-----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, R2jo9WeESCoqKXUHc3osnA3cPIvh8qMiVEhkmr4libuca1YG/VQM7GcQ1gyNfnNI GopOyjI61ItciZQLfsw6Pw== 0000950116-02-000525.txt : 20020415 0000950116-02-000525.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950116-02-000525 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOSE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000877902 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 133549286 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27718 FILM NUMBER: 02593304 BUSINESS ADDRESS: STREET 1: 102 WITMER RD CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: 2154415890 MAIL ADDRESS: STREET 1: 102 WITMER ROAD CITY: HORSHAM STATE: PA ZIP: 19044 FORMER COMPANY: FORMER CONFORMED NAME: NEOSE PHARMACEUTICALS INC DATE OF NAME CHANGE: 19950817 10-K 1 ten-k.txt FORM 10-K
================================================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ________ to _______ Commission File Number 0-27718 NEOSE TECHNOLOGIES, INC. ---------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3549286 ----------------------------------------------- ---------------------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 102 Witmer Road Horsham, Pennsylvania 19044 --------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 441-5890 -------------- Securities registered pursuant to Section 12(b) of the Act: None None ------------------- ----------------------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Preferred Share Purchase Rights ------------------------------- (Title of class) Common Stock, par value $.01 per share -------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K.[ ] As of March 25, 2002, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $290,084,000 based on the last sale price of the Common Stock as reported by the The Nasdaq Stock Market. This calculation excludes 4,472,706 shares held by directors, executive officers, and a holder of more than 10% of the registrant's Common Stock. As of March 25, 2002, there were 14,145,407 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive proxy statement to be filed in connection with solicitation of proxies for its Annual Meeting of Stockholders to be held on June 25, 2002, is incorporated by reference into Part III of this Annual Report on Form 10-K. ================================================================================================================
TABLE OF CONTENTS
PART I ITEM 1. BUSINESS...........................................................................................1 ITEM 2. PROPERTIES........................................................................................19 ITEM 3. LEGAL PROCEEDINGS.................................................................................20 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................21 ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA...................................................22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.........................................27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................................28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..............28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY...................................................29 ITEM 11. EXECUTIVE COMPENSATION............................................................................29 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................29 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..................................30
NEOSE, GlycoAdvance, GlycoTherapeutics, and GlycoActives are trademarks of Neose Technologies, Inc. This Form 10-K also includes trademarks and trade names of other companies. PART I ITEM 1. BUSINESS. Forward-Looking Statements Some of the statements in this Annual Report on Form 10-K and the Exhibits contain forward-looking statements within Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-K and the Exhibits, the words "anticipate," "believe," "estimate," "may," "expect," "intend," and similar expressions are generally intended to identify forward-looking statements. These forward-looking statements include, among others, the statements in Management's Discussion and Analysis of Financial Condition and Results of Operations about our: o expectations for increases in operating expenses; o expectations for increases in research and development, and marketing, general and administrative expenses in order to develop products, manufacture commercial quantities of products and commercialize our technology; o expectations for the development, manufacturing, and approval of new products, including our own proprietary products; o expectations for incurring additional capital expenditures to expand our manufacturing capabilities; o expectations for generating revenue or becoming profitable on a sustained basis; o ability to enter into additional collaboration agreements and the ability of our existing collaboration partners to commercialize products incorporating our technologies; o estimate of the sufficiency of our existing cash and cash equivalents and investments to finance our operating and capital requirements; o expected losses; and o expectations for future capital requirements. Our actual results could differ materially from those results expressed in, or implied by, these forward-looking statements. Potential risks and uncertainties that could affect our actual results include the following: o our ability to commercialize any products or technologies; o our ability to maintain our existing collaborative arrangements and enter into new collaborative arrangements; o our ability to develop commercial-scale manufacturing facilities; o our ability to protect our proprietary products, know-how, and manufacturing processes; o unanticipated cash requirements to support current operations or research and development; o the timing and extent of funding requirements for the activities of our joint venture with McNeil Nutritionals; o our ability to attract and retain key personnel; and o general economic conditions. These and other risks and uncertainties that could affect our actual results are discussed in greater detail in this Annual Report on Form 10-K. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance, or achievements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements. We do not undertake any duty to update after the date of this Annual Report on Form 10-K any of the forward-looking statements in this report to conform them to actual results. 1 RISK FACTORS You should carefully consider the risks and uncertainties described below. If any of the following occur, our business, financial condition, or operating results could be materially harmed. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment. Risks Related to Our Business We have not yet commercialized any products or technologies, and we may never become profitable. We have not yet commercialized any products or technologies and we may never be able to do so. Since we began operations in 1990, we have not generated any revenues, except for interest income and revenues from collaborative agreements and investments. Even if we or our collaborators commercialize one or more of our technologies or any products that incorporate our technologies, we may not become profitable. Our ability to achieve profitability is dependent on a number of factors, including our ability to complete our development efforts and enter into collaborative agreements with others to incorporate our technologies into their products or develop and commercialize our own products. Furthermore, our ability to achieve profitability is dependent upon the willingness and ability of our collaborators to incorporate successfully our technologies into, obtain regulatory approval for, and commercialize successfully their product candidates or our ability to commercialize our own product candidates. We have a history of losses, and we may incur continued losses for some time. We have incurred losses each year, including net losses of approximately $13.3 million for the year ended December 31, 1999, approximately $8.5 million for the year ended December 31, 2000, and approximately $13.3 million for the year ended December 31, 2001. Given our planned level of operating expenses, we may continue to incur losses for some time. As of December 31, 2001, we had an accumulated deficit of approximately $81.6 million. To date, we have derived substantially all of our revenue from corporate collaborations, license agreements, and investments. We expect that substantially all of our revenue for the foreseeable future will result from these sources and from the licensing of our technologies. We also expect to spend significant amounts to expand research and development efforts, expand manufacturing scale-up activities, begin sales and marketing activities, and to fund research and development of drug candidates we develop internally. Because our operating expenses will increase significantly in the near term, we will need to generate significant additional revenue to achieve profitability. In order to generate revenue, we must continue to develop technologies from which we can derive revenue either ourselves or through existing and future collaborations. We may continue to incur substantial losses even if our revenues increase. As a result, we cannot predict the extent of future losses or the time required for us to achieve profitability, if at all. We have a joint venture with McNeil Nutritionals, a subsidiary of Johnson & Johnson. The joint venture has incurred losses since its inception, and we expect the joint venture to incur additional losses for some time as it explores establishing a manufacturing arrangement with a third party. If we fail to obtain necessary funds for our operations, we will be unable to maintain and improve our technology position. To date, we have funded our operations primarily through revenues from corporate collaborations, public and private placements of equity securities, capital equipment and leasehold financing, gains from the sale of investments, and interest earned on investments. We believe that our existing cash and short-term investments, expected revenue from collaborations and license arrangements, anticipated financing of capital expenditures, and interest income should be sufficient to meet our operating and capital requirements through at least 2003. However, our present and future capital requirements depend on many factors, including: o the level of research and development investment required to maintain and improve our technology position; o our ability to enter into new agreements with collaborators or to extend the terms of our existing collaborations, and the terms of any agreement of this type; 2 o our success rate or that of our collaborators in discovery efforts associated with milestones and royalties; o the timing, willingness, and ability of our collaborators to commercialize products incorporating our technologies, which commercialization would result in milestone payments and in royalties; o costs of recruiting and retaining qualified personnel; o costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights; o our need or decision to acquire or license complementary technologies or new drug targets; and o changes in product candidate development plans needed to address any difficulties in clinical studies or in commercialization. If additional funds are required to operate our business, these funds may not be available on terms that we find favorable, if at all. We may raise these funds through public or private equity offerings, debt financings, credit facilities, or through corporate collaborations and licensing arrangements. If we raise additional capital by issuing equity securities, our existing stockholders' percentage ownership will be reduced and they may experience substantial dilution. Any equity securities issued may also provide for rights, preferences, or privileges senior to holders of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to holders of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations. If we enter into a credit facility, the agreement may require us to maintain compliance with financial covenants and restrict our ability to incur additional debt, pay dividends, make redemptions or repurchases of capital stock, make loans, investments or capital expenditures, or engage in other activities. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or drug candidates, or grant licenses on terms that are not favorable to us. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly delayed or limited, and we may need to downsize or halt our operations. Our technologies may prove to be ineffective, or it may be years, if ever, before they lead to commercial products. Our technologies involve new and unproven approaches. We are developing manufacturing processes based on our enzymatic glycosylation technology platform. We intend to use these processes to manufacture enzymes and sugar nucleotides for use by our potential GlycoAdvance(TM) customers, as well as for our own use in manufacturing complex carbohydrates for our GlycoAdvance, GlycoTherapeutics(TM), and GlycoActives(TM) programs. Any evaluation of our business and prospects must be made in light of the risks and unexpected expenses and difficulties frequently encountered by companies in an early stage of development in a new market. For us, these risks include: o we have limited experience in manufacturing enzymes, sugar nucleotides, and complex carbohydrates on a commercial scale; o we may incur unexpected costs, and the costs associated with manufacturing commercial quantities of these compounds may make commercialization unprofitable; o we may fail to overcome the difficulties posed in manufacturing these compounds, or complete successfully all the other activities required to commercialize any enzyme, sugar nucleotide, or complex carbohydrate; o we may encounter difficulties in locating sufficient sources and supplies necessary for our business; and o we may face obstacles and difficulties unknown to us today. We may find that our technologies fail to remodel therapeutic glycoproteins to include the proper human sugars. We may also find that our technologies do not significantly enhance yield improvement, improve the pharmacokinetic properties of glycoproteins, or are not scaleable in commercial production processes. Any of these 3 would result in limiting our ability to enter into additional collaborative agreements or obtain revenues under existing agreements. We do not expect that we will make commercially available any product candidates we develop internally or license from third parties for at least five years, if at all. We may not succeed in our research and product development efforts, and we may not be able to launch any successfully commercialized products. Further, after commercial introduction of a new product, discovery of problems through adverse event reporting could result in restrictions on the product, including recall or withdrawal from the market and, in certain cases, civil or criminal penalties resulting from actions by regulatory authorities or damage from product liability judgments. Many of these risks are described in more detail elsewhere in this "Risk Factors" section. Our business could be seriously harmed by adverse developments in any of these areas. Our success depends on collaborative relationships, and our failure to enter into new, or successfully manage our existing and future, collaborations and license arrangements could prevent us from commercializing our technologies. In the near term, we intend to rely substantially on collaborative partners to commercialize our broad technology platform. This strategy entails many risks, including: o we may be unsuccessful in entering into collaborative agreements for the development and commercialization of products incorporating our technologies; o we may not be successful in adapting our technologies to the needs of our collaborative partners; o our collaborators may not be successful in or remain committed to developing or commercializing products incorporating our technologies; o our collaborators may decide to attempt to develop proprietary alternatives to our technologies; o we cannot be sure that our collaborators will share our perspective on the relative value of our technologies; o we cannot be sure that our collaborators will commit sufficient resources to incorporating our technologies into their products; o the use of our technologies may not advance as rapidly as it might if we retained complete control of all research, development, regulatory, and commercialization decisions; o none of these collaborators is contractually obligated to introduce or promote products incorporating our technologies, nor are any of them contractually required to achieve any specific production schedule; o our collaborative agreements are generally terminable by our partners on short notice; o continued consolidation in our target markets may also limit our ability to enter into collaboration agreements, or may result in terminations of existing collaborations. Any of our present or future collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. In addition, we may dispute the application of payment provisions under any of our collaboration agreements. If we fail to enter into or maintain collaborative agreements, or if any of these events occurs, we may not be able to commercialize our technologies. GlycoAdvance. In December 2001, we entered into a research, development, and license agreement with Wyeth Pharmaceuticals, a division of Wyeth, for the use of our GlycoAdvance technology to develop an improved production system for Wyeth's biopharmaceutical compound, recombinant PSGL-Ig. The compound is currently being evaluated in Phase II clinical trials in patients being treated for heart attack. Wyeth is evaluating the use of GlycoAdvance in the production of rPSGL-Ig for Phase III clinical trials and commercial launch. Wyeth may not obtain regulatory approval for rPSGL-Ig, Wyeth may choose not to commercialize rPSGL-Ig, Wyeth may choose not to use GlycoAdvance services or products to commercialize rPSGL-Ig, or we may not succeed in developing an improved production system for rPSGL-Ig. 4 Regardless of the success of our technologies, the success of GlycoAdvance will be dependent on the priorities and actions of Wyeth and any future collaborative partners, including their success in obtaining regulatory approval for, and commercial acceptance of, any products incorporating our technologies. GlycoTherapeutics(TM). We have existing collaborative agreements for GlycoTherapeutics with Progenics Pharmaceuticals, Inc. and Neuronyx, Inc. Our agreement with Progenics involves the development of proprietary technologies that enable the manufacture of two gangliosides for use as the active pharmaceutical ingredients in two cancer vaccines being developed by Progenics. On May 15, 2001, Progenics announced the initiation of a Phase III clinical trial with the most advanced of these vaccines to prevent the relapse of malignant melanoma. Under the terms of the agreement, Progenics has the right to negotiate with us for the supply of the gangliosides. The agreement does not provide for future payments unless we reach an agreement with Progenics. Even if we reach an agreement with Progenics on terms for supplying the gangliosides, and we successfully complete development of these processes and fulfill all of our obligations under the agreement, Progenics may not obtain regulatory approval to market either of these vaccines. Further, even if Progenics obtains regulatory approval to market either of these vaccines, we cannot be sure that Progenics will enter into a manufacturing contract with us, that the terms of a future contract with Progenics will be favorable to us, or that either vaccine will be commercially successful. Under our agreement with Neuronyx, we are collaborating in the research of compounds for the treatment of Parkinson's disease and other neurological diseases. Even if the research identifies potential target compounds, both parties must agree to pursue development of the target compounds. If development proceeds, we would be responsible for the synthesis and manufacturing scale-up of target compounds, using our proprietary technologies for carbohydrate synthesis. We may be unable to complete this development successfully. Even if we successfully complete development of these processes and fulfill all of our obligations under the agreement, Neuronyx may not obtain regulatory approval to market any products. Further, even if Neuronyx obtains regulatory approval to market any of these products, we cannot be sure that any of the products will be commercially successful. GlycoActives(TM). We have collaborative agreements with McNeil Nutritionals and Wyeth Nutrition, a business unit of Wyeth Pharmaceuticals. The success of our joint venture with McNeil Nutritionals is dependent upon the joint venture's ability to develop, manufacture, sell, and market successfully complex carbohydrates, all of which are in early stages. Under our agreement with Wyeth Nutrition, we are responsible for developing a large-scale manufacturing process for a potential ingredient in infant formula. We may be unable to complete this development successfully, or be successful in commercial scale-up of these processes. Even if we successfully develop a process and fulfill all of our obligations under the agreement, Wyeth may fail to obtain regulatory approval to market the ingredient. Even if Wyeth obtains regulatory approval for the ingredient, Wyeth may elect not to add the ingredient to any of its products. If our collaborators fail to develop and commercialize products incorporating our technologies, we will fail to realize potential revenues. Our future revenue will depend in part on the realization of milestone payments and royalties, if any, triggered by our collaborators' successful commercialization and development of products incorporating our technologies. The agreements with our collaborators do not obligate them to develop or commercialize lead compounds identified or manufactured through the use of our technologies. Our future revenues will therefore depend not only on our and our collaborators' achievement of development objectives, but also on each collaborator's own financial, competitive, marketing and strategic considerations, such as the relative advantages of other companies' products, including relevant patent and proprietary positions. If a collaborator fails to develop or commercialize a compound using our technologies, or if a compound that a collaborator develops is determined to be unsafe or of no therapeutic benefit, we will not receive any future milestone payments or royalties for that compound. 