment of all obligations arising thereunder. -END- Exhibit C - Page 5 EXHIBIT C - 1 AIR CONDITIONING & HEATING DESIGN STANDARDS The following are design standards for the building air-conditioning system for cooling and heating in the air in the subject building: 1. During the normal heating season to maintain an average indoor dry bulb temperature of not less than 70 degrees F (21 degrees C) or more than 76 degrees (24.4 degrees C) when the outdoor dry bulb temperature is lower than 65 degrees F (18 degrees C) but not lower than 0 degrees F (-13 degrees C). 2. To maintain comfort cooling for an average indoor dry bulb temperature of not more than 78 degrees F when the outside dry bulb temperature is 95 degrees F (24 degrees C). 3. During the intermediate seasons, when the outside dry bulb temperature is below 55 degrees (13 degrees C), cooling will be provided by outside air usage in conjunction with operating of return air, outside air and exhaust air dampers. 4. To furnish not less than .10 cubic foot of fresh air per minute per square foot of rentable area, and between .20 and 1.0 cubic feet of total air per minute, per square foot of rentable occupied space. 5. Lessor will not be responsible for the failure of the air-conditioning system if such failure results from (i) the occupancy of the Premises with more than an average of one (1) person for each one hundred (100) usable square feet of floor area (ii) the installation or operation by Lessee of machines and appliances, the installed electrical load of which when combined with the load of all lighting fixtures exceeds five (5) watts per square foot of floor area and in any manner exceeding the aforementioned occupancy and electrical load criteria, or (iii) rearrangement of partitioning after the initial preparation of the Premises. If interference with normal operation of the air-conditioning system in the Premises results, necessitating changes in the air conditioning system servicing the Premises, such changes shall be made by Lessor upon written notice to Lessee at Lessee's sole cost and expense. Lessee agrees to lower and close window coverings when necessary because of the sun's position whenever the air conditioning system is in operation, and Lessee agrees at all times to cooperate fully with Lessor and to abide by all the Rules and Regulations attached hereto as well as reasonable rules and regulations which Lessor may hereafter prescribe involving the air-conditioning system. -- END -- Exhibit C-1 - Page 1 EXHIBIT D CLEANING SERVICES (FIVE NIGHTS PER WEEK) LESSEE'S PREMISES 1. Vacuum clean all carpeted areas. 2. Sweep and dust mop all non-carpeted areas. Wet mop whenever necessary. 3. All office furniture such as desks, chairs, files, filing cabinets, etc. shall be dusted with a clean treated dust cloth whenever necessary and only if such surfaces are clear of Lessee's personal property including but not limited to plants. 4. Empty and wash ashtrays. 5. Empty wastepaper baskets and remove waste to the designated areas. 6. All vertical surfaces within arms reach shall be spot cleaned to remove finger marks and smudges. Baseboard and window sills are to be spot cleaned whenever necessary. 7. All cleaning of cafeterias, vending areas, kitchen facilities are excluded. Lessee may make necessary arrangements for same directly with Lessor's cleaning maintenance company. 8. Cleaning hours shall be Monday through Friday between 5:30 p.m. and 11:00 p.m. 9. No cleaning service is provided on Saturday, Sunday and Building Holidays. 10. Cartons or refuse in excess which can not be placed in wastebaskets will not be removed. Lessee is responsible to place such unusual refuse in trash dumpster. 11. Cleaning maintenance company will not remove nor clean tea, office cups or similar containers. If such liquids are spilled in waste baskets, the waste baskets will be emptied but not otherwise cleaned. Lessor will not be responsible for any stained carpet caused from liquids leaking or spilling from Lessee's wastepaper receptacles. 12. Upon completion of cleaning, all lights will be turned off and doors locked leaving the Premises in an orderly condition. 13. Glass entrance doors will be cleaned nightly. Interior glass doors or glass partitions are excluded. Lessee may make arrangements for same with Lessor's cleaning maintenance company. COMMON AREAS 1. Vacuum all carpeting in entrance lobbies, outdoor mats and all corridors. 2. Wash glass doors in entrance lobby with a clean damp cloth and dry towel. 3. Clean cigarette urns. Sweep and/or wet mop all resilient tile flooring. Hard surface floors such as quarry tile, etc., shall be cleaned nightly. 4. Wash, clean and disinfect water fountains. 5. Clean all elevators and stairwells. 6. Lavatories -- Men and Women. a. Floors in all lavatories shall be wet mopped each evening with a germicidal detergent to ensure a clean and germ free surface. b. Wash and polish all mirrors, shelves, bright work including any piping and toilet seats. c. Wash and disinfect wash basins and sinks using a germicidal detergent. d. Wash and disinfect toilet bowls and urinals. e. Keep lavatory partitions, tiled walls, dispensers and receptacles in a clean condition using a germicidal detergent when necessary. f. Empty and sanitize sanitary disposal receptacles. g. Fill toilet tissue holders, towel dispensers and soap dispensers. Refills to be supplied by Lessor. 7. Clean all air ventilation grill work in ceilings. Exhibit D - Page 1 EXHIBIT E BUILDING HOLIDAYS BUILDING CLOSED * NEW YEAR'S DAY * MEMORIAL DAY * INDEPENDENCE DAY * LABOR DAY * THANKSGIVING DAY * CHRISTMAS DAY -- END -- Exhibit E - Page 1 EXHIBIT F TENANT ESTOPPEL CERTIFICATE TO: MORTGAGEE and/or its affiliates and/or whom else it may concern: 1. The undersigned is the Lessee (Tenant) under that certain Lease dated _______________ by and between ______________ as Lessor (Landlord) and as Lessee, covering those certain premises commonly known and designated as ____ r.s.f, on the _____( ) floor of ______________________,NJ. 2. The Lease has not been modified, changed, altered or amended in any respect (except as indicated following this sentence) and is the only Lease or agreement between the undersigned and the Lessor affecting said premises. If none, state "none." 3. The undersigned has made no agreements with Lessor or its agents or employees concerning free rent, partial rent, rebate of rental payments or any other type of rental concession (except as indicated following this sentence). If none, state "none." 4. The undersigned has accepted and now occupies the premises, and is and has been open for business since ______________, 2000. The Lease term began _____________, 2000, and the rent for said premises has been paid to and including ______________, 2000 in conformity with this Lease agreement. No rent has been prepaid for more than two (2) months. The fixed minimum rent being paid as above is $___________ per month. If Lessee is not in full possession, whether Lessee has assigned the Lease, sublet all or any portion of the Premises, or otherwise transferred any interest in the Lease or the Premises, Lessee agrees to provide a copy of such assignment, sublease, or transfer upon request. 