5 We have limited commercial manufacturing capability and experience, and we may be unable to manufacture the compounds required to commercialize our technologies. Commercialization of our technologies requires the manufacture of enzymes, sugar nucleotides, and complex carbohydrates. We intend to manufacture enzymes and sugar nucleotides for use by our potential GlycoAdvance customers, as well as for our own use in manufacturing complex carbohydrates for our GlycoAdvance, GlycoTherapeutics, and GlycoActives programs. Our success depends on our ability to manufacture these compounds on a commercial scale and in accordance with current Good Manufacturing Practices, or cGMP, prescribed by the United States Food and Drug Administration, or FDA. Our existing facility is not adequate for large-scale, commercial manufacturing. Therefore, we will need to develop commercial-scale manufacturing facilities meeting cGMP, or depend on our collaborators, licensees, or contract manufacturers. We intend to expand our manufacturing capacity. This expansion will require significant additional funds and personnel, and compliance with applicable regulations. We intend to pursue this expansion without any assurance that we will receive an adequate return on our investment. We may be unable to design, build, or operate the required facilities. In addition to the normal scale-up risks associated with any manufacturing process, we may face unanticipated problems unique to manufacture of enzymes, sugar nucleotides, or complex carbohydrates. If we are unable to develop commercial-scale manufacturing capacity, we would seek collaborators, licensees, or contract manufacturers to manufacture the compounds necessary to commercialize our technologies. We may not be able to find parties willing to manufacture these compounds at acceptable prices. Any manufacturing facility must adhere to the FDA's regulations on cGMP, which are enforced by the FDA through its facilities inspection program. The manufacture of product at these facilities will be subject to strict quality control, testing, and record keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information. Ultimately, we or our contract manufacturers may not meet these requirements. If we encounter delays or difficulties in connection with manufacturing, commercialization of our technologies could be delayed, or we could breach our obligations under our collaborative agreements. The failure to obtain or maintain adequate patents, and other intellectual property protection, could impact our ability to compete effectively. Our success will depend in part on our ability to obtain commercially valuable patent claims and to protect our intellectual property. Our patent position is generally uncertain and involves complex legal and factual questions. Legal standards relating to the validity and scope of claims in our technology field are still evolving. Therefore, the degree of future protection for our proprietary rights is uncertain. The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following: o the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents; o the claims of any patents that are issued may not provide meaningful protection; o we may not be able to develop additional proprietary technologies that are patentable; o the patents licensed or issued to us or our customers may not provide a competitive advantage; o other companies may challenge patents licensed or issued to us or our customers; o other companies may independently develop similar or alternative technologies, or duplicate our technologies; and o other companies may design around technologies we have licensed or developed. We may incur substantial costs in asserting any patent rights and in defending suits against us relating to intellectual property rights. Such disputes could substantially delay our product development or commercialization activities. The United States Patent and Trademark Office or a private party could institute an interference proceeding relating to our patents or our patent applications. An adverse decision in any such proceeding could result in the loss of our intellectual property rights. 6 In addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology. We require all employees, consultants, advisors, and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties. We require that our employees and consultants disclose and assign to us their ideas, developments, discoveries, and inventions. These agreements may not, however, provide adequate protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use or disclosure. International patent protection is uncertain. Patent law outside the United States is uncertain, and is currently undergoing review and revision in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. We may participate in opposition proceedings to determine the validity of our or our competitors' foreign patents, which could result in substantial costs and diversion of our efforts. Finally, some of our patent protection in the United States is not available to us in foreign countries due to the laws of those countries. We may have to develop or license alternative technologies if we are unable to maintain or obtain key technology from third parties. We have licensed patents and patent applications from a number of institutions. Some of our proprietary rights have been licensed to us under agreements that have performance requirements or other contingencies. The failure to comply with these provisions could lead to termination or modifications of our rights to these licenses. Additionally, we may need to obtain additional licenses to patents or other proprietary rights from other parties to facilitate development of our proprietary technology base. If our existing licenses are terminated or we are unable to obtain such licenses, or obtain such licenses on what we consider to be acceptable terms, our ability to perform our obligations under our collaborative agreement and research and development efforts may be delayed while we seek to develop or license alternative technologies. We are exposed to intense competition from many sources. Our potential competitors include both public and private pharmaceutical, chemical, biotechnology, food, and consumer product companies. Compared to us, many of these companies have more: o financial, scientific, and technical resources; o manufacturing and marketing capabilities; o experience conducting preclinical studies and clinical trials of new products; and o experience in obtaining regulatory approvals for products. Competitors may succeed in developing products and technology that are more effective and less costly than we may develop, or that would render our technology or products, or both, obsolete or noncompetitive. For example, potential customers may develop other ways to achieve the benefits of our technology. Competitors also may prove to be more successful in the manufacturing and marketing of products. If we are successful in developing our own drug candidates or versions of drugs that are no longer patented, we will compete with other drug manufacturers for market share. If we are unable to compete against our competitors, our commercial opportunities will be diminished. We operate in an environment of rapid technological change, and we may fall behind our competitors. Our business is characterized by extensive research efforts and rapid technological progress. New developments in molecular biology, medicinal chemistry, and other fields of biology and chemistry are expected to continue at a rapid pace in both industry and academia. Research and discoveries by others may render some or all of our programs noncompetitive or obsolete. For example, some companies are producing by enzymatic and other means a limited variety of complex carbohydrates. Although we do not believe any of these companies currently has the ability to manufacture a wide variety of human carbohydrate products in quantities sufficient for commercialization, any of these companies may develop technologies superior to our technologies. In addition, some companies are investigating novel methods of chemical synthesis, sometimes with enzymatic steps, to produce commercial quantities 7 of complex carbohydrates. These and other efforts by potential competitors may be successful, or other methods of carbohydrate synthesis that compete with our technologies may be developed. We may be unable to retain key employees or recruit additional qualified personnel. Because of the specialized scientific nature of our business, we are highly dependent upon qualified scientific, technical, and managerial personnel. There is intense competition for qualified personnel in our business. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical, and managerial personnel in a timely manner, would harm our research and development programs or our manufacturing capabilities. We may be exposed to product liability and related risks. The use in humans of compounds incorporating our technologies can result in product liability claims. Product liability claims can be expensive to defend, and may result in large settlements of claims or judgments against us. Even if a product liability claim is not successful, the adverse publicity, time, and expense involved in defending such a claim may interfere with our business. We may not be able to obtain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. Risks Related to Government Approvals We are subject to extensive government regulation, and we or our collaborators may not obtain necessary regulatory approvals. The research, development, manufacture, marketing, and sale of product candidates manufactured using our technologies are subject to significant, but varying, degrees of regulation by a number of government authorities in the United States and other countries. Regulation of Pharmaceutical Products Pharmaceutical product candidates manufactured using our technology must undergo an extensive regulatory approval process before commercialization. This process is regulated by the FDA and by comparable agencies in other countries. Product candidates incorporating our technology are regulated in the United States in accordance with the federal Food, Drug and Cosmetic Act, the Public Health Service Act, and other laws. If a product candidate is regulated as a biologic, the FDA Center for Biologics Evaluation and Research, or CBER, will require the submission and approval of a Biologic License Application, or BLA, before commercial marketing. The BLA process generally requires: o expensive and time-consuming preclinical studies and clinical trials to establish the safety, potency, purity, and effectiveness of each compound to be submitted with the FDA; o compliance with FDA good laboratory, clinical, and manufacturing practices during testing and manufacturing; and o continued FDA oversight of product and promotion after marketing approval is obtained. It may be many years, if ever, until regulatory approval is obtained, and regulatory oversight continues after marketing approval for the product candidate is received. Each manufacturer of drugs or biologics must be registered with the FDA and pass an inspection by the FDA prior to approval to manufacture products for commercial distribution. Failure to pass the inspection results in not receiving approval to market products. A collaborator's use of our technologies in the manufacture of a product candidate will require submission of Drug Master Files with CBER. If we or our collaborators fail to comply with all applicable regulatory requirements, the following delays or regulatory action could result: 8 o warning letters; o fines; o product recalls or seizures; o operating restrictions; o refusal of the FDA to complete review of pending market approval applications or supplements to approval applications; o withdrawal of previously approved product approvals; o civil penalties; and o criminal prosecution. We have not submitted, and we may never submit, any pharmaceutical product candidates for marketing approval to the FDA, or any other regulatory authority. In addition, no collaborator has submitted, and may never submit, any product candidate incorporating our technologies for marketing approval to the FDA, or any other regulatory authority. If any product candidate manufactured using our technology is submitted for regulatory approval, it may not receive either the approvals necessary for commercialization, the desired labeling claims, or coverage or adequate levels of reimbursement under federal, state, or private healthcare insurance providers. Any delay in receiving, or failure to receive, these approvals would adversely affect our ability to generate product revenues or royalties. Even if all requisite approvals were granted, these approvals may entail commercially unacceptable limitations on the labeling claims. In addition, once an approval is granted, both a marketed drug or compound and the manufacturer are subject to continual review and inspection. Later discovery of previously unknown problems with a product or manufacturer may result in restrictions or regulatory action against the product or manufacturer, including withdrawal of the product from the market. Additional governmental regulations may delay or alter regulatory approval of any product candidate manufactured using our technology. We cannot predict the impact of adverse governmental action that might arise from future legislative and administrative action. Regulation of Foods and Food Ingredients We expect that any products of our joint venture with McNeil Nutritionals will be regulated as food ingredients. Foods and food ingredients are subject to the provisions of the federal Food, Drug and Cosmetic Act. Food ingredients are broadly defined as any substances that may become a component, or otherwise affect the characteristics, of food. Food ingredients and ingredients used in animal feed are regulated either as substances generally recognized as safe, or GRAS, or as food additives. Food ingredients that are GRAS are excluded from the definition of food additives. The FDA has affirmed by regulation a number of substances as GRAS, although it is not required that a substance be affirmed as GRAS by regulation of the FDA in order to be GRAS. A manufacturer may self-affirm a substance as GRAS by making an independent determination that qualified experts would generally agree that the substance is GRAS for a particular use. If the FDA disagrees with a determination, the manufacturer must complete the food additive petition process for the substance to be approved by the FDA. Affirmation of GRAS status either by the manufacturer or regulation of the FDA would allow the manufacturer to market and sell the additive or the food containing the additive. Furthermore, a manufacturer's decision to rely on an independent determination may limit the marketability of that manufacturer's products to food manufacturers, many of whom require confirmation of GRAS status from the FDA before they will purchase substances for use in foods from third parties. Food ingredients that are not GRAS are regulated as food additives. All new food additives require FDA approval prior to commercialization. Information supporting the safety of a food additive is submitted to the FDA in the form of a food additive petition. The food additive petition process is generally expensive and lengthy. Commercialization of the food additive, if permitted by the FDA, often occurs several years after the petition is submitted to the FDA. The petition must establish with reasonable certainty that the food additive is safe for its intended use at the level specified in the petition. The petition is required to contain reports of safety investigations of the food additive and details regarding its physical, chemical, and biological properties. Product safety studies submitted to the FDA are typically conducted in accordance with FDA good laboratory practices requirements. If a 9 food additive petition is submitted, the FDA may choose to reject the petition or deny any desired labeling claims. Furthermore, the FDA may require the establishment of regulations that necessitate costly and time-consuming compliance procedures. Regulation of Infant Formula Additives We are collaborating with Wyeth Nutrition to develop a bioactive carbohydrate as a potential nutritional additive to infant formula. The manufacture, composition, and labeling of infant formulas are subject to the provisions of the United States Infant Formula Act. Prior to commercializing any potential infant formula additive, an infant formula manufacturer must demonstrate that its potential additive: o is GRAS by previous regulation of the FDA, or is self-affirmed as GRAS by the infant formula manufacturer; or o is the subject of an approved food additive petition. Under the United States Infant Formula Act, infant formula manufacturers are required to notify the FDA of any intent to revise, add, or substitute any protein, fat, or carbohydrate in infant formula ninety days prior to the intended date of commercial distribution. During that ninety-day period, the FDA may request additional information, or deny marketing rights for the new formula. Wyeth is responsible for all regulatory activities relating to the infant formula additive. They have not yet made, and may never make, any filings with the FDA to propose inclusion of an infant formula additive manufactured using our technology. Furthermore, Wyeth may fail to self-affirm GRAS status of the potential infant formula additive, impairing their efforts to commercialize the infant formula additive. Wyeth may market infant formula containing the additive in foreign countries. Infant formula regulatory requirements vary widely from country to country, and may be more or less stringent than the FDA requirements. The time required to obtain clearances, if required, in foreign countries may be longer or shorter than that required in the United States. The use of hazardous materials in our operations may subject us to an environmental claim or liability. Our research and development processes involve the controlled use of hazardous materials, chemicals, and radioactive compounds. The risk of accidental injury or contamination from these materials cannot be entirely eliminated. We do not maintain a separate insurance policy for these types of risks. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, and any liability could exceed our resources. We are subject to federal, state, and local laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations could be significant. Third party reimbursement for our collaborators' or our future product candidates may not be adequate. Even if regulatory approval is obtained to sell any product candidates incorporating our technologies, our future revenues, profitability, and access to capital will be determined in part by the price at which we or our collaborators can sell such products. There are continuing efforts by governmental and private third-party payors to contain or reduce the costs of health care through various means. We expect a number of federal, state, and foreign proposals to control the cost of drugs through governmental regulation. We are unsure of the form that any health care reform legislation may take or what actions federal, state, foreign, and private payors may take in response to the proposed reforms. Therefore, we cannot predict the effect of any implemented reform on our business. Our collaborators and our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers, and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third-party coverage may not be available to enable us to maintain price levels 10 sufficient to realize an appropriate return on investment in product research and development. Inadequate coverage and reimbursement levels provided by government and third-party payors for use of our or our collaborators' products may cause these products to fail to achieve market acceptance and would cause us to lose anticipated revenues and delay achievement of profitability. BUSINESS Overview We develop proprietary technologies for the synthesis and manufacture of complex carbohydrates. Our enzymatic technology platform makes feasible the synthesis and modification of a wide range of complex carbohydrates, which are chains of simple sugar molecules that can be joined together in many different combinations. Our platform enables the production and manipulation of complex carbohydrates either as stand-alone carbohydrate molecules or as carbohydrate structures attached to recombinant therapeutic glycoproteins and glycolipids. Our GlycoAdvance program uses our technology to complete the human carbohydrate structures on therapeutic glycoproteins. We are also developing our technology to create novel glycosylation patterns, and to link other molecules, such as polyethylene glycol, to glycoproteins. The application of this technology to proteins potentially results in improved clinical activity and pharmacokinetic profile, enhanced drug development flexibility, stronger and additional patent claims, and yield improvements. Our GlycoTherapeutics program uses our technology to enable the development of carbohydrate-based therapeutics. Our GlycoActives program uses our technology to develop novel carbohydrate food and nutritional ingredients. GlycoAdvance Overview Our GlycoAdvance products and services are used to complete, correct, or improve the carbohydrate structures that are critical portions of therapeutic glycoproteins. Many biotechnology drugs on the market or in development, including monoclonal antibodies, are glycoproteins, and their associated carbohydrates are often critical to the function of the protein. GlycoAdvance can also be used to attach other molecules, such as polyethylene glycol, to glycoproteins. We are pursuing partnerships for GlycoAdvance with pharmaceutical and biotechnology companies that are developing or marketing glycoprotein drugs. We are also exploring the use of GlycoAdvance for the development of our own glycoprotein drugs, as well as its use to enable alternative protein production systems, such as transgenic animals, plants, insect cells, and fungi such as yeast. In 2000, worldwide sales of glycoprotein drugs were approximately $17.5 billion, and there were approximately 360 biotechnology drugs in development to treat more than 200 diseases. Many of these drug candidates are glycoproteins, and we expect that many of these compounds could benefit from GlycoAdvance. Currently, glycoproteins are most often produced in mammalian cell culture systems, primarily Chinese hamster ovary (CHO) cells. Production in these systems often results in incomplete or incorrect glycosylation. Glycosylation refers both to the carbohydrate structures on glycoproteins, and to the process of creating or modifying these structures. The impact of incomplete or incorrect glycosylation on a glycoprotein drug can include suboptimal clinical activity, reduced half-life, greater or more frequent dosing, and increased side effects. Incomplete glycosylation can also result in development delays and production inefficiencies, including lower production yields, higher manufacturing costs, and increased facilities and equipment requirements. Conventional methods of solving the problems of incomplete or incorrect glycosylation include choosing different cell types for use in cell expression systems, re-engineering cells, optimizing cell culture media, purifying for final product only the most completely 11 glycosylated compounds, and building additional production facilities. These approaches can be expensive, time-consuming, and ineffective. At the present time, GlycoAdvance is being used to remodel therapeutic glycoproteins, after their production in cell culture, to achieve the desired glycosylation. The use of GlycoAdvance in the production of therapeutic glycoproteins may result in improved clinical activity and pharmacokinetic profile, enhanced drug development flexibility, stronger and additional patent claims, and yield improvements. GlycoAdvance may permit the development of new therapeutic proteins with unique characteristics. GlycoAdvance may also permit the continued development of some drugs by overcoming a variety of development problems associated with poor glycosylation. Although alternatives to mammalian cell culture systems, such as transgenic animals, plants, insect cells, and fungi such as yeast, are in use or being developed, these systems are not now capable of producing glycoproteins with a fully human glycosylation pattern. We are considering the role of GlycoAdvance in the development of glycoproteins produced in some of these alternative systems. We continue to invest in GlycoAdvance research and development. We are developing intellectual property and know-how in using glycosylation to improve antibody function, impart new therapeutic properties to drugs, and extend half-life, such as through the site-specific addition of polyethylene glycol. We are also developing new GlycoAdvance enzymes and sugar nucleotides to broaden the scope of our technology. Agreement with Wyeth Pharmaceuticals In December, 2001, we announced our first commercial agreement for GlycoAdvance. This agreement is with Wyeth Pharmaceuticals, a division of Wyeth, for use of GlycoAdvance services and products to develop an improved production system for Wyeth's recombinant PSGL-Ig (P-selectin glycoprotein ligand). rPSGL-Ig is being developed to treat inflammation and thrombosis associated with acute coronary syndrome and reperfusion injury. The drug is currently in Phase II clinical trials for heart attack. Under the agreement, we will develop processes for the commercial-scale manufacture of GlycoAdvance enzymes and sugar nucleotides to be used in the production of rPSGL-Ig, and will license GlycoAdvance technology to Wyeth for commercial production of the drug, if regulatory approval is obtained. During commercial production of Wyeths' current rPSGL-Ig, we would receive ongoing payments tied to yield improvements achieved using GlycoAdvance. In addition, Wyeth has the option to use GlycoAdvance to develop a next generation rPSGL-Ig, in which case we would receive development payments and royalties on product sales. We will receive license, research, and milestone payments that will total up to $17 million if all milestones are met. In addition to ongoing product payments, Neose and Wyeth would also enter into a supply agreement for the long-term supply of GlycoAdvance process reagents for their commercial production needs. The scope of our license to Wyeth is limited to rPSGL-Ig and proteins similar in amino acid sequence to rPSGL-Ig. This preserves our ability to work with other companies developing drugs for the same indications. Feasibility Studies We have completed more than 20 feasibility studies for pharmaceutical and biotechnology companies to demonstrate the utility of GlycoAdvance. In general, these feasibility studies have been conducted with glycoproteins that are being produced in CHO cell expression systems. In these studies, we have shown that GlycoAdvance can be used to improve the pharmacokinetic properties of these glycoproteins. At the 2001 Biotechnology Industry Organization meeting, Eli Lilly & Company and Biogen, Inc. presented results of GlycoAdvance feasibility studies conducted with CHO cell produced glycoproteins. In animal studies, the half-life of proteins treated with GlycoAdvance were up to three times greater than the same protein not treated with GlycoAdvance. 12 Business Strategy We are actively pursuing collaborations with companies that are developing, manufacturing, or marketing glycoproteins to use GlycoAdvance services and products in the research, development, and commercialization of glycoproteins. We anticipate that these collaborations would provide for up-front license fees, annual license fees, milestone payments, and royalties, as well as revenues from the supply of enzymes and sugar nucleotides. These collaborations could be product specific, as is the case with our Wyeth Pharmaceuticals collaboration, or research and development pipeline collaborations, where companies integrate GlycoAdvance into their protein research, development, and manufacturing processes to enable the accelerated development of better protein drugs. We are considering opportunities for the use of GlycoAdvance in the development by Neose of glycoprotein drugs. These include using GlycoAdvance to develop improved versions of currently marketed glycoproteins as their patent protection expires; using GlycoAdvance to revive drugs that have been dropped from development because of glycosylation-related problems; and acquiring, co-developing, or in-licensing promising drug candidates that will benefit from GlycoAdvance. Protein production systems other than mammalian cell culture expression systems, such as transgenic animals, plants, insect cells, and fungi, offer the promise of reduced production costs for glycoproteins. Glycosylation in these systems is often incomplete or incompatible with therapeutic use, resulting in therapeutic proteins that have poor pharmacokinetic activity or are immunogenic in humans. We are considering the possibilities of using GlycoAdvance in conjunction with some of these expression systems to solve their glycosylation problems. GlycoTherapeutics In our GlycoTherapeutics program, we are using our core technologies to enable the development and production of novel carbohydrate-based drugs. We are supporting research and development projects on promising, carbohydrate-based therapeutic approaches. We do not intend to proceed beyond early stage clinical trials on any carbohydrate-based drug candidates without a suitable partner for late stage development and commercialization. Our business strategy is to collaborate with others, allowing us to leverage our proprietary technologies to participate in the profits of successful drugs while assuming limited financial and clinical development risk. If we successfully enter into collaborations with other companies, we anticipate that we will receive up-front license fees, annual license fees, milestone payments, royalties, and revenues from the supply of compounds. Neuronyx, Inc. We have a research and development collaboration with Neuronyx for the discovery and development of drugs for treating Parkinson's disease and other neurological diseases. We also made an equity investment of approximately $1.3 million in Neuronyx. Currently, the collaboration is focusing on the modification of certain compounds that have previously demonstrated clinical promise in arresting the progression of Parkinson's disease symptoms. If the collaboration identifies potential target compounds, development of these compounds would require the agreement of both parties. If development proceeds, we are responsible for the synthesis and manufacturing scale-up of target compounds, using our proprietary technologies for carbohydrate synthesis, and Neuronyx is responsible for preclinical and clinical development of the compounds. Neose and Neuronyx each bear their own research and development costs under the collaboration. If any drugs are commercialized under this collaboration, Neose will be responsible for manufacturing the drug, and would receive a transfer payment and royalties based on sales. Parkinson's disease is a progressive disorder of the central nervous system. There is no known prevention or cure for Parkinson's disease. Current treatments focus on controlling symptoms of the disease, but do not slow the progression of the disease. Progenics Pharmaceuticals, Inc. In May 2001, Bristol-Myers Squibb assigned to Progenics Pharmaceuticals our agreement with Bristol-Myers to develop two synthetic gangliosides for use in two cancer vaccines, GMK and MGV. Progenics is continuing with the development of both vaccines and we are in discussions with them concerning future supply of material for clinical and commercial use, but we will receive no revenues from this agreement unless it is renegotiated. 13 Other Therapeutic Research Programs We have early-stage research programs in the following areas: o Glycolipids. Through our collaborations with Bristol-Myers and Neuronyx, we have developed expertise in the synthesis of glycolipids. We are continuing to develop this technology, and are exploring applications in inflammatory diseases and cancer. o Heparins. We are exploring the use of our technology to synthesize heparin-like molecules. Heparins may have application in a variety of disesases. o Immune system regulation. In conjunction with scientists at Harvard University, we are investigating whether certain carbohydrates may be useful as regulators of immune response. We are exploring whether these carbohydrates may be used for the treatment of various autoimmune conditions, including inflammatory bowel disease, allergic asthma, and psoriasis. GlycoActives In our GlycoActives program, we are applying our technology platform to the manufacture and development of novel carbohydrate-based food and nutritional ingredients. Our business strategy is to enter into collaborations with others for the use of our technologies for the development of these ingredients. Joint Venture with McNeil Nutritionals In 1999, we entered into a joint venture with McNeil Nutritionals, a subsidiary of Johnson & Johnson, to explore the inexpensive, enzymatic production of complex carbohydrates for use as bulking agents. The joint venture developed a process for making fructooligosaccharides and constructed a pilot facility in Athens, Georgia. In 2001, the joint venture closed the pilot facility as it shifted focus to a second generation bulking agent. The joint venture is exploring establishing a manufacturing arrangement with a third party to produce these bulking agents. Wyeth Nutrition-Infant Formula Additive We entered into an agreement in 1999 with Wyeth Nutrition, a business unit of Wyeth Pharmaceuticals, to develop a manufacturing process for a bioactive carbohydrate to be used as an ingredient in Wyeth's infant and pediatric nutritional formula products. We are responsible for developing a large-scale manufacturing process for this ingredient. We are receiving contract development payments, and will receive payments if we achieve the milestones specified in the agreement. If Wyeth commercializes the ingredient under this agreement, we will sell product to Wyeth at minimum specified transfer prices. Wyeth is a leading global infant formula manufacturer with products distributed in more than 90 countries. Abbott Laboratories Abbott Laboratories has a non-exclusive license to use our technology to manufacture and commercialize, for nutritional purposes only, any complex carbohydrate naturally found in human breast milk. If Abbott commercializes any products manufactured using our technology, we will receive fees from Abbott tied to commercial quantities. Patents and Proprietary Rights We solely own 23 issued U.S. patents, and have licensed 68 issued U.S. patents from 14 institutions. In addition, we own or have licensed over 56 patent applications pending in the United States. There are a number of U.S. and foreign patent applications related to our owned and licensed patents. We have licensed, or have an option to 14 license, patents and patent applications from the following institutions: University of California, The Scripps Research Institute, University of Pennsylvania, Japan Tobacco, Inc., University of Michigan, Marukin Shoyu Co., Ltd., Celltech Therapeutics Limited, University of Arkansas, University of British Columbia, Rockefeller University, University of Alberta, Genencor International, GlycoZym Aps., National Research Council Canada, Harvard University, University of Washington, Wayne State University, University of Illinois, and University of Adelaide. Government Regulation Products manufactured using our technologies, and our manufacturing and research activities, will typically be subject to significant, but varying, degrees of regulation by a number of government authorities in the United States and other countries. The development, manufacture, marketing, and sale of products manufactured using our technology will be subject to one of the following regulatory review processes before commercialization: o pharmaceutical - new drug application or biologic license application; o infant formula additive - new infant formula submission; or o foods and food ingredients - either self-affirmed to be, or notified as, GRAS (generally recognized as safe) or food additive petition process. Our products, systems, and processes are subject to continuing review subsequent to marketing, and affirmative reporting requirements to the FDA and other federal, state, or international agencies may be imposed upon us as a condition of continued marketing approval. Generally, pharmaceuticals are regulated more rigorously than foods and food ingredients. Infant formula additives are special types of food ingredients that are regulated more rigorously than most other types of food ingredients. Our operations are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other similar federal, state, and local laws, rules, and regulations governing laboratory activities, waste disposal, handling dangerous materials, and other matters. We voluntarily comply with the National Institutes of Health Guidelines for Research Involving Recombinant DNA Technologies. Regulation of Pharmaceutical Product Candidates We intend to manufacture enzymes and sugar nucleotides for use by our potential GlycoAdvance customers, as well as for our own use in manufacturing complex carbohydrates for our GlycoTherapeutics and GlycoActives programs. Our collaborators will be responsible for obtaining all required regulatory approvals for pharmaceutical product candidates incorporating our technologies. Neose will be responsible for filing Drug Master Files covering the manufacturing of enzymes and sugar nucleotides for customers. The research and development activities regarding, and the future manufacturing and marketing of, all pharmaceutical product candidates incorporating our technologies are and will be subject to significant regulation by numerous governmental authorities in the United States and other countries. Pharmaceutical product candidates intended for therapeutic use in humans are governed principally by the federal Food, Drug and Cosmetic Act, Public Health Service Act, and FDA regulations in the United States, and by comparable laws and regulations in foreign countries. The federal Food, Drug and Cosmetic Act and other federal statutes and regulations govern the testing, manufacture, safety, effectiveness, marketing, labeling, storage, record keeping, approval, advertising, and promotion of pharmaceutical products. The process of completing preclinical and clinical testing and obtaining FDA approval for a new pharmaceutical product requires a number of years and the expenditure of substantial resources. Following drug discovery, the steps required before a new pharmaceutical product candidate may be marketed in the United States include: o preclinical laboratory and animal tests; o the submission to the FDA of an Investigational New Drug application; o adequate and well-controlled clinical trials, typically conducted in three phases, to establish the safety and effectiveness of the product candidate; 15 o the submission of a New Drug Application or Biologic License Application to the FDA; and o FDA approval of the New Drug Application or Biologic License Application prior to any promotion, commercial sale, or shipment of the product. Preclinical trials, in vitro or in animals, must be conducted to evaluate the safety of a compound for testing in humans. Various regulations govern such testing including Good Laboratory Practices or similar international regulations. Clinical trials, conducted according to Good Clinical Practices or similar international regulations and subject to review by independent oversight bodies (e.g. Institutional Review Boards), are typically conducted in three sequential phases. Phase I clinical trials are primarily designed to determine the metabolic and pharmacologic effects of the product candidate in humans, and the side effects associated with increasing doses. These studies generally involve a small number of healthy volunteer subjects, but may be conducted on people with the disease the product candidate is intended to treat. Phase II studies are conducted to evaluate the effectiveness of the product candidate for a particular indication, and involve patients with the disease under study. These studies also provide evidence of the short-term side effects and risks associated with the product candidate. Phase III studies are generally designed to assess the overall benefit-risk relationship of the product candidate. Phase III trials must demonstrate that substantial evidence of safety and effectiveness of a product candidate exists in order to obtain FDA approval for marketing the product candidate. Phase III trials often involve a substantial number of patients in multiple study centers, and include longer-term administration of the product candidate than in Phase II trials. A clinical trial may combine the elements of more than one phase, and often at least two Phase III studies demonstrating a product candidate's safety and efficacy are required before marketing approval is received. Typical estimates of the total time required for completing such clinical testing vary between four and ten years. For marketing outside the United States, foreign regulatory requirements govern human clinical trials and marketing approval for product candidates. The requirements relating to the conduct of clinical trials, product licensing, pricing, and reimbursement vary widely from country to country. Regulatory oversight continues after marketing approval for the product candidate is received. Regulatory bodies may require additional clinical trials be performed as a condition of receiving marketing approval. Affirmative reporting obligations are imposed as a condition of continued marketing approval. Third Party Reimbursement Our ability and each of our collaborator's ability to commercialize successfully drug products may depend in part on the extent to which coverage and reimbursement for the cost of such products will be available from government health administration authorities, private health insurers, and other organizations. Significant uncertainty exists as to the reimbursement status of new therapeutic products and we cannot be sure that third-party reimbursement would be available for therapeutic products we or our collaborators might develop. Healthcare reform, especially as it relates to prescription drugs, is an area of increasing national attention and a priority of many governmental officials. Certain reform proposals, if adopted, could impose limitations on the prices we will be able to charge in the United States for our products or the amount of reimbursement available for our products or the amount of reimbursement available for our products from governmental agencies or third-party payors. Regulation of Foods and Food Ingredients We expect that any products of our joint venture with McNeil Nutritionals will be regulated as food ingredients. Foods and food ingredients are subject to the provisions of the federal Food, Drug and Cosmetic Act. Food ingredients are broadly defined as any substances that may become a component, or otherwise affect the characteristics, of food. Food ingredients and ingredients used in animal feed are regulated either as substances generally recognized as safe, or GRAS, or as food additives. Food ingredients that are GRAS are excluded from the definition of food additives. The FDA has affirmed by regulation a number of substances as GRAS, although it is not required that a substance be affirmed as GRAS by regulation of the FDA in order to be GRAS. Alternatively, under a new proposed regulatory framework, a manufacturer may submit GRAS notification to the FDA claiming that a food ingredient is GRAS. The FDA generally will respond to the notification within approximately ninety days as to whether there is sufficient evidence to support the notifier's conclusion that the substance is GRAS. A positive response from the FDA indicates that it has no objection to the notifier's conclusion that a substance is a GRAS. A manufacturer also may self-affirm a 16 substance as GRAS by making an independent determination that qualified experts would generally agree that the substance is GRAS for a particular use. If the FDA disagrees with the manufacturer's self-determination or GRAS notification, the manufacturer generally must submit a food additive petition to obtain approval to market the food ingredient. Affirmation of GRAS status either by the manufacturer or regulation of the FDA would allow the manufacturer to market and sell the additive or the food containing the additive. Furthermore, a manufacturer's decision to rely on an independent determination may limit the marketability of that manufacturer's products to food manufacturers, many of whom require confirmation of GRAS status from the FDA before they will purchase substances for use in foods from third parties. Food ingredients that are not GRAS are regulated as food additives. All new food additives require FDA approval prior to commercialization. Information supporting the safety of a food additive is submitted to the FDA in the form of a food additive petition. The food additive petition process is generally expensive and lengthy. Commercialization of the food additive, if permitted by the FDA, often occurs several years after the petition is submitted to the FDA. The petition must establish with reasonable certainty that the food additive is safe for its intended use at the level specified in the petition. The petition is required to contain reports of safety investigations of the food additive and details regarding its physical, chemical, and biological properties. Product safety studies submitted to the FDA are typically conducted in accordance with FDA good laboratory practices requirements. If a food additive petition is submitted, the FDA may choose to reject the petition or deny any desired labeling claims. Furthermore, the FDA may require the establishment of regulations that necessitate costly and time-consuming compliance procedures. Regulation of Infant Formula Additives We are collaborating with Wyeth Nutrition to develop a bioactive carbohydrate as a potential nutritional additive to infant formula. The manufacture, composition, and labeling of infant formulas are subject to the provisions of the United States Infant Formula Act. Prior to commercializing any potential infant formula additive, an infant formula manufacturer must demonstrate that its potential additive: o is GRAS either by previous regulation of the FDA, or is self-affirmed as GRAS by the infant formula manufacturer; or o is the subject of an approved food additive petition. Under the United States Infant Formula Act, infant formula manufacturers are required to notify the FDA of any intent to revise, add, or substitute any protein, fat, or carbohydrate in infant formula ninety days prior to the intended date of commercial distribution. This new infant formula submission must contain the quantitative formulation of the new infant formula, a description of any reformulation or change in processing, and assurances that the new infant formula will not be marketed without complying with the nutrient and quality factor requirements and cGMP control requirements. Upon notification, the FDA has a ninety-day period, in which to request additional information, or deny marketing rights for the new formula. If no response is received from the FDA within the ninety-day period, the manufacturer may proceed with commercial sales of the newly formulated product. Under our agreement, Wyeth is responsible for all regulatory activities relating to the infant formula additive. Wyeth has not yet made, and may never make, any filings with the FDA to propose inclusion of an infant formula additive manufactured using our technology. Their efforts to commercialize any infant formula additive may be materially and adversely affected if they do not self-affirm GRAS status of this potential infant formula additive. Wyeth may market infant formula containing this additive in foreign countries. Infant formula regulatory requirements vary widely from country to country, and may be more or less stringent than FDA requirements. The time required to obtain clearances, if required, in foreign countries may be longer or shorter than that required in the United States. Competition Some companies are producing complex carbohydrates by enzymatic and other means. We do not believe any of these companies has the ability currently to manufacture a wide variety of carbohydrates in quantities sufficient for 17 commercialization. Some companies are investigating novel methods of chemical synthesis, sometimes with enzymatic steps, to produce commercial quantities of complex carbohydrates. These and other efforts by potential competitors may be successful or other methods of carbohydrate synthesis that compete with our technologies may be developed. Our GlycoAdvance services and products compete with internal efforts within companies to improve protein glycosylation. This includes efforts to develop better glycosylating cell lines, optimize cell culture conditions to improve glycosylation, and construct additional manufacturing capacity. Other companies are developing technologies that could compete with GlycoAdvance. This includes the genetic engineering of expression systems to produce glycoproteins in vivo with improved glycosylation, and developing human cell lines for glycoprotein production. Other companies are seeking to extend protein half-life by polyethelyne-glycol or polyglutamate modification, human albumin fusion, or microsphere encapsulation, while still others are developing technologies that focus on improving half-life or efficacy. Companies developing competing technologies are pursuing business strategies that include collaborations with pharmaceutical and biotechnology companies, as well as the use of their technologies to develop proprietary products including improved versions of currently marketed biological products. Manufacturing We intend to manufacture enzymes and sugar nucleotides for use by our anticipated GlycoAdvance customers, and for our own use in proprietary drug development, and for use in manufacturing complex carbohydrates for our current and potential GlycoTherapeutics and GlycoActives customers. We will need to develop commercial-scale manufacturing facilities meeting cGMP, or depend on collaborators, licensees, or contract manufacturers for the commercial manufacture of potential products. During 2001, we committed to spend approximately $17 million to provide additional cGMP manufacturing capacity in our Horsham, Pennsylvania facility to support the initial requirements of our anticipated GlycoAdvance customers. In addition, we entered into a lease during 2002 for a 40,000 square foot building located in Horsham, Pennsylvania. We intend to convert the facility into laboratory and office space at an expected cost of approximately $12 million. We plan to relocate research laboratories and corporate offices from our current facility in Horsham, Pennsylvania to the new facility, leaving our current facility available for future expansion of our cGMP manufacturing capacity. We believe we have the capacity to develop scalable manufacturing processes required for our collaboration with Wyeth Nutrition in our existing facilities, although we currently estimate that we will require additional facilities to produce these ingredients at commercial scale. Marketing, Distribution, and Sales We intend to rely substantially on collaborative partners to commercialize our broad technology platform. These partners would be responsible for the development, regulatory, approval, sales, marketing, and distribution activities, for products incorporating our technologies. If we commercialize any products on our own, we will have to establish or contract for development, regulatory, sales, marketing, and distribution capabilities. The marketing, advertising, and promotion of any product manufactured using our technology would likely be subject to regulation by the FDA or other governmental agencies. Employees As of December 31, 2001, we employed 111 individuals, consisting of 81 employees engaged in research and development activities and 30 employees devoted to business development and administrative activities. Our staff includes carbohydrate biochemists as well as scientists with expertise in organic chemistry, analytic chemistry, molecular biology, microbiology, cell biology, scale-up manufacture, and regulatory affairs. A significant number of our employees have prior experience with pharmaceutical or biotechnology 18 companies, and in the food industry, and many have specialized training in carbohydrate technology. None of our employees is covered by collective bargaining agreements. We believe we have good relations with our employees. Executive Officers of the Company The name, age as of March 25, 2002, and position of each of our executive officers are as follows: Stephen A. Roth, Ph.D, 59, has served on our Board since 1989 and as Chairman and Chief Executive Officer since August 1994. Dr. Roth co-founded Neose, and from 1992 until August 1994, he served as Senior Vice President, Research and Development and Chief Scientific Officer. Dr. Roth was on the faculty of the University of Pennsylvania from 1980 to 1994, and was Chairman of Biology from 1982 to 1987. Dr. Roth received his A.B. in biology from The Johns Hopkins University, and his Ph.D. in developmental biology from the Case Western Reserve University. He completed his post-doctorate training in carbohydrate chemistry at The Johns Hopkins University. David A. Zopf, M.D., 59, has served as our Executive Vice President since January 2002. He served as our Vice President, Drug Development from 1992 to January 2002. From 1991 to 1992, we engaged Dr. Zopf as a consultant on the biomedical applications of complex carbohydrates. From 1988 to 1991, Dr. Zopf served as Vice President and Chief Operating Officer of BioCarb, Inc., a biotechnology company and the U.S. subsidiary of BioCarb AB, where he managed the research and development programs of novel carbohydrate-based diagnostics and therapeutics. Dr. Zopf received his A.B. in zoology from Washington University, and his M.D. from Washington University School of Medicine. Edward J. McGuire, Ph.D., 64, has served as our Vice President, Research and Development since 1990. Dr. McGuire was on the faculty of the University of Pennsylvania from 1985 to 1990. From 1984 to 1985, Dr. McGuire served as a Senior Researcher at Genetic Engineering, Inc., a biotechnology company. Dr. McGuire received his B.A. in biology from Blackburn College, and his Ph.D. in biochemistry/chemistry from the University of Illinois Medical School. George J. Vergis, Ph.D., 41, has served as our Vice President, Business and Commercial Development since July 2001. From January 1996 to May 2001, Dr. Vergis served as Vice President, New Product Development and Commercialization at Knoll Pharmaceutical Company, a division of BASF Pharma, responsible for the commercial planning, product development, and marketing for the cardiovascular, immunology, and critical care franchises. Prior to his employment at BASF, Dr. Vergis held a variety of clinical and medical marketing positions at Wyeth Pharmaceuticals and Warner-Lambert Parke-Davis. Dr. Vergis received his BA in Biology and History from Princeton University, his Ph.D. in Physiology from The Pennsylvania State University, and his M.B.A. from Columbia University. A. Brian Davis, 35, has served in a variety of positions since 1994, most recently as acting Chief Financial Officer and Senior Director, Finance. Mr. Davis is licensed as a Certified Public Accountant in New Jersey, and received his B.S. in accounting from Trenton State College. From 1991 to 1994, Mr. Davis was employed by MICRO HealthSystems, Inc., a provider of healthcare information systems, where he served most recently as Corporate Controller. Debra J. Poul, Esq., 49, has served as our General Counsel since January 2000. From January 1995 to January 2000, Ms. Poul was of counsel at Morgan Lewis. From September 1978 to December 1994, Ms. Poul was at Dechert, serving as counsel from 1989 to 1994. Ms. Poul received her B.A. from the University of Pennsylvania and her J.D. from Villanova University. 19 ITEM 2. PROPERTIES. We own, subject to a mortgage, approximately 45,000 square feet of cGMP manufacturing, laboratory, and corporate office space in Horsham, Pennsylvania. Our lease of approximately 2,600 square feet of laboratory and office space in San Diego, California expired in September 2001. In April 2001, we entered into a new lease agreement for approximately 10,000 square feet of laboratory and office space in San Diego, California. The initial term of the lease ends in March 2006, at which time we have an option to extend the lease for an additional five years. We anticipate our expanded operations in San Diego will allow us to increase our research and development efforts for our GlycoAdvance program. In 2001, we committed to make approximately $17 million in capital expenditures to provide additional cGMP manufacturing capacity in our Horsham, Pennsylvania facility to support the initial requirements of our anticipated GlycoAdvance customers. In February 2002, we entered into a lease agreement for a 40,000 square foot building in Horsham, Pennsylvania. We intend to convert the facility into laboratory and office space for an expected cost of approximately $12 million. We plan to relocate research laboratories and corporate offices from our current facility in Horsham, Pennsylvania to the new facility, leaving our current facility available for future expansion of our cGMP manufacturing capacity. We intend to manufacture enzymes and sugar nucleotides for use by our anticipated GlycoAdvance customers, and for our own use in proprietary drug development, and for use in manufacturing complex carbohydrates for our current and potential GlycoTherapeutics and GlycoActives customers. We will need to develop commercial-scale manufacturing facilities meeting cGMP, or depend on collaborators, licensees, or contract manufacturers for the commercial manufacture of potential products. See "Item 1-Business-Manufacturing." ITEM 3. LEGAL PROCEEDINGS. We are not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. We did not submit any matters to a vote of security holders during the fourth quarter of 2001. 20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is listed on The Nasdaq Stock Market under the symbol NTEC. We commenced trading on The Nasdaq Stock Market on February 15, 1996. The following table sets forth the high and low sale prices of our common stock for the periods indicated. Common Stock Price ------------------ High Low ---- --- Year Ended December 31, 2000 First Quarter............................................... $60.13 $13.00 Second Quarter.............................................. 45.94 18.63 Third Quarter............................................... 51.82 33.00 Fourth Quarter.............................................. 52.00 25.75 Year Ended December 31, 2001 First Quarter............................................... 44.38 22.38 Second Quarter.............................................. 46.97 23.25 Third Quarter............................................... 47.42 30.15 Fourth Quarter.............................................. 41.81 27.31 Year Ended December 31, 2002 First Quarter (through March 25, 2002)...................... 38.35 27.31 As of March 25, 2002, there were approximately 200 record holders and 4,500 beneficial holders of our common stock. We have not paid any cash dividends on our common stock and we do not anticipate paying any in the foreseeable future. 21 ITEM 6. SELECTED FINANCIAL DATA. The following Statements of Operations Data for the years ended December 31, 1997, 1998, 1999, 2000, and 2001, and for the period from inception (January 17, 1989) through December 31, 2001, are derived from our consolidated financial statements that have been audited by Arthur Andersen LLP, independent public accountants. The financial data set forth below should be read in conjunction with the sections of this Annual Report on Form 10-K entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and notes included elsewhere in this Form 10-K.