5. The Lease is not in default and is in full force and effect. As of the date hereof, the undersigned is entitled to no credit, no free rent and no offset or deduction in rent. 6. All alterations, improvements, additions, build-outs, or construction required to be performed under the Lease have been completed in accordance with the terms of the Workletter attached to Lease as Exhibit C. 7. The Lease does not contain and the undersigned does not have any outstanding options or rights of first refusal to purchase the premises or any part thereof or the real property of which the premises are a part. 8. No actions, whether voluntary or otherwise, are pending against the undersigned under the bankruptcy laws of the United States or any State thereof. 9. There are currently no valid defenses, counterclaims, off-sets, credits, deductions in rent, or claims against the enforcement of any of the agreements, terms, or conditions of the Lease. 10. The undersigned acknowledges that all the interest of Lessor in and to the above-mentioned Lease is being duly assigned to MORTGAGEE or one of its affiliates hereunder and that pursuant to the terms thereof (i) all rental payments under said Lease shall continue to be paid to Lessor in accordance with the terms of the Lease unless and until you are otherwise notified in writing by MORTGAGEE, or its successor or assigns and (ii) no modification, revision, or cancellation of the Lease or amendments thereto shall be effective unless a written consent thereto of such mortgagee is first obtained. 11. The undersigned is authorized to execute this Tenant Estoppel Certificate on behalf of the Lessee. Dated this ______________day of _____________________, 2000 , LESSEE _________________________________ Name: Title: Exhibit F - Page 1 EXHIBIT G COMMENCEMENT DATE AGREEMENT 1. PARTIES THIS AGREEMENT made the ____________day of _________________, 2000 is by and between ________________________________________ (hereinafter "Lessor") whose address is c/o Mack-Cali Realty Corporation, 11 Commerce Drive, Cranford, New Jersey 07016 and ___________________________ (hereinafter "Lessee") whose address is ____________________. 2. STATEMENT OF FACTS 2.1 Lessor and Lessee entered into a Lease dated _________________, 2000 (hereinafter "Lease") setting forth the terms of occupancy by Lessee of approximately ________________________ rentable square feet on the ___________________(__) floor (hereinafter "Premises") at ____________________________________ (hereinafter "Building"); and 2.2 The Term of the Lease is for ________________________ (__) months with the Commencement Date of the initial Term being defined in the Preamble to the Lease as being subject to change under Articles 27 and 43 thereof; and 2.3 It has been determined in accordance with the provisions of Articles 27 and 43 of the Lease that ____________________________, 2000 is the Commencement Date of the Term of the Lease. 3. STATEMENT OF TERMS NOW, THEREFORE, in consideration of the Premises and the covenants hereinafter set forth, it is agreed: 3.1 The Commencement Date of the Term of the Lease is __________________, 2000 and the Expiration Date thereof is _____________________, 2000 and the Lease Preamble Articles 6 and 9 shall be deemed modified accordingly. 3.2 Article 10 of the Preamble shall be deemed modified as follows: 3.3 This Agreement is executed by the parties hereto for the purpose of providing a record of the Commencement and Expiration Dates of the Lease, adjust the Term of the Lease and Fixed Basic Rent amount accordingly. 3.4 Except as modified herein, the Lease covering the Premises shall remain in full force and effect as if the same were set forth in full herein and Lessor and Lessee hereby ratify and confirm all the terms and conditions thereof. 3.5 This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. 3.6 Each party agrees that it will not raise or assert as a defense to any obligation under the Lease or this Agreement or make any claim that the Lease or this Agreement is invalid or unenforceable due to any failure of this document to comply with ministerial requirements including, but not limited to, requirements for corporate seals, attestations, witnesses, notarizations, or other similar requirements, and each party hereby waives the right to assert any such defense or make any claim of invalidity or unenforceability due to any of the foregoing. IN WITNESS THEREOF, Lessor and Lessee have hereunto set their hands and seals the date and year first above written and acknowledge one to the other they possess the requisite authority to enter into this transaction and to sign this Agreement. LESSOR: LESSEE: MACK-CALI MORRIS REALTY L.L.C. By: Parsippany Office Associates L.L.C. By: Mack-Cali Realty, L.P., managing member By Mack-Cali Realty Corporation, its general partner By:_____________________________ By:_____________________________ John Jay Crandall Name: Vice President, Leasing NJ/PA Title: Exhibit G - Page 1 EXHIBIT H LETTER OF CREDIT FORM Bank: Date: c/o Mack-Cali Realty Corporation 11 Commerce Drive Cranford, New Jersey 07016 RE: Irrevocable, Clean Letter of Credit No. Gentlemen: At the request of ___________(herein the "Company") we, as drawee, hereby establish our Irrevocable Letter of Credit No. ______ in your favor and authorize you to draw on us up to an aggregate sum of ______________, available by your drafts at sight as of All drafts must be presented at our office at our close of business not later than ______ together with a statement signed by a duly authorized representative of (or duly authorized designee of any subsequent holder of this credit) (herein the "Beneficiary") certifying that the Beneficiary is entitled to draw such draft pursuant to a Lease Agreement between it and the Company dated _____________. Reference in this credit to a Lease Agreement dated ____________ is for identification purposes only, and the terms and conditions of same are not incorporated in nor made part of this credit. We hereby engage with you (and any subsequent holder of this credit) that we shall accept said statement as binding, correct and conclusive without verification or investigation as to the accuracy, veracity, correctness, genuineness or validity of the same. If this credit is not renewed on or before the last date for presentation of drafts for an additional period not less than twelve (12) months on an ongoing basis throughout the term of the Lease Agreement, the amount of this credit shall be paid to the Beneficiary upon