Period from inception (January 17, 1989) Year ended December 31, to December 31, ------------------------------------------------------------- 1997 1998 1999 2000 2001 2001 -------------------------------------------------------------------------------- (in thousands, except per share data) Statements of Operations Data: Revenue from collaborative agreements $ 725 $ 390 $ 422 $ 4,600 $ 1,266 $ 12,633 -------------------------------------------------------------------------------- Operating expenses: Research and development 8,013 9,912 10,649 12,094 14,857 78,504 Marketing, general and administrative 3,884 3,635 4,520 5,648 9,374 36,255 -------------------------------------------------------------------------------- Total operating expenses 11,897 13,547 15,169 17,742 24,231 114,759 -------------------------------------------------------------------------------- Gain on sale of marketable security - - - - 6,120 6,120 Interest income, net 2,108 1,250 1,429 4,642 3,516 14,365 -------------------------------------------------------------------------------- Net loss $ (9,064) $ (11,907) $ (13,318) $ (8,500) $ (13,329) $ (81,641) ================================================================================= Basic and diluted net loss per share $ (0.96) $ (1.25) $ (1.25) $ (0.63) $ (0.95) ============================================================= Basic and diluted weighted-average shares outstanding 9,405 9,556 10,678 13,428 14,032 ============================================================= As of December 31, ------------------------------------------------------------- 1997 1998 1999 2000 2001 ------------------------------------------------------------- (in thousands) Balance Sheet Data: Cash and marketable securities $ 43,303 $ 32,023 $ 33,235 $ 94,762 $76,245 Total assets 58,886 46,265 52,239 114,768 105,786 Long-term debt 8,917 8,300 7,300 6,200 5,100 Deficit accumulated during the development stage (34,587) (46,494) (59,812) (68,312) (81,641) Total stockholders' equity 46,954 36,013 40,785 104,868 93,946
22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this Form 10-K. Overview Neose develops proprietary technologies for the synthesis and manufacture of complex carbohydrates. Our enzymatic technology platform makes feasible the synthesis and modification of a wide range of complex carbohydrates, which are chains of simple sugar molecules that can be joined together in many different combinations. Our platform enables the production and manipulation of complex carbohydrates either as stand-alone carbohydrate molecules or as carbohydrate structures attached to recombinant therapeutic glycoproteins and glycolipids. Our GlycoAdvance program uses our technology to complete the human carbohydrate structures on therapeutic glycoproteins. We are also developing our technology to create novel glycosylation patterns, and to link other molecules, such as polyethylene glycol, to glycoproteins. The application of this technology to proteins potentially results in improved clinical activity and pharmacokinetic profile, enhanced drug development flexibility, stronger and additional patent claims, and yield improvements. Our GlycoTherapeutics program uses our technology to enable the development of carbohydrate-based therapeutics. Our GlycoActives program uses our technology to develop novel carbohydrate food and nutritional ingredients. As of December 31, 2001, we had an accumulated deficit of approximately $82 million. We expect additional losses for some time as we expand research and development efforts, expand manufacturing scale-up activities, and begin sales and marketing activities. Critical Accounting Policies Our significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of this Form 10-K. We believe our most critical accounting policies relate to recognition of revenue and impairment of long-lived assets. Revenue Recognition Revenue from collaborative agreements consists of up-front fees, research and development funding, and milestone payments. We recognize revenues from these agreements consistent with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", issued by the Securities and Exchange Commission in December 1999. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. Periodic payments for research and development activities are recognized over the period in which we perform those activities under the terms of each agreement. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. Impairment of Long-Lived Assets As required by Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121), we assess the recoverability of any long-lived assets for which an indicator of impairment exists. Specifically, we calculate, and recognize, any impairment losses by comparing the carrying value of these assets to our estimate of the undiscounted future operating cash flows. Although our current and historical operating and cash flows are indicators of 23 impairment, we believe the future cash flows to be received from our long-lived assets will exceed the assets' carrying value. Accordingly, we have not recognized any impairment losses through December 31, 2001. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 replaces SFAS 121 for fiscal years beginning after December 15, 2001. We do not believe SFAS 144 will have a material impact on our consolidated financial position or results of operations. Results of Operations Years Ended December 31, 2001 and 2000 Revenues from collaborative agreements decreased to approximately $1.3 million in 2001 from approximately $4.6 million in 2000. Substantially all of our revenues during 2001 were payments received by us under our collaborative agreement with Wyeth Nutrition. Research and development expenses increased to approximately $14.9 million in 2001 from $12.1 million in 2000. The increase was primarily attributable to the addition of new employees in 2001 and the expenses associated with our San Diego facility, which we began leasing in April 2001. In addition, our joint venture with McNeil Nutritionals reimbursed Neose approximately $0.8 million, which was $0.8 million less than in 2000, for the cost of research and development services and supplies provided to the joint venture. The reimbursement amounts have been reflected as a reduction of research and development expense in our consolidated statements of operations for 2000 and 2001. We expect research and development expenses to increase significantly during 2002. Marketing, general and administrative expenses increased to approximately $9.4 million in 2001 from $5.6 million in 2000. The increase was primarily attributable to the hiring of additional business development personnel, increased expenses for marketing GlycoAdvance, increased legal and filing expenses associated with our growing patent portfolio, and non-cash compensation expense associated with stock options. We expect marketing, general and administrative expenses to increase significantly during 2002. We realized a gain of approximately $6.1 million in 2001 from the sale of shares of Genzyme General common stock, which we received as a result of Genzyme's acquisition of Novazyme Pharmaceuticals, Inc. in September 2001. Interest income decreased to approximately $3.7 million in 2001 from approximately $5.1 million in 2000 due to lower average cash and marketable securities balances and lower interest rates during 2001. Interest expense decreased to approximately $0.2 million in 2001 from approximately $0.5 million in 2000 due to lower average loan balances and lower interest rates during 2001. Years Ended December 31, 2000 and 1999 Revenues from collaborative agreements increased to approximately $4.6 million in 2000 from approximately $0.4 million in 1999. Payments under our agreement with Bristol-Myers accounted for approximately $3.3 million of our collaborative revenues in 2000. Research and development expenses increased to $12.1 million in 2000 from $10.6 million in 1999. The increase was primarily attributable to additional services rendered under our current research and development agreement with Bristol-Myers, and non-cash compensation expense associated with stock options granted to non-employees. During the year ended December 31, 2000, our joint venture with McNeil Nutritionals reimbursed Neose approximately $1.6 million for the cost of research and development services and supplies provided to the joint venture. This amount has been reflected as a reduction of research and development expense in our consolidated statements of operations. Marketing, general and administrative expenses increased to $5.6 million in 2000 from $4.5 million in 1999. The increase was primarily attributable to the hiring of additional business development and administrative personnel, and the non-cash compensation expense associated with stock options granted to non-employees. 24 Interest income increased to $5.1 million in 2000 from $1.9 million in 1999 due to higher average cash and marketable securities balances during 2000 resulting from our public offering of 2.3 million shares of common stock in March 2000. Interest expense increased to $0.5 million in 2000 from $0.4 million in 1999 due to higher average interest rates, and was partly offset by lower average loan balances outstanding during 2000. Liquidity and Capital Resources We have incurred operating losses each year since our inception. As of December 31, 2001, we had an accumulated deficit of approximately $82 million. We have financed our operations through private and public offerings of our securities, and revenues from our collaborative agreements. We had approximately $76 million in cash and marketable securities as of December 31, 2001, compared to approximately $95 million in cash and marketable securities as of December 31, 2000. The decrease for 2001was primarily attributable to the use of cash to fund our operating loss and capital expenditures, and was partly offset by the one-time sale of approximately $6.4 million of shares of common stock of Genzyme General. As part of its acquisition of Novazyme Pharmaceuticals, Inc. in 2001, Genzyme assumed Novazyme's obligation to pay us $1.6 million in November 2002. During 1999, 2000, and 2001, we purchased approximately $1.2 million, $1.7 million, and $10.9 million of property, equipment, and building improvements. In 2001, we committed to make $17 million in capital expenditures to provide additional cGMP manufacturing capacity in our Horsham, Pennsylvania facility to support the initial requirements of our anticipated GlycoAdvance customers. As of December 31, 2001, we had expended approximately $8.2 million for this project. In December 2001, we entered into a research, development and license agreement with Wyeth Pharmaceuticals, a division of Wyeth, for the use of our GlycoAdvance technology to develop an improved production system for Wyeths' biopharmaceutical compound, recombinant PSGL-Ig (P-selectin glycoprotein ligand). rPSGL-Ig is being developed to treat inflammation and thrombosis associated with acute coronary syndrome and reperfusion injury. It is currently being evaluated in Phase II clinical trials for heart attack. Under the agreement, we will receive license, research, and milestone payments that would total up to $17 million if all milestones are met. In addition to ongoing product payments, Neose and Wyeth would also enter into a supply agreement for the long-term supply of GlycoAdvance process reagents for their commercial production needs. In December 2001, we received an upfront-fee of $1 million, which is included in deferred revenue in our consolidated balance sheet as of December 31, 2001. We will amortize the up-front fee to revenue over the estimated four-year performance period. In February 2002, we entered into a lease agreement for a 40,000 square foot building in Horsham, Pennsylvania. We intend to convert the facility into laboratory and office space for an expected cost of approximately $12 million. We plan to relocate research laboratories and corporate offices from our current facility in Horsham, Pennsylvania to the new facility, leaving our current facility available for future expansion of our cGMP manufacturing capacity. We may finance some or all of these capital expenditures through the issuance of new debt. If we are able to issue new debt, we may be required to maintain a minimum cash and investments balance, transfer cash into an escrow account to collateralize some portion of the debt, or both. In 2001, we announced a stock repurchase program authorizing the repurchase of up to one million shares of common stock in the open market at times and prices that we consider appropriate. During 2001, we purchased 6,000 shares of common stock in the open market for approximately $0.2 million. In 1997, we issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, $9.4 million of taxable and tax-exempt bonds, of which $6.2 million remains outstanding. The bonds were issued to finance the purchase of our previously leased building and the construction of a pilot-scale manufacturing facility within our building. The bonds are supported by an AA-rated letter of credit, and a reimbursement agreement between our bank and 25 the letter of credit issuer. The interest rate on the bonds will vary weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. During 2001, the weighted-average, effective interest rate was 5.3% per year, including letter-of-credit and other fees. The terms of the bond issuance provide for monthly, interest-only payments and a single repayment of principal at the end of the twenty-year life of the bonds. However, under our agreement with our bank, we are making monthly payments to an escrow account to provide for an annual prepayment of principal. As of December 31, 2001, we had restricted funds relating to the bonds of approximately $0.9 million, which consisted of our monthly payments to an escrow account plus interest revenue on the balance of the escrow account. To provide credit support for this arrangement, we have given a first mortgage on the land, building, improvements, and certain machinery and equipment to our bank. We have also agreed to a covenant to maintain a minimum required cash and short-term investments balance of at least two times the current loan balance. At December 31, 2001, we were required to maintain a cash and short-term investments balance of $12.4 million. If we fail to comply with this covenant, we are required to deposit with the lender cash collateral up to, but not more than, the loan's unpaid balance. We believe that our existing cash and short-term investments, expected revenue from collaborations and license arrangements, anticipated financing of capital expenditures, and interest income should be sufficient to meet our operating and capital requirements through at least 2003, although changes in our collaborative relationships or our business, whether or not initiated by us, may cause us to deplete our cash and short-term investments sooner than the above estimate. The timing and amount of our future capital requirements and the adequacy of available funds will depend on many factors, including if or when any products manufactured using our technology are commercialized. The following table summarizes our obligations to make future payments under current contracts:
Payments due by period ---------------------------------------------------------------------------------- Less than 1 Total Year 1 - 3 Years 4 - 5 Years After 5 Years ---------------------------------------------------------------------------------- Long-term debt.................... $ 6,200,000 $ 1,100,000 $2,500,000 $300,000 $2,300,000 Operating leases................... 11,371,000 517,000 2,299,000 965,000 7,590,000 Construction contract............. 8,800,000 8,800,000 -- -- -- ---------------------------------------------------------------------------------- Total contractual obligations.... $ 26,371,000 $10,417,000 $4,799,000 $1,265,000 $9,890,000 ==================================================================================
Joint Venture with McNeil Nutritionals We have a joint venture with McNeil Nutritionals. We account for our investment in the joint venture under the equity method, under which we recognize our share of the income and losses of the joint venture. In 1999, we reduced the carrying value of our initial investment in the joint venture of approximately $0.4 million to zero to reflect our share of the joint venture's losses. We recorded this amount as research and development expense in our consolidated statements of operations. We will record our share of post-1999 losses of the joint venture, however, only to the extent of our actual or committed investment in the joint venture. The joint venture developed a process for making fructooligosaccharides and constructed a pilot facility in Athens, Georgia. In 2001, the joint venture closed the pilot facility as it shifted focus to a second generation bulking agent. The joint venture is exploring establishing a manufacturing arrangement with a third party to produce these bulking agents. During the years ended December 31, 2000 and 2001, the joint venture reimbursed Neose approximately $1.6 million and $0.8 million, respectively, for the cost of research and development services and supplies provided to the joint venture. There were no such reimbursements during the year ended December 31, 1999. This amount has been reflected as a reduction of research and development 26 expense in our consolidated statements of operations. As of December 31, 2001, the joint venture owed Neose approximately $0.2 million. This amount is included in prepaid expenses and other current assets in our consolidated balance sheet. We expect to provide significantly fewer research and development services during 2002, thereby significantly reducing our expected reimbursement from the joint venture. If the joint venture becomes profitable, we will recognize our share of the joint venture's profits only after the amount of our capital contributions to the joint venture is equivalent to our share of the joint venture's accumulated losses. As of December 31, 2001, the joint venture had an accumulated loss since inception of approximately $9.8 million, of which our share, assuming a 50% ownership interest, is approximately $4.9 million. Until the joint venture is profitable, McNeil Nutritionals is required to fund, as a non-recourse, no-interest loan, all of the joint venture's aggregate capital expenditures in excess of an agreed-upon amount, and all of the joint venture's operating losses. The loan balance would be repayable by the joint venture to McNeil Nutritionals over a seven-year period commencing on the earlier of September 30, 2006 or the date on which Neose attains a 50% ownership interest in the joint venture after having had a lesser ownership interest. In the event of any dissolution of the joint venture, the loan balance would be payable to McNeil Nutritionals before any distribution of assets to us. As of December 31, 2001, the joint venture owed McNeil Nutritionals approximately $8.1 million. We may be required to make additional investments in the joint venture to fund capital expenditures. If the joint venture builds additional production facilities, and we wish to have a 50% ownership interest in the joint venture, we are required to invest up to $8.9 million to fund half of such expenditures. However, we may elect to fund as little as $1.9 million of the cost of the facilities, so long as our aggregate investments in the joint venture are at least 15% of the joint venture's aggregate capital expenditures. In this case, McNeil Nutritionals will fund the remainder of our half of the joint venture's capital expenditures, and our ownership percentage will be proportionately reduced. We have an option, expiring in September 2006, to return to 50% ownership of the joint venture by reimbursing McNeil Nutritionals for this amount. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board finalized Statements of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), which are effective for fiscal years beginning after December 15, 2001. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS 142 no longer requires the amortization of goodwill; rather, goodwill will be subject to a periodic assessment for impairment by applying a fair-value-based test. In addition, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. Such acquired intangible assets will be amortized over their useful lives. All of our intangible assets were obtained through contractual rights and have been separately identified and recognized in our balance sheets. These intangibles are being amortized over their estimated useful lives or contractual lives as appropriate. Therefore, we do not expect the adoption of SFAS 142 in the first quarter of 2002 to have a material impact on our consolidated financial position or results of operations. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 changes the accounting for long-lived assets by requiring that all long-lived assets be measured at the lower of carrying amount or fair value less cost to sell whether included in reporting continuing operations or in discontinued operations. SFAS 144, which replaces SFAS 121 "Accounting for Impairment of Long-Lived Assets and for Assets to be Disposed of," is effective for fiscal years beginning after December 15, 2001. We do not believe SFAS 144 will have a material impact on our consolidated financial position or results of operations. 27 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Our holdings of financial instruments are comprised primarily of government agency securities. All such instruments are classified as securities held to maturity. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities, while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter-end of the maturity spectrum. The approximate principal amount and weighted-average interest rate per year of our investment portfolio as of December 31, 2001 was $75.2 million and 3.4%, respectively. We have exposure to changing interest rates on our taxable and tax-exempt bonds, and we are currently not engaged in hedging activities. Interest on approximately $6.2 million of outstanding indebtedness is at an interest rate that varies weekly, depending on the market rates for AA-rated taxable and tax-exempt obligations. As of December 31, 2001, the weighted-average, effective interest rate was approximately 3.4% per year. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. (a) Financial Statements. The Financial Statements required by this item are attached to this Annual Report on Form 10-K beginning on page F-1.
(b) Supplementary Data. ------------------- Quarterly financial data (unaudited) (in thousands, except per share data) 2001 Quarter Ended Dec. 31 Sept. 30 June 30 Mar. 31 ------------------ ------- -------- ------- ------- Revenue from collaborative agreements $ 332 $ 330 $ 292 $ 312 Net income (loss) 4 (4,824) (5,210) (3,299) Basic and diluted net loss per share -- (0.34) (0.37) (0.24) 2000 Quarter Ended Dec. 31 Sept. 30 June 30 Mar. 31 ------------------ ------- -------- ------- ------- Revenue from collaborative agreements $ 301 $ 583 $ 1,769 $ 1,947 Net loss (2,136) (2,478) (2,060) (1,826) Basic and diluted net loss per share (0.15) (0.18) (0.15) (0.15)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information concerning our directors is incorporated herein by reference to our definitive proxy statement to be filed in connection with solicitation of proxies for our Annual Meeting of Stockholders to be held on June 25, 2002. For information concerning our executive officers, see "Item 1. Business - Executive Officers of the Company." ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed in connection with solicitation of proxies for our Annual Meeting of Stockholders to be held on June 25, 2002. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed in connection with solicitation of proxies for our Annual Meeting of Stockholders to be held on June 25, 2002. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed in connection with solicitation of proxies for our Annual Meeting of Stockholders to be held on June 25, 2002. 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. -------------------- The Consolidated Financial Statements filed as part of this Annual Report on Form 10-K are listed on the Index to Consolidated Financial Statements on page F-1. 2. Financial Statement Schedules. ----------------------------- All financial statement schedules have been omitted here because they are not applicable, not required, or the information is shown in the Consolidated Financial Statements or Notes thereto. 3. Exhibits. (See (c) below) -------- (b) Reports on Form 8-K. On October 23, 2001, the Company filed a report on Form 8-K, announcing under Item 5 that P. Sherrill Neff, President, Chief Operating Officer and Chief Financial Officer, resigned his executive positions with the Company. Mr. Neff will remain a member of the Company's board of directors. On October 24, 2001, the Company filed a report on Form 8-K, announcing under Item 5 that its board of directors authorized an open market stock repurchase program enabling the Company to purchase up to one million shares of outstanding common stock. On February 1, 2002, the Company filed a report on Form 8-K, announcing under Item 5 that it entered into a research, development and license agreement with Wyeth Pharmaceuticals, a division of Wyeth, for the use of Neose's GlycoAdvance services and products to develop an improved production system for a Wyeth compound. (c) Exhibits. -------- The following is a list of exhibits filed as part of this Annual Report on Form 10-K. We are incorporating by reference to our previous SEC filings each exhibit that contains a footnote. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses. 30
Exhibit Number Description - ------ ----------- 3.1 Second Amended and Restated Certificate of Incorporation. (Exhibit 3.1)(1) 3.2 Amended and Restated By-Laws. (Exhibit 3.3)(5) 3.3 Certificate of Designation establishing and designating the Series A Junior Participating Preferred Stock. (Exhibit 3.2)(5) 4.1 See Exhibits 3.1, 3.2, and 3.3 for instruments defining rights of holders of common stock. 4.2 Representation pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. (Exhibit 4.1)(3) 4.3 Trust Indenture, dated as of March 1, 1997, between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company. (Exhibit 4.2)(3) 4.4 Form of Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bond (Neose Technologies, Inc. Project) Series B of 1997. (Exhibit 4.3)(3) 4.5 Amended and Restated Rights Agreement, dated as of December 3, 1998, between American Stock Transfer & Trust Company, as Rights Agent, and Neose Technologies, Inc. (Exhibit 4.1)(6) 4.6 Amendment No. 1, dated November 14, 2000, to the Amended and Restated Rights Agreement, dated as of December 3, 1998, between Neose Technologies, Inc. and American Stock Transfer & Trust Company, as Rights Agent. (Exhibit 4.1)(10) 10.1 Stock Purchase Agreement, dated as of August 28, 1990, between University of Pennsylvania and Neose Technologies, Inc. (Exhibit 10.1)(1) 10.2 License Agreement, dated as of August 28, 1990, between University of Pennsylvania and Neose Technologies, Inc., as amended to date. (Exhibit 10.2)(1) 10.3(a)+ Series D Preferred Stock Purchase Agreement, dated as of December 30, 1992, between Abbott Laboratories and Neose Technologies, Inc. (Exhibit 10.8(a))(1) 10.3(b)+ Supply Agreement, dated as of December 30, 1992, between Abbott Laboratories and Neose Technologies, Inc. (Exhibit 10.8(b))(1) 10.3(c)+ Research and License Agreement, dated as of December 30, 1992, between Abbott Laboratories and Neose Technologies, Inc. (Exhibit 10.8(c))(1) 10.3(d)+ Amendment to the Research and License Agreement, dated as of January 18, 1995, between Abbott Laboratories and Neose Technologies, Inc. (Exhibit 10.8(d))(2) 10.4 Form of Series E Preferred Stock Investors' Rights Agreement. (Exhibit 10.9)(1) 10.5 Form of Series F Preferred Stock Investors' Rights Agreement. (Exhibit 10.10)(1) 10.6 Form of Warrant to Purchase Common Stock, dated as of February 23, 1991. (Exhibit 10.11)(1) 10.7 Form of Warrant to Purchase Common Stock, dated as of June 30, 1993. (Exhibit 10.12)(1) 10.8 Form of Warrant to Purchase Common Stock, dated as of February 16, 1994. (Exhibit 10.13)(1) 10.9 Form of Warrant to Purchase Series E Preferred Stock, dated as of July 29, 1994. (Exhibit 10.14)(1) 10.10 Warrant for the Purchase of Common Stock, dated as of June 30, 1995, between Financing for Science International, Inc. and Neose Technologies, Inc. (Exhibit 10.15)(1) 10.11++ 1995 Stock Option/Stock Issuance Plan, as amended. (Exhibit 99.1)(4) 10.12++ Employee Stock Purchase Plan. (Exhibit 10.17)(1) 10.13++ Employment Agreement, dated April 1, 1992, between David A. Zopf and Neose Technologies, Inc., as amended to date. (Exhibit 10.18)(1) 10.14++ Employment Agreement, dated December 1, 1994, between P. Sherrill Neff and Neose Technologies, Inc. (Exhibit 10.19)(1) 10.15 Agreement for Purchase and Sale of Real Property, dated March 14, 1997, by and between Pennsylvania Business Campus Delaware, Inc. and Neose Technologies, Inc. (Exhibit 2.1)(3) 10.16 Loan Agreement, dated as of March 1, 1997, between Montgomery County Industrial Development Authority and Neose Technologies, Inc. (Exhibit 10.1)(3) 10.17 Participation and Reimbursement Agreement, dated as of March 1, 1997, between Jefferson Bank and CoreStates Bank, N.A. (Exhibit 10.2)(3) 10.18 Form of CoreStates Bank, N.A. Irrevocable Letter of Credit. (Exhibit 10.3)(3) 10.19 Pledge, Security and Indemnification Agreement, dated as of March 1, 1997, by and among CoreStates Bank, N.A., Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.4)(3) 10.20 Reimbursement Agreement, dated as of March 1, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.5)(3) 10.21 Specimen of Note from Company to Jefferson Bank. (Exhibit 10.6)(3)
31
10.22 Mortgage, Assignment and Security Agreement, dated March 20, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.7)(3) 10.23 Security Agreement, dated as of March 1, 1997, by and between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.8)(3) 10.24 Assignment of Contract, dated as of March 20, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.9)(3) 10.25 Custodial and Collateral Security Agreement, dated as of March 20, 1997, by and among Offitbank, Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.10)(3) 10.26 Placement Agreement, dated March 20, 1997, among Montgomery County Industrial Development Authority, CoreStates Capital Markets, and Neose Technologies, Inc. (Exhibit 10.11)(3) 10.27 Remarketing Agreement, dated as of March 1, 1997, between CoreStates Capital Markets and Neose Technologies, Inc. (Exhibit 10.12)(3) 10.28 Form of Purchase Agreement, dated as of June 25, 1999, between Neose Technologies, Inc. and the purchasers set forth on the signature pages thereto. (Exhibit 99.1)(7) 10.29 Form of Amended and Restated Purchase Agreement, dated as of June 25, 1999, between Neose Technologies, Inc. and the purchasers set forth on the signature pages thereto. (Exhibit 99.2)(7) 10.30+ Research and Development Agreement, dated June 1, 1998, between Neose Technologies, Inc. and the Pharmaceutical Research Institute of Bristol-Myers Squibb Company. (Exhibit 99.1)(8) 10.31+ Operating Agreement of Magnolia Nutritionals LLC, dated October 12, 1999, between Neose Technologies, Inc. and McNeil PPC, Inc. acting through its division McNeil Specialty Products Company. (Exhibit 99.2)(8) 10.32+ Collaboration and License Agreement, dated November 3, 1999, between Neose Technologies, Inc. and American Home Products Corporation. (Exhibit 99.3)(8) 10.33 Modification Agreement Relating To Reimbursement Agreements, dated as of May 1, 2000, between Hudson United Bank, Jefferson Bank Division, successor to Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.1)(9) 10.34 Modification Agreement Relating to Custodial Bank Agreement, dated as of May 1, 2000, by and among Offitbank, Hudson United Bank, Jefferson Bank Division, successor to Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.2)(9) 10.35++ Employment Offer Letter, dated November 27, 2000, between Eric Sichel and Neose Technologies, Inc. (Exhibit 10.35)(11) 10.36 Amendment No. 1 to Research and Development Agreement, dated May 14, 2001, between Neose Technologies, Inc. and the Pharmaceutical Research Institute of Bristol-Myers Squibb Company. (Exhibit 99.2)(12) 10.37 Separation of Employment Agreement, dated as of May 18, 2001, between Eric Sichel and Neose Technologies, Inc. (Exhibit 10.1)(13) 10.38# Research, Development and License Agreement, dated December 19, 2001, between American Home Products Corporation and Neose Technologies, Inc. (Exhibit 10.1)(14) 10.39*++ Employment Offer Letter, dated effective July 11, 2001 between George J. Vergis and Neose Technologies, Inc. 10.40* Agreement of Lease, dated as of February 15, 2002, between Liberty Property Leased Partnership and Neose Technologies, Inc. 10.41*++ Retirement Agreement, dated as of January 14, 2002, between Edward J. McGuire and Neose Technologies, Inc. 10.42*++ Retention Agreement, dated as of January 21, 2002, between David A. Zopf and Neose Technologies, Inc. 10.43*++ Retention Agreement, dated as of January 21, 2002, between George J. Vergis and Neose Technologies, Inc. 10.44*++ Tuition Reimbursement Agreement, dated as of May 24, 2001, between A. Brian Davis and Neose Technologies, Inc. 10.45*++ Retention Agreement, dated as of January 21, 2002, between A. Brian Davis and Neose Technologies, Inc. 10.46*++ Retention Agreement, dated as of January 21, 2002, between Debra J. Poul and Neose Technologies, Inc.