demand, notwithstanding that such demand may be made up to thirty (30) days after the last date for presentation of drafts. Should the Beneficiary not make demand for payment within the specified period, then the Letter of Credit shall be automatically renewed for an additional twelve (12) month period for each succeeding year until or thirty (30) days after the expiration or sooner termination of the aforesaid Lease Agreement, whichever occurs later. No charges are payable by the Beneficiary. All charges are for the account of the Company. We hereby engage with the drawers, endorsers and bona fide holders of all drafts drawn under and in compliance with the terms of this Letter of Credit that such drafts will be duly honored upon presentation to the drawee. This Letter of Credit is subject to the "Uniform Customs and Practice for Documentary Credits" International Chamber of Commerce Brochure, Address all drafts, documents and correspondence regarding this Letter of Credit to at the above address, mentioning specifically our Letter of Credit No. ________________. Very truly yours, Exhibit H - Page 1 EX-10.2 4 b40875mcex10-2.txt TERMINATION AGREEMENT EXHIBIT 10.2 TERMINATION AGREEMENT This Agreement (the "Termination Agreement") made this 1st day of November 2001, is entered into by and between The Medicines Company, a Delaware corporation with its principal place of business at One Cambridge Center, Cambridge, Massachusetts 02142 (the "Company"), and Stack Pharmaceuticals, Inc, a Delaware corporation with its principal place of business at 5 Sylvan Way, Parsippany, New Jersey 07054 ("SPI"). WHEREAS, the Company and SPI (together, the "Parties") are parties to that certain Services Agreement dated April 1, 2000, as amended (the "Services Agreement"), by and between the Company and SPI pursuant to which SPI provides requested infrastructure, consulting, advisory and related services to the Company; WHEREAS, the Parties desire to terminate the Services Agreement; and WHEREAS, SPI desires to assign to the Company, and the Company desires to acquire from SPI, certain furniture, equipment and other property; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. Termination of Agreement. The Parties agree that upon the date hereof, the Services Agreement shall terminate and be of no further force or effect; provided however that Sections 5 and 7 (and Sections 9 through 15 to the extent applicable to Sections 5 and 7) shall survive the termination of the Services Agreement. 2. Assignment of Lease. The Parties acknowledge and agree that the Lease dated February 28, 2000 between SPI and Mack-Cali Morris Realty LLC has been assigned and assumed by the Company effective as of the date hereof in accordance with the terms of, and pursuant to, that certain Assignment and Assumption of Lease dated October 18, 2001 by and between the Parties. 3. Sale of Furniture and Equipment. (a) For and in consideration of the payment by the Company to SPI of the Purchase Price (as defined below), SPI hereby sells, transfers, conveys, and assigns to the Company all of SPI's right, title and interest to the furniture, equipment and other property set forth on Exhibit A hereto (the "Purchased Property"). (b) In connection with the Company's purchase of the Purchased Property from SPI, the Company hereby agrees to pay SPI $71,032.06 (the "Purchase Price"). (c) SPI hereby represents to the Company that it is the true and lawful owner, and has good title to, all of the Purchased Property, free and clear of any security interest or other encumbrance, and that upon the sale and purchase contemplated by this Section 3, the Company will become the true and lawful owner of, and will receive good title to, the Purchased Property, free and clear of any security interest or other encumbrance. (d) At any time and from time to time after the date hereof, at the request of the Company and without further consideration, SPI shall execute and deliver such instruments of sale, transfer, conveyance and assignment and take such actions as the Company may reasonably request to more effectively transfer, convey and assign to the Company, and to confirm the Company's rights to, title in and ownership of, the Purchased Property and to place the Company in actual possession and operating control thereof. 4. Miscellaneous (a) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document. (b) Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of New Jersey. (c) Successors and Assigns. This Termination Agreement shall be binding upon each Party and its successors and assigns and shall inure to the benefit of the other Party and its successors and assigns, including any entity with which or into which such Party may be merged or which may succeed to its assets or business. (d) Entire Agreement. This Termination Agreement constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Termination Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. THE MEDICINES COMPANY By: /s/ Clive Meanwell ------------------------- Clive A. Meanwell Title: Chairman STACK PHARMACEUTICALS, INC. By: /s/ David M. Stack ------------------------- David M. Stack Title: President Exhibit A Purchased Property Computers and Computer Equipment; and Furniture and Interior Furnishings, to be agreed upon. EX-10.3 5 b40875mcex10-3.txt AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.3 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement (this "Amendment"), made as of the 10th day of July, 2001, is entered into by The Medicines Company, a Delaware corporation with its principal place of business at One Cambridge Center, Cambridge, Massachusetts 02142 (the "Company"), and David Stack, residing at One Robin Drive, Oak Ridge, New Jersey 07438 (the "Employee"). WHEREAS, the Company and the Employee are parties to an Employment Agreement dated as of April 1, 2000, as amended (the "Employment Agreement"); and WHEREAS, the Company and the Employee desire to make certain amendments to the terms of the Employment Agreement to reflect the Employee's agreement to devote his full business time to the Company; NOW THEREFORE, in consideration of these premises, the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows: I. Employment Agreement 1. Defined Terms. The capitalized terms used herein but not otherwise defined shall have the meanings assigned to them in the Employment Agreement. 2. Title; Capacity. The Employment Agreement is hereby amended by deleting Section 2 of the Employment Agreement in its entirety and inserting in lieu thereof the following: "2. Title; Capacity. The Employee shall serve as Senior Vice President or in such other position as the Company or its Board of Directors (the "Board") may determine from time to time. The Employee shall be based at the Company's principal offices in New Jersey, unless otherwise agreed by the parties. The Employee shall be subject to the supervision of, and shall have such authority as is delegated to him by Clive Meanwell (or if Dr. Meanwell shall have ceased to serve as Chief Executive Officer or Chairman of the Company, the Board or such officer of the Company as may be designated by the Board). The Employee hereby accepts such employment on a full-time basis and agrees to undertake the duties and responsibilities inherent in such position and/or such other duties and responsibilities as Dr. Meanwell (or the Board or its designee) shall from time to time reasonably assign to him. The Company acknowledges and agrees that during the Employment Period, the Employee may continue to serve on the board of directors of the companies listed on Exhibit A attached hereto (as amended from time to time upon the written agreement of the Company and the Employee, the "Permitted Boards"). The Company also acknowledges and agrees that the Employee may devote a portion of his business time to the winding down and termination of operations of Stack Pharmaceuticals, Inc. ("SPI"), provided that the Employee is working in good faith to wind down and terminate the operations of SPI as promptly as possible, consistent with good business judgment and SPI's obligations under contracts to which SPI is currently a party. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company except as provided in these agreements. The Employee acknowledges receipt of copies of all such rules and policies committed to writing as of the date of this Agreement." 3. Salary; Vacation. The annual base salary payable to the Employee shall be $265,000 commencing on August 1, 2001. The Employee shall be entitled to four weeks paid vacation per year, to be taken at such times as may be approved by Dr. Meanwell (or the Board or its designee). 4. Termination for Cause. The Employment Agreement is hereby amended by deleting paragraphs (e) and (f) of Section 4.2 of the Employment Agreement in their entirety and inserting in lieu thereof the following: "(e) the Employee's excessive use of alcohol and/or drugs which is judged by the Board to materially interfere with the performance of his duties; "(f) any misconduct by the Employee which in the reasonable judgment of the Board would jeopardize the success of the Company; or "(g) the Employee's breach of the Invention and Non-Disclosure Agreement dated as of July 10, 2001 between the Company and the Employee." 5. Non-Compete. (a) The Employment Agreement is hereby amended by deleting the last sentence of Section 6.1 of the Employment Agreement in its entirety and inserting in lieu thereof the following: "For this purpose, "Competitive Products" shall mean a product with chemical or commercial characteristics of the kind or type developed or being developed, produced, marketed or sold by the Company during the Employment Period."; provided that this amendment shall not be effective with respect to the activities and business conducted by SPI under contracts to which SPI is currently a party until such time as the operations of SPI are wound down and terminated. - 2 - (b) The Employment Agreement is hereby amended by adding the following sentence to the end of Section 6.2 of the Employment Agreement: "The Company also agrees that a directorship by the Employee on a Permitted Board shall not be considered a violation of Section 6.1, so long as the Employee notifies the Company in writing of any potential violation of Section 6.1 as a result of such directorship and Dr. Meanwell (or the Board or its designee) agrees in writing that such directorship shall not be considered a violation of Section 6.1." 6. Inventions and Proprietary Information. (a) The Employment Agreement is hereby amended by deleting Section 8 in its entirety. This amendment shall only be effective from and after the date hereof and shall have no retroactive effect on the Employee. (b) On or prior to the date hereof, the Employee shall have executed an Invention and Non-Disclosure Agreement (the "Invention Agreement") with the Company, which shall be effective from and after the date hereof. The Employee hereby confirms and ratifies his obligation thereunder. II. Stock Options Upon the date hereof, the Company shall grant to the Employee non-statutory stock options to purchase 200,000 shares of Common Stock on the terms and in the form of Non-statutory Stock Option Agreement attached hereto as Exhibit B (the "Option Agreement"). Such options shall vest in equal monthly installments in arrears over the four-year period commencing on the date hereof in accordance with the Option Agreement; provided, however, that, subject to the express terms set forth in the Option Agreement, (a) if a Change in Control Event (as defined in the Option Agreement) occurs prior to the date, if any, on which the Employee is first elected as Chief Executive Officer of the Company, upon such Change in Control Event such options shall become immediately exercisable in full, and (b) if a Change in Control Event occurs on or after the date, if any, on which the Employee is first elected as Chief Executive Officer of the Company, then following such Change in Control Event such options shall become immediately exercisable in full if, on or prior to the first anniversary of the date of the consummation of the Change in Control Event, a Termination Event (as defined in the Option Agreement) occurs. III. Winding Down of Stack Pharmaceuticals, Inc. The Company and the Employee agree that promptly following the execution of this Agreement, the Company and the Employee shall discuss in good faith the Company's role in the winding down and termination of the operations of Stack Pharmaceuticals, Inc. ("SPI"), including without limitation the proposed transition to the - 3 - Company of certain activities currently being undertaken by SPI, the proposed acquisition by the Company of certain assets of SPI and the proposed assumption by the Company of certain obligations and liabilities of SPI (it being understood that neither SPI nor the Company shall be obligated hereunder to consummate any transaction with respect to the winding down and termination of the operations of SPI until such time as definitive agreements are entered into between SPI and the Company). IV. Miscellaneous Provisions 1. The captions of the sections of this Amendment are for convenience of reference only and in no way define, limit, or affect the scope or substance of any section of this Amendment. 2. This Amendment shall be construed, interpreted, and enforced in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to conflict of laws provisions. 3. This Amendment, together with the Employment Agreement, the Invention Agreement and the Option Agreement, constitute the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter hereof. 4. In all respects other than as specifically provided in this Amendment, the Employment Agreement is hereby ratified and affirmed. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year set forth above. THE MEDICINES COMPANY By: /s/ Clive Meanwell -------------------------- Clive A. Meanwell Chief Executive Officer EMPLOYEE /s/ David Stack -------------------------------- David Stack - 4 - EXHIBIT B THE MEDICINES COMPANY Nonstatutory Stock Option Agreement Granted Under 1998 Stock Incentive Plan 1. Grant of Option. This agreement evidences the grant by The Medicines Company, a Delaware corporation (the "Company") on July 10, 2001 (the "Grant Date") to David Stack, an employee of the Company (the "Participant"), of an option to purchase, in whole or in part, on the terms provided herein and in the Company's 1998 Stock Incentive Plan (the "Plan"), a total of 200,000 shares (the "Shares") of common stock, $0.001 par value per share ("Common Stock"), of the Company at a price of $18.10 per Share. Unless earlier terminated, this option shall expire on the tenth anniversary of the Grant Date (the "Final Exercise Date"). It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended and any regulations promulgated thereunder (the "Code"). Except as otherwise indicated by the context, the term "Participant", as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms. 2. Vesting Schedule. (a) The options will vest in equal monthly installments in arrears over the four-year period commencing on the Grant Date as determined by multiplying the original number of Shares by a fraction, the numerator of which shall equal the total number of months elapsed from the Grant Date and the denominator shall be 48. This option shall expire upon, and will not be exercisable after, the Final Exercise Date. (b) The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan. (c) Upon the occurrence of an Acquisition Event (as defined below) (regardless of whether such event also constitutes a Change in Control Event (as defined below)), or the execution by the Company of any agreement with respect to an Acquisition Event (regardless of whether such event will result in a Change in Control Event), the Board shall provide that this option shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that if such Acquisition Event also constitutes a Change in Control Event, except to the extent specifically provided to the contrary in this agreement or any other agreement between the Participant and the Company, (i) if such Change in Control Event occurs prior to the date, if any, on which the Participant is first elected as Chief Executive Officer of the Company, such assumed or substituted options shall become immediately exercisable in full, and (ii) if such Change in Control Event occurs on or after the date, if any, on which the Participant is first elected as Chief Executive Officer of the Company, such assumed or substituted options shall become immediately exercisable in full if, on or prior to the first anniversary of the date of the consummation of the Change in Control Event, a Termination Event (as defined below) occurs. Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, this option, then the Board shall (x) upon written notice to the Participant, provide that all then unexercised portion of this option will become exercisable in full as of a specified time (the "Acceleration Time") prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the Participant before the consummation of such Acquisition Event, and/or (y) in the event of an Acquisition Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price"), provide that this option shall terminate upon consummation of such Acquisition Event and the Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to this option (whether or not then exercisable), exceeds (B) the aggregate exercise price of this option. (d) Following the occurrence of a Change in Control Event that does not also constitute an Acquisition Event, except to the extent specifically provided to the contrary in this agreement or any other agreement between the Participant and the Company, (i) if such Change in Control Event occurs prior to the date, if any, on which the Participant is first elected as Chief Executive Officer of the Company, this option shall become immediately exercisable in full, and (ii) if such Change in Control Event occurs on or after the date, if any, on which the Participant is first elected as Chief Executive Officer of the Company, this option shall become immediately exercisable in full if, on or prior to the first anniversary of the date of the consummation of the Change in Control Event, a Termination Event occurs. (e) With the consent of the Board, which may be withheld, the Participant may at any time exercise this option as to all or any part of the Shares, including then unvested Shares, provided, that the Participant as a condition to such exercise executes and delivers an Agreement Covering Shares Acquired Upon Exercise of Unvested Options (and escrow agreement), upon terms satisfactory to the Company, pursuant to which the Company shall have the right to purchase, upon termination of the Participant's employment, all Shares that would not then have been vested under the terms set forth in this agreement or the Plan. (f) Notwithstanding anything in this option to the contrary, in the event that the Participant's relationship with the Company is terminated by reason of death or disability (within the meaning of Section 22(e)(3) of the Code), then, in addition to the Shares as to which this option is exercisable as of such termination date pursuant to the terms hereof, this option shall also become exercisable for an additional number of Shares equal to 50% of the Shares covered by this option which were not otherwise exercisable as of such termination date. For example, if as of the termination date, 6,000 shares of a 10,000 share stock option had vested and no shares covered by such option had been exercised, upon such termination date, the option would become exercisable for an additional 2,000 shares (50% of (10,000 - 6,000)) or total of 8,000 shares. (g) For purposes of this Section 2, the following terms shall have the definitions set forth below: (1) An "Acquisition Event" shall mean: (A) any merger or consolidation of the Company with or into another entity as a result of which the Common Stock is converted into or exchanged for the right to receive cash, securities or other property; or (B) any exchange of shares of the Company for cash, securities or other property pursuant to a statutory share exchange transaction. (2) A "Change in Control Event" shall mean: (A) any sale or transfer of all or substantially all of the assets of the Company to another corporation or entity, any merger, consolidation or reorganization of the Company into or with another corporation or entity, with the result that, upon conclusion of the transaction, the