32
10.47* Standard Industrial/Commercial Multi-Tenant Lease-Net, dated February 2, 2001, between Nancy Ridge Technology Center, LLC and Neose Technologies, Inc. 10.48* First Amendment to Lease, dated May 18, 2001, between Nancy Ridge Technology Center, LLC and Neose Technologies, Inc. 10.49* Agreement, dated as of August 24, 2001, between IPS and Neose Technologies, Inc. 11* Statement re: Computation of Net Loss Per Common Share. 23.1* Consent of Arthur Andersen LLP. 24* Powers of Attorney (included as part of signature page hereof). 99* Letter to the SEC from Neose Technologies, Inc. regarding Arthur Andersen LLP. - ----------------- * Filed herewith. + Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to an order of the SEC granting our application for confidential treatment filed pursuant to Rule 406 under the Securities Act. ++ Compensation plans and arrangements for executives and others. # Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC. (1) Filed as an Exhibit to our Registration Statement on Form S-1 (Registration No. 33-80693) filed with the SEC on December 21, 1995, as amended. (2) Filed as an Exhibit to our Registration Statement on Form S-1 (Registration No. 333-19629) filed with the SEC on January 13, 1997. (3) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997. (4) Filed as an Exhibit to our Registration Statement on Form S-8 (Registration No. 333-73340) filed with the SEC on November 14, 2001. (5) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on October 1, 1997. (6) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on January 8, 1999. (7) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on July 14, 1999. (8) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on February 2, 2000. (9) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000. (10) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on November 15, 2000. (11) Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2000. (12) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on May 18, 2001. (13) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001. (14) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on February 1, 2002.
33 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized. NEOSE TECHNOLOGIES, INC. Date: March 28, 2002 By: /s/ Stephen A. Roth ------------------------------- Stephen A. Roth Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Neose and in the capacities and on the dates indicated. Each person, in so signing also makes, constitutes, and appoints Stephen A. Roth, Chief Executive Officer of Neose, and A. Brian Davis, Acting Chief Financial Officer of Neose, and each of them acting alone, as his true and lawful attorneys-in-fact, with full power of substitution, in his name, place, and stead, to execute and cause to be filed with the Securities and Exchange Commission any or all amendments to this report.
Name Capacity Date - ---- -------- ---- /s/ Stephen A. Roth Chief Executive Officer and Chairman of the Board March 28, 2002 - ------------------------------------- (Principal Executive Officer) Stephen A. Roth /s/A. Brian Davis Acting Chief Financial Officer March 28, 2002 - ------------------------------------- (Principal Financial and Accounting Officer) A. Brian Davis /s/ William F. Hamilton Director March 28, 2002 - ------------------------------------- William F. Hamilton /s/ Douglas J. MacMaster, Jr. Director March 28, 2002 - ------------------------------------- Douglas J. MacMaster, Jr. /s/ P. Sherrill Neff Director March 28, 2002 - ------------------------------------- P. Sherrill Neff /s/ Mark H. Rachesky Director March 28, 2002 - ------------------------------------- Mark H. Rachesky /s/ Lindsay A. Rosenwald Director March 28, 2002 - ------------------------------------- Lindsay A. Rosenwald /s/ Lowell E. Sears Director March 28, 2002 - ------------------------------------- Lowell E. Sears /s/ Jerry A. Weisbach Director March 28, 2002 - ------------------------------------- Jerry A. Weisbach
Index to Consolidated Financial Statements Report of Independent Public Accountants .................................. F-2 Consolidated Balance Sheets ............................................... F-3 Consolidated Statements of Operations ..................................... F-4 Consolidated Statements of Stockholders' Equity and Comprehensive Loss .... F-5 Consolidated Statements of Cash Flows ..................................... F-8 Notes to Consolidated Financial Statements ................................ F-9 F-1 Report of Independent Public Accountants To Neose Technologies, Inc.: We have audited the accompanying consolidated balance sheets of Neose Technologies, Inc. (a Delaware corporation in the development stage) and subsidiaries as of December 31, 2000 and 2001, and the related consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for each of the three years in the period ended December 31, 2001, and for the period from inception (January 17, 1989) to December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neose Technologies, Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, and for the period from inception (January 17, 1989) to December 31, 2001, in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Philadelphia, Pennsylvania January 25, 2002 F-2 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Consolidated Balance Sheets (in thousands, except per share amounts)
December 31, ------------------------------- Assets 2000 2001 -------- -------- Current assets: Cash and cash equivalents $ 66,989 $ 76,245 Marketable securities 27,773 -- Restricted funds 893 902 Prepaid expenses and other current assets 583 1,635 --------- --------- Total current assets 96,238 78,782 Property and equipment, net 13,577 22,649 Other assets, net 4,953 4,355 --------- --------- Total assets $ 114,768 $ 105,786 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 1,100 $ 1,100 Accounts payable 83 719 Accrued compensation 601 855 Accrued expenses 1,527 2,844 Deferred revenue 389 1,222 --------- --------- Total current liabilities 3,700 6,740 Long-term debt 6,200 5,100 --------- --------- Total liabilities 9,900 11,840 --------- --------- Commitments (Note 11) Stockholders' equity: Preferred stock, $.01 par value, 5,000 shares authorized, none issued -- -- Common stock, $.01 par value, 30,000 shares authorized; 13,992 and 14,089 shares issued; 13,992 and 14,083 shares outstanding 140 141 Additional paid-in capital 173,757 176,124 Treasury stock, 6 shares at cost in 2001 -- (175) Deferred compensation (717) (503) Deficit accumulated during the development stage (68,312) (81,641) --------- --------- Total stockholders' equity 104,868 93,946 --------- --------- Total liabilities and stockholders' equity $ 114,768 $ 105,786 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-3 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Consolidated Statements of Operations (in thousands, except per share amounts)
Period from inception (January 17, Year Ended December 31, 1989) to ------------------------------- December 31, 1999 2000 2001 2001 ---- ---- ---- ---- Revenue from collaborative agreements $ 422 $ 4,600 $ 1,266 $ 12,633 --------- -------- -------- -------- Operating expenses: Research and development 10,649 12,094 14,857 78,504 Marketing, general and administrative 4,520 5,648 9,374 36,255 --------- -------- -------- -------- Total operating expenses 15,169 17,742 24,231 114,759 --------- -------- -------- -------- Operating loss (14,747) (13,142) (22,965) (102,126) Gain on sale of marketable security -- -- 6,120 6,120 Interest income 1,862 5,111 3,704 17,670 Interest expense (433) (469) (188) (3,305) --------- -------- -------- -------- Net loss $ (13,318) $ (8,500) $(13,329) $(81,641) ========= ======== ========= ======== Basic and diluted net loss per share $ (1.25) $ (0.63) $ (0.95) ========= ======== ========= Basic and diluted weighted-average shares outstanding 10,678 13,428 14,032 ========= ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-4 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Consolidated Statements of Stockholders' Equity and Comprehensive Loss (in thousands)
Comprehensive Deficit loss Convertible accumulated Unrealized accumulated Preferred Stock Common Stock Additional during the gains on during the --------------- --------------- paid-in Treasury Deferred development marketable development Shares Amount Shares Amount capital Stock compensation stage securities stage -------------------------------------------------------------------------------------------------------- Balance, January 17, 1989 (inception) -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- Initial issuance of common stock -- -- 1,302 13 (3) -- -- -- -- -- Shares issued pursuant to consulting, licensing, and antidilutive agreements -- -- 329 3 (1) -- -- -- -- -- Sale of common stock -- -- 133 1 1 -- -- -- -- -- Net loss -- -- -- -- -- -- -- (460) -- (460) --------------------------------------------------------------------------------------------------- Balance, December 31, 1990 -- -- 1,764 17 (3) -- -- (460) -- (460) Sale of stock 1,517 15 420 4 4,499 -- (7) -- -- -- Shares issued pursuant to consulting and antidilutive agreements -- -- 145 1 -- -- -- -- -- -- Capital contributions -- -- -- -- 10 -- -- -- -- -- Dividends on preferred stock -- -- -- -- (18) -- -- -- -- -- Net loss -- -- -- -- -- -- -- (1,865) -- (1,865) ------------------------------------------------------------------------------------------------- Balance, December 31, 1991 1,517 15 2,329 22 4,488 -- (7) (2,325) -- (2,325) Sale of stock 260 2 17 -- 2,344 -- -- -- -- -- Shares issued pursuant to redemption of notes payable -- -- 107 1 682 -- -- -- -- -- Exercise of stock options and warrants -- -- 21 -- 51 -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- 5 -- -- -- Dividends on preferred stock -- -- -- -- (36) -- -- -- -- -- Net loss -- -- -- -- -- -- -- (3,355) -- (3,355) ------------------------------------------------------------------------------------------------- Balance, December 31, 1992 1,777 17 2,474 23 7,529 -- (2) (5,680) -- (5,680) Sale of preferred stock 250 3 -- -- 1,997 -- -- -- -- -- Shares issued to licensor -- -- 3 -- -- -- -- -- -- -- Shares issued to preferred stockholder in lieu of cash dividends -- -- 1 -- 18 -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- 2 -- -- -- Dividends on preferred stock -- -- -- -- (36) -- -- -- -- -- Net loss -- -- -- -- -- -- -- (2,423) -- (2,423) ------------------------------------------------------------------------------------------------- Balance, December 31, 1993 2,027 20 2,478 23 9,508 -- -- (8,103) -- (8,103) Sale of preferred stock 2,449 25 -- -- 11,040 -- -- -- -- -- Exercise of stock options -- -- 35 1 14 -- -- -- -- -- Shares issued to preferred stockholder in lieu of cash dividends -- -- 10 1 53 -- -- -- -- -- Dividends on preferred stock -- -- -- -- (18) -- -- -- -- -- Net loss -- -- -- -- -- -- -- (6,212) -- (6,212) ------------------------------------------------------------------------------------------------- Balance, December 31, 1994 4,476 $45 2,523 $25 $20,597 $ -- $ -- $(14,315) $-- $(14,315)
The accompanying notes are an integral part of these consolidated financial statements. F-5 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Consolidated Statements of Stockholders' Equity and Comprehensive Loss (continued) (in thousands)
Comprehensive Convertible Deficit loss Preferred accumulated Unrealized accumulated Stock Common Stock Additional during the gains on during the --------------- ---------------- paid-in Treasury Deferred development marketable development Shares Amount Shares Amount capital Stock compensation stage securities stage ------------------------------------------------------------------------------------------------------ Sale of preferred stock 2,721 $27 -- $ -- $10,065 $ -- $ -- $ -- $ -- $ -- Exercise of stock options and warrants -- -- 116 1 329 -- -- -- -- -- Shares issued to employees in lieu of cash compensation -- -- 8 -- 44 -- -- -- -- -- Deferred compensation related to grant to grant of stock options -- -- -- -- 360 -- (360) -- -- -- Shares issued to stockholder related to the initial public offering -- -- 23 -- -- -- -- -- -- -- Shares issued to preferred stockholder in lieu of cash dividends -- -- 3 -- 18 -- -- -- -- -- Dividends on preferred stock -- -- -- -- (36) -- -- -- -- -- Conversion of preferred stock into common stock (1,417) (14) 472 5 9 -- -- -- -- -- Net loss -- -- -- -- -- -- -- (5,067) -- (5,067) ------------------------------------------------------------------------------------------------------ Balance, December 31, 1995 5,780 58 3,145 31 31,386 -- (360) (19,382) -- (19,382) Dividends on preferred stock -- -- -- -- (18) -- -- -- -- -- Sale of common stock in initial public offering -- -- 2,588 26 29,101 -- -- -- -- -- Conversion of preferred stock into common stock (5,780) (58) 2,411 24 34 -- -- -- -- -- Exercise of stock options and warrants -- -- 65 1 162 -- -- -- -- -- Shares issued pursuant to employee stock purchase plan -- -- 6 -- 60 -- -- -- -- -- Deferred compensation related to acceleration of option vesting -- -- -- -- 106 -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- 90 -- -- -- Net loss -- -- -- -- -- -- -- (6,141) -- (6,141) ------------------------------------------------------------------------------------------------------ Balance, December 31, 1996 -- -- 8,215 82 60,831 -- (270) (25,523) -- (25,523) Sale of common stock in public offering -- -- 1,250 13 20,326 -- -- -- -- -- Exercise of stock options and warrants -- -- 42 -- 139 -- -- -- -- -- Shares issued pursuant to employee stock purchase plan -- -- 18 -- 189 -- -- -- -- -- Deferred compensation related to grants of stock options -- -- -- -- 322 -- (322) -- -- -- Amortization of deferred compensation -- -- -- -- -- -- 231 -- -- -- Net loss -- -- -- -- -- -- -- (9,064) -- (9,064) ------------------------------------------------------------------------------------------------------ Balance, December 31, 1997 -- $ -- 9,525 $ 95 $81,807 $ -- $ (361) $(34,587) $ -- $(34,587)
The accompanying notes are an integral part of these consolidated financial statements. F-6 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Consolidated Statements of Stockholders' Equity and Comprehensive Loss (continued) (in thousands)
Comprehensive Convertible Deficit loss Preferred accumulated Unrealized accumulated Stock Common Stock Additional during the gains on during the --------------- ---------------- paid-in Treasury Deferred development marketable development Shares Amount Shares Amount capital Stock compensation stage securities stage ------------------------------------------------------------------------------------------------------ Exercise of stock options -- $ -- 49 $ 1 $ 261 $ -- $ -- $ -- $ -- $ -- Shares issued pursuant to employee stock purchase plan -- -- 15 -- 171 -- -- -- -- -- Deferred compensation related to grants of stock options -- -- -- -- 161 -- (161) -- -- -- Amortization of deferred compensation -- -- -- -- -- -- 311 -- -- -- Unrealized gains on marketable securities -- -- -- -- -- -- -- -- 222 222 Net loss -- -- -- -- -- -- -- (11,907) -- (11,907) ------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 -- -- 9,589 96 82,400 -- (211) (46,494) 222 (46,272) Sales of common stock in private placements -- -- 1,786 18 17,398 -- -- -- -- -- Exercise of stock options and warrants -- -- 43 -- 263 -- -- -- -- -- Shares issued pursuant to employee stock purchase plan -- -- 16 -- 156 -- -- -- -- -- Deferred compensation related to grants of stock options -- -- -- -- 796 -- (796) -- -- -- Amortization of deferred compensation -- -- -- -- -- -- 477 -- -- -- Unrealized gains on marketable securities -- -- -- -- -- -- -- -- (222) (222) Net loss -- -- -- -- -- -- -- (13,318) -- (13,318) ------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 -- -- 11,434 114 101,013 -- (530) (59,812) -- (59,812) Sales of common stock in public offering -- -- 2,300 23 68,582 -- -- -- -- -- Exercise of stock options and warrants -- -- 247 3 2,735 -- -- -- -- -- Shares issued pursuant to employee stock purchase plan -- -- 11 -- 157 -- -- -- -- -- Deferred compensation related to grants of stock options -- -- -- -- 1,270 -- (1,270) -- -- -- Amortization of deferred compensation -- -- -- -- -- -- 1,083 -- -- -- Net loss -- -- -- -- -- -- -- (8,500) -- (8,500) ------------------------------------------------------------------------------------------------------ Balance, December 31, 2000 -- -- 13,992 140 173,757 -- (717) (68,312) -- (68,312) Exercise of stock options and warrants -- -- 79 1 867 -- -- -- -- -- Shares issued pursuant to employee stock purchase plan -- -- 18 -- 335 -- -- -- -- -- Acquisition of treasury stock, 6 shares at cost -- -- (6) -- -- (175) -- -- -- -- Deferred compensation related to grants of stock options -- -- -- -- 1,165 -- (1,165) -- -- -- Amortization of deferred compensation -- -- -- -- -- -- 1,379 -- -- -- Net loss -- -- -- -- -- -- -- (13,329) -- (13,329) ------------------------------------------------------------------------------------------------------ Balance, December 31, 2001 -- $ -- 14,803 $ 141 $ 176,124 $(175) $ (503) $(81,641) $ -- $ (81,641) ======================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-7 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Consolidated Statement of Cash Flows (in thousands)