voting securities of the Company immediately prior thereto do not represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the continuing or surviving entity of such consolidation, merger or reorganization; or (B) following the date on which the Company becomes subject to the periodic reporting requirements under Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), a disclosure that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than (i) any shareholder who, prior to the Company becoming subject to such reporting requirements of Section 13 of the Exchange Act, previously held at least 30% of the combined voting power of outstanding voting securities of the Company, (ii) the Company or (iii) any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation thereto under the Exchange Act) of securities representing 30% or more of the combined voting power of the then outstanding voting securities of the Company; or (C) such time as individuals who as of the date of the initial adoption of the Plan constitute the Board of Directors of the Company, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect any transaction described in clause (A) or (B) of this section) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were either directors at the beginning of the period or whose election or whose nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors. (3) "Termination Event" shall mean the termination of the Participant's employment by (i) by the Company or the acquiring or succeeding corporation without Cause (as defined in the Employment Agreement dated as of April 1, 2000, as amended, between the Company and the Participant, as amended from time to time); (ii) as a result of his death or disability (within the meaning of Section 22(4)(3) of the Code); or (iii) by the Participant upon written notice given promptly after the Company's or the acquiring or succeeding corporation's taking any of the following actions, which actions shall not have been cured within a 30-day period following such notice: (w) the principal place of the performance of the Participant's responsibilities (the "Principal Location") is changed to a location outside of a 30 mile radius from the Principal Location immediately prior to the Change in Control Event; (x) there is a material reduction in the Participant's responsibilities without Cause; (y) there is a material reduction in the Participant's salary; or (z) there is a significant diminution in the scope of the Participant's responsibilities without the Participant's agreement (excluding increases in responsibility and sideways moves to jobs with similar descriptions). 3. Exercise of Option. Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share or for fewer than ten whole shares. Continuous Relationship with the Company Required. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the date of grant of this option, an employee, officer or director of, or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an "Eligible Participant"). Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation. Exercise Period Upon Death or Disability. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for "cause" as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant, provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date. Discharge for Cause. If the Participant, prior to the Final Exercise Date, is discharged by the Company for Cause, the right to exercise this option shall terminate immediately upon the effective date of such discharge. "Cause" shall mean: (i) conviction of any felony or any crime involving moral turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty against the Company; (iii) willful and material breach of the Company's policies; (iv) intentional and material damage to the Company's property; or (v) material breach of such Participant's non-disclosure, non-competition or other similar agreement with the company. 4. Withholding. No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option. 5. Nontransferability of Option. This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant. 6. Provisions of the Plan. This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option. IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument. The Medicines Company Dated: __________ By: _________________________ Clive Meanwell Chief Executive Officer PARTICIPANT'S ACCEPTANCE The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company's 1998 Stock Incentive Plan. PARTICIPANT: ____________________________ Address: ___________________________________ __________________________________ EX-10.4 6 b40875mcex10-4.txt AMENDED & RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.4 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 1st day of November, 2001, is entered into by The Medicines Company, a Delaware corporation with its principal place of business at One Cambridge Center, Cambridge, Massachusetts 02142 (the "Company"), and David Stack, residing at One Robin Drive, Oak Ridge, New Jersey 07438 (the "Employee"). WHEREAS, the Company and the Employee are parties to an Employment Agreement dated April 1, 2000 (the "April 2000 Employment Agreement"), which was amended by an Amendment to Employment Agreement dated July 10, 2001 ("Amendment No. 1", with the April 2000 Employment Agreement, as amended by Amendment No. 1, being referred to as the "Former Employment Agreement"); WHEREAS, on September 24, 2001, the Board of Directors of the Company elected the Employee as President and Chief Executive Officer and a Director of the Company; and WHEREAS, the Company and the Employee wish to amend and restate the Former Employment Agreement to, among other things, reflect the Employee's new positions with the Company; NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows: 1. Term of Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on November 1, 2001 (the "Commencement Date") and ending on November 1, 2002 (such period, as it may be renewed as provided in the following sentence, the "Employment Period"), unless sooner terminated in accordance with the provisions of Section 4. The Employment Period shall automatically be renewed for successive one (1) year periods unless either the Employee or the Company provide written notice of non-renewal to the other party at least ninety (90) days prior to the expiration of the then current term. 2. Title; Capacity. The Employee shall serve as President and Chief Executive Officer or in such other position or positions as the Company or its Board of Directors (the "Board") may determine from time to time. The Employee shall be based at the Company's principal offices in New Jersey, unless otherwise agreed by the parties. The Employee shall be subject to the supervision of, and shall have such authority as is delegated to him by Clive Meanwell (or if Dr. Meanwell shall have ceased to serve as Chairman of the Company, the Board or such officer of the Company as may be designated by the Board.) The Employee hereby accepts such employment on a full-time basis and agrees to undertake the duties and responsibilities inherent in such position and/or such other duties and responsibilities as Dr. Meanwell (or the Board or its designee) shall from time to time reasonably assign to him. The Company acknowledges and agrees that during the Employment Period, the Employee may continue to serve on the board of directors of the companies listed on Exhibit A attached hereto (as amended from time to time upon the written agreement of the Company and the Employee, the "Permitted Boards"). The Company also acknowledges and agrees that the Employee may devote a portion of his business time to the winding down and termination of operations of Stack Pharmaceuticals, Inc. ("SPI"), provided that the Employee is working in good faith to wind down and terminate the operations of SPI as promptly as possible, consistent with good business judgment and SPI's obligations under contracts to which SPI is currently a party. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company except as provided in these agreements. The Employee acknowledges receipt of copies of all such rules and policies committed to writing as of the date of this Agreement. -2- 3. Compensation and Benefits. 3.1 Salary. The Company shall pay the Employee, in semi-monthly installments, an annual base salary of $265,000 for the one-year period commencing on the Commencement Date. Such salary shall be subject to adjustment thereafter as determined by the Board, but shall not be reduced below the amount set forth above without the Employee's consent. 3.2 Bonus. The Employee shall be eligible to receive a bonus of up to 40% of his base salary upon the achievement of annual objectives to be approved by the Chairman of the Company after discussion with the Employee. The Board shall review the Employee's performance and determine the amount of the bonus, if any, to be paid to the Employee. 3.3 Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request. 3.4 Fringe Benefits. The Employee shall be entitled to participate in all other bonus and stock incentive programs that the Company establishes and makes available to its other employees at the same level as the Employee to the extent that Employee's position, tenure, salary, age, health and other qualifications make him eligible to participate. The Employee shall be entitled to four weeks paid vacation per year, to be taken at such times as may be approved by Dr. Meanwell (or the Board or its designee). 4. Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 4.1 Expiration of Employment Period. Expiration of the Employment Period in accordance with Section 1. -3- 4.2 Termination for Cause. At the election of the Company, immediately upon written notice by the Company to the Employee, for "cause" as determined by the Board. For purposes of this Section 4.2, "cause" for termination shall be deemed to exist only if any of the following shall have occurred: (a) the Employee's conviction of any crime (whether or not involving the Company) which constitutes a felony in the jurisdiction involved (other than unintentional motor vehicle felonies); (b) any act of theft, fraud, misappropriation of funds or embezzlement by the Employee, in connection with his work with the Company, or any other act or acts of dishonesty on the part of the Employee resulting or intended to result directly or indirectly in personal gain or enrichment of the Employee at the expense of the Company; (c) the Employee's failure to perform in all material respects the services required to be performed pursuant to Section 2 of this Agreement, provided that if such failure is capable of being corrected, such failure continues uncorrected for a period of thirty (30) days after the Employee shall have received written notice from the Company stating with reasonably specificity the nature of such failure; (d) the Employee's breach of Sections 6 or 7 of this Agreement; (e) the Employee's excessive use of alcohol and/or drugs which is judged by the Board to materially interfere with the performance of his duties; (f) any misconduct by the Employee which in the reasonable judgment of the Board would jeopardize the success of the Company; or (g) the Employee's breach of the Invention and Non-Disclosure Agreement dated as of July 10, 2001 between the Company and the Employee (the "Invention Agreement"). -4- 4.3 Death or Disability. Thirty (30) days after the death or disability of the Employee. As used in this Agreement, the term "disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of ninety (90) days, whether or not consecutive, during any 360-day period to perform the services contemplated under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Employee and the Company, provided that if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. 4.4 Voluntary Termination. At the election of either party, upon written notice of termination given at least ninety (90) days prior to the effective date of termination. 4.5 Voluntary Termination for "Good Reason." At the election of the Employee, upon at least 30 days prior written notice to the Company, for "Good Reason," which shall be deemed to exist only if: (i) if the Company fails to comply in any material respect with the provisions of Section 3, other than an isolated, insubstantial and inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Employee; or (ii) the Company shall require the Employee to be based at a location that is more than 50 miles from Parsippany, New Jersey. 5. Effect of Termination. 5.1 Termination for Cause or at Election of Employee. In the event the Employee's employment is terminated for cause pursuant to Section 4.2, at the election of the Employee pursuant to Section 4.4, or at the election of either party pursuant to Section 4.6, the Company shall pay to the Employee all sums otherwise payable to him under Section 3 through the last day of his actual employment by the Company. -5- 5.2 Termination for Death or Disability. If the Employee's employment is terminated by death or because of disability pursuant to Section 4.3, the Company shall pay to the estate of the Employee or to the Employee, as the case may be, all sums which would otherwise be payable to the Employee under Section 3 up to the end of the month in which the termination of his employment because of death or disability occurs. 5.3 Termination for Good Reason or at Election of Company. In the event that Employee's employment is terminated by the Employee for "Good Reason" pursuant to Section 4.5, or at the election of the Company pursuant to Section 4.4, the Company shall continue to pay to the Employee the salary set forth in Section 3.1, and shall continue to make available to the Employee the benefits set forth in Section 3.3, excluding vacation days and bonus sums under said Section 3.3 accrued during this period, until the date three (3) months after the date of termination, but in no event later than such date as the Employee shall have commenced full-time employment with a new employer. 5.4 Survival. The provisions of Sections 6 and 7 shall survive the termination of this Agreement. 6. Non-Compete. 6.1 Non-Compete Restrictions During the Employment Period and for a period of one (1) year after the termination or expiration thereof (such one (1) year period being inapplicable in the event of a termination pursuant to Section 4.4 at the election of the Company or by the Employee pursuant to Section 4.5), the Employee will not directly or indirectly as an individual proprietor, partner, officer, consultant, employee, director, joint venturer, or in any other similar capacity engage in the business of developing, producing, marketing or selling (or assist any other person engaging in the business of developing, producing, marketing or selling) -6- any Competitive Products. For this purpose, "Competitive Products" shall mean a product with chemical or commercial characteristics of the kind or type developed or being developed, produced, marketed or sold by the Company during the Employment Period. Notwithstanding the foregoing, the Employee shall not be prohibited from engaging in the activities and business conducted by SPI under contracts to which SPI is currently a party until such time as the operations of SPI are wound down and terminated. 6.2 Limitations. Notwithstanding the provisions of Section 6.1, it is recognized that the Employee's primary experience is in the pharmaceutical industry, and that his ability to earn a livelihood is likely to be dependent on future employment in such industry. Accordingly, the Company agrees that the employment of the Employee by a pharmaceutical company in a position in which he assumes responsibility for multiple products, most of which are not Competitive Products, shall not be considered a violation of Section 6.1, so long as (i) the Employee's responsibilities in such position are not directed principally to Competitive Products, (ii) the portfolio of the pharmaceutical company which hires the Employee must contain the Competitive Products prior to the hiring of the Employee, and (iii) the pharmaceutical company which hires the Employee has been in existence for at least five (5) years prior to hiring the Employee. The Company also agrees that a directorship by the Employee on a Permitted Board shall not be considered a violation of Section 6.1, so long as the Employee notifies the Company in writing of any potential violation of Section 6.1 as a result of such directorship and Dr. Meanwell (or the Board or its designee) agrees in writing that such directorship shall not be considered a violation of Section 6.1. -7- 6.3 Extension. If the Employee violates the provisions of Section 6.1, the Employee shall continue to be bound by the restrictions set forth in this Section 6 until a period of one year has expired without any violation of such provision. 6.4 Cutback Clause. If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 6.5 Equitable Remedies. The restrictions contained in this Section 6 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for such purpose. The Employee agrees that any breach of Section 6.1 is likely to cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, the Employee agrees that the Company, in addition to such other remedies which may be available, shall be entitled to specific performance and other injunctive relief. 7. Non-solicitation. 7.1 Non-solicitation Restrictions. While the Employee is employed by the Company and for a period of one (1) year after the termination or cessation of such employment for any reason, the Employee will not directly or indirectly recruit, solicit or hire any employee of the Company, or induce or attempt to induce any employee of the Company to terminate his/her employment with, or otherwise cease his/her relationship with, the Company (other than Thomas Quinn, Fred Ryan, or Melinda Popolla). If the Employee violates the provisions of this Section 7.1, the Employee shall continue to be bound by the restrictions set forth in this Section 7.1 until a period of one (1) year has expired without any violation of such provisions. -8- 7.2 Cutback Clause. If any restriction set forth in Section 7.1 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time or range of activities as to which it may be enforceable. 7.3 Equitable Remedies. The restrictions contained in Section 7.1 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for such purpose. The Employee agrees that any breach of Section 7 is likely to cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, the Employee agrees that the Company, in addition to such other remedies which may be available, shall be entitled to specific performance and other injunctive relief. 8. Inventions and Proprietary Information. On July 10, 2001, the Employee executed the Invention Agreement with the Company. The Employee hereby confirms and ratifies his obligation thereunder. 9. Other Agreements. Employee hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Employee further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. 10. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United -9- States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 10. 11. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 12. Entire Agreement. This Agreement, together with the Invention Agreement, constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement, including without limitation the Former Employment Agreement, which this Agreement amends and restates and which shall be of no further force or effect after the date hereof. 13. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 14. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of New Jersey. 15. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any entity with which or into which the Company may be merged or which may succeed to its assets or business, provided, however, that the obligations of the Employee are personal and shall not be assigned by him. 16. Miscellaneous. 16.1 No Waiver. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. -10- 16.2 Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 16.3 Enforceability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 16.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document. [Remainder of page intentionally omitted] -11- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. THE MEDICINES COMPANY By: /s/ Clive Meanwell ------------------ Clive A. Meanwell Chairman /s/David Stack -------------- David Stack -12- Exhibit A Bio-Imaging Technologies, Inc. Medsite, Inc. -13- -----END PRIVACY-ENHANCED MESSAGE-----