Period from inception (January 17, Year ended December 31, 1989) to ---------------------------------------- December 31, 1999 2000 2001 2001 ---------- ---------- ---------- ---------- Cash flows from operating activities: Net loss $(13,318) $ (8,500) $(13,329) $ (81,641) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 1,695 2,051 2,422 10,734 Non-cash compensation 477 1,083 1,379 3,578 Common stock issued for non-cash and other charges -- -- -- 35 Changes in operating assets and liabilities: Prepaid expenses and other current assets 117 (465) (1,052) (1,635) Accounts payable 192 (154) 636 719 Accrued compensation 125 146 254 855 Accrued expenses 697 (405) (208) 362 Deferred revenue 805 (416) 833 1,222 -------- -------- -------- --------- Net cash used in operating activities (9,210) (6,660) (9,065) (65,771) -------- -------- -------- --------- Cash flows from investing activities: Purchases of property and equipment (1,207) (1,455) (9,371) (28,557) Proceeds from sale-leaseback of equipment -- -- -- 1,382 Purchases of marketable securities (88,662) (81,077) (103,465) (324,327) Proceeds from sales of marketable securities 8,882 -- -- 11,467 Proceeds from maturities of and other changes in marketable securities 79,227 76,174 131,238 312,860 Purchase of acquired technology (3,550) (1,000) -- (4,550) Purchase of preferred stock -- (1,250) -- (1,250) Restricted cash related to acquired technology (1,500) 1,500 -- -- -------- -------- -------- --------- Net cash provided by (used in) investing activities (6,810) (7,108) 18,402 (32,975) -------- -------- -------- --------- Cash flows from financing activities: Proceeds from issuance of debt -- -- -- 11,955 Repayment of debt (617) (1,000) (1,100) (7,052) Restricted cash related to debt (317) (108) (9) (831) Proceeds from issuance of preferred stock, net -- -- -- 29,497 Proceeds from issuance of common stock, net 17,572 68,762 335 136,840 Proceeds from exercise of stock options and warrants 263 2,738 868 4,829 Acquisition of treasury stock -- -- (175) (175) Dividends paid -- -- -- (72) -------- -------- -------- --------- Net cash provided by (used in) financing activities 16,901 70,392 (81) 174,991 -------- -------- -------- --------- Net increase in cash and cash equivalents 881 56,624 9,256 76,245 Cash and cash equivalents, beginning of period 9,484 10,365 66,989 -- -------- -------- -------- --------- Cash and cash equivalents, end of period $ 10,365 $ 66,989 $ 76,245 $ 76,245 ======== ======== ======== ========= Supplemental disclosure of cash flow information: Cash paid for interest $ 429 $ 481 $ 284 $ 3,303 ======== ======== ======== ========= Non-cash investing activities: Accrued property and equipment $ - $ 275 $ 1,800 $ 2,075 ======== ======== ======== ========= Non-cash financing activities: Issuance of common stock for dividends $ - $ - $ - $ 90 ======== ======== ======== ========= Issuance of common stock to employees in lieu of cash compensation $ - $ - $ - $ 44 ======== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-8 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements Note 1. Background Neose develops proprietary technologies for the synthesis and manufacture of complex carbohydrates. Our enzymatic technology platform makes feasible the synthesis and modification of a wide range of complex carbohydrates, which are chains of simple sugar molecules that can be joined together in many different combinations. Our platform enables the production and manipulation of complex carbohydrates either as stand-alone carbohydrate molecules or as carbohydrate structures attached to recombinant therapeutic glycoproteins and glycolipids. Our GlycoAdvance program uses our technology to complete the human carbohydrate structures on therapeutic glycoproteins. We are also developing our technology to create novel glycosylation patterns, and to link other molecules, such as polyethylene glycol, to glycoproteins. The application of this technology to proteins potentially results in improved clinical activity and pharmacokinetic profile, enhanced drug development flexibility, stronger and additional patent claims, and yield improvements. Our GlycoTherapeutics program uses our technology to enable the development of carbohydrate-based therapeutics. Our GlycoActives program uses our technology to develop novel carbohydrate food and nutritional ingredients. Neose was initially incorporated in January 1989, and began operations in October 1990. Note 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Neose Technologies, Inc. and its wholly-owned subsidiaries, and reflect the elimination of all significant intercompany accounts and transactions. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents We consider all highly liquid investments with a maturity of three months or less on the date of purchase to be cash equivalents. As of December 31, 2000 and 2001, cash equivalents consisted of securities and obligations of either the U.S. Treasury or U.S. government agencies. Marketable Securities Although we held no marketable securities as of December 31, 2001, we often invest in marketable securities. We determine the appropriate classification of our debt securities at the time of purchase and re-evaluate such designation as of each balance sheet date. Marketable securities that we have the positive intent and ability to hold to maturity are classified as held-to-maturity securities and recorded at amortized cost. Our other marketable securities are classified as available-for-sale securities and are carried at fair value, based on quoted market prices, with unrealized gains and losses reported as a separate component of stockholders' equity. All realized gains and losses on our available-for-sale securities, computed using specific identification, and any declines in value determined to be permanent are recognized in our consolidated statements of operations. F-9 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements Marketable securities consist of investments that have a maturity of more than three months on the date of purchase. To help maintain the safety and liquidity of our marketable securities, we have established guidelines for the concentration, maturities, and credit ratings of our investments. Comprehensive Loss Our comprehensive loss for the years ended December 31, 1999, 2000, and 2001 was approximately $13.5 million, $8.5 million and $13.3 million, respectively. Comprehensive loss is comprised of net loss and other comprehensive income or loss. Our only source of other comprehensive income or loss is unrealized gains and losses on our marketable securities that are classified as available-for-sale. Property and Equipment Property and equipment are stated at cost. Property and equipment capitalized under capital leases are recorded at the present value of the minimum lease payments due over the lease term. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets or the lease term, whichever is shorter. We use depreciable lives of three to seven years for laboratory and office equipment, and seventeen to twenty years for building and improvements. Expenditures for maintenance and repairs are charged to expense as incurred, and expenditures for major renewals and improvements are capitalized. Impairment of Long-Lived Assets As required by Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," we assess the recoverability of any long-lived assets for which an indicator of impairment exists. Specifically, we calculate, and recognize, any impairment losses by comparing the carrying value of these assets to our estimate of the undiscounted future operating cash flows. Although our current and historical negative cash flows are indicators of impairment, we believe the future cash flows to be received from our long-lived assets will exceed the assets' carrying value. Accordingly, we have not recognized any impairment losses through December 31, 2001. Research and Development Research and development costs are charged to expense as incurred. Income Taxes We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The objective of this pronouncement is to recognize and measure, using enacted tax laws, the amount of current and deferred income taxes payable or refundable at the date of the financial statements as a result of all events that have been recognized in the financial statements. Revenue Recognition Revenue from collaborative agreements consists of up-front fees, research and development funding, and milestone payments. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. Periodic payments for research and development activities are recognized over the period in which we perform those activities under the terms of each agreement. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. F-10 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements In December 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). The bulletin draws on existing accounting rules and provides specific guidance on how those accounting rules should be applied, and specifically addresses revenue recognition for non-refundable technology access fees in the biotechnology industry. We adopted SAB 101 in the fourth quarter of 2000, effective for all of 2000. SAB 101 had no impact on our financial position or results of operations, as our revenue recognition policy was consistent with SAB 101. Net Loss Per Share Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution from the exercise or conversion of securities into common stock. For the years ended December 31, 1999, 2000, and 2001, the effects of the exercise of outstanding stock options and warrants were antidilutive; accordingly, they were excluded from the calculation of diluted earnings per share. See Notes 9 and 10 for a summary of outstanding warrants and options. Fair Value of Financial Instruments As of December 31, 2001, the carrying values of cash and cash equivalents, restricted funds, accounts payable, accrued expenses, and accrued compensation approximate their respective fair values. In addition, we believe the carrying value of our debt instrument, which does not have a readily ascertainable market value, approximates its fair value. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board finalized Statements of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), which are effective for fiscal years beginning after December 15, 2001. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS 142 no longer requires the amortization of goodwill; rather, goodwill will be subject to a periodic assessment for impairment by applying a fair-value-based test. In addition, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. Such acquired intangible assets will be amortized over their estimated useful lives. All of our intangible assets were obtained through contractual rights and have been separately identified and recognized in our consolidated balance sheets. These intangibles are being amortized over their estimated useful lives or contractual lives as appropriate. Therefore, we do not expect the adoption of SFAS 142 in the first quarter of 2002 to have any effect on our consolidated financial position or results of operations. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 changes the accounting for long-lived assets by requiring that all long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether included in reporting continuing operations or in discontinued operations. SFAS 144, which replaces SFAS 121 "Accounting for Impairment of Long-Lived Assets and for Assets to be Disposed of," is effective for fiscal years beginning after December 15, 2001. We do not believe SFAS 144 will have a material impact on our consolidated financial position or results of operations. Reclassification Certain prior year amounts have been reclassified to conform to our current year presentation. F-11 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements Note 3. Collaborative Agreements Agreement with Wyeth Pharmaceuticals In December 2001, we entered into a research, development and license agreement with Wyeth Pharmaceuticals, a division of Wyeth, for the use of our GlycoAdvance technology to develop an improved production system for Wyeth's biopharmaceutical compound, recombinant PSGL-Ig (P-selectin glycoprotein ligand). rPSGL-Ig is being developed to treat inflammation and thrombosis associated with acute coronary syndrome and reperfusion injury. It is currently being evaluated in Phase II clinical trials for heart attack. Under the agreement, we will develop processes for the commercial-scale manufacture of GlycoAdvance enzymes and sugar nucleotides to be used in the production of rPSGL-Ig, and will license GlycoAdvance technology to Wyeth for commercial production of the drug, if regulatory approval is obtained. During commercial production of Wyeth's current rPSGL-Ig, we would receive ongoing payments tied to yield improvements achieved using GlycoAdvance. In addition, Wyeth has the option to use GlycoAdvance to develop a next generation rPSGL-Ig, in which case we would receive development payments and royalties on product sales. We will receive license, research, and milestone payments that will total up to $17 million if all milestones are met. In addition to ongoing product payments, Neose and Wyeth would also enter into a supply agreement for the long-term supply of GlycoAdvance process reagents for their commercial production needs. In December 2001, we received an upfront-fee of $1 million, which is included in deferred revenue in our consolidated balance sheet as of December 31, 2001. We will amortize the up-front fee to revenue over the estimated four-year performance period. Wyeth may not receive regulatory approval to rPSGL-Ig, Wyeth may choose not to commercialize rPSGL-Ig, Wyeth may choose not to use GlycoAdvance services or products to commercialize rPSGL-Ig, or we may not succeed in developing an improved production system for rPSGL-Ig. Agreement with Wyeth Nutrition We entered into an agreement in 1999 with Wyeth Nutrition, a business unit of Wyeth Pharmaceuticals, to develop a manufacturing process for a bioactive carbohydrate to be used as an ingredient in Wyeth's infant and pediatric nutritional formula products. We are receiving contract development payments, and will receive payments if we achieve milestones specified in the agreement. If Wyeth commercializes an ingredient under this agreement, we will sell product to Wyeth at minimum specified transfer prices. In 1999, we received from Wyeth a non-refundable, up-front license fee of $0.5 million, which we are recognizing as revenue ratably over the estimated three-year performance period. During the years ended December 31, 1999, 2000, and 2001, we recorded revenues of $0.2 million, $1.2 million, and $1.2 million, respectively, from Wyeth. Under our agreement with Wyeth, we are responsible for developing a large-scale manufacturing process for a potential ingredient in infant formula. We may be unable to complete this development successfully, or be successful in commercial scale-up of these processes. Even if we successfully develop a process and fulfill all of our obligations under the agreement, Wyeth may fail to obtain regulatory approval to market the ingredient. Even if Wyeth obtains regulatory approval for the ingredient, Wyeth may elect not to add the ingredient to any of its products. F-12 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements Agreement with McNeil Nutritionals In 1999, we entered into a joint venture with McNeil Nutritionals, a subsidiary of Johnson & Johnson, to explore the inexpensive enzymatic production of complex carbohydrates for use as bulking agents. Neose and McNeil Nutritionals own the joint venture equally. Each of Neose and McNeil Nutritionals contributed various intellectual property to the joint venture. In addition, McNeil Nutritionals contributed to the joint venture the pilot commercial manufacturing facility, for which 50% of the cost will be reimbursed by the joint venture. McNeil Nutritionals has the exclusive right to purchase the joint venture's bulking agent for use in specified consumer product applications at a constant mark-up over the joint venture's cost of production. The joint venture developed a process for making fructooligosaccharides and constructed a pilot facility in Athens, Georgia. In 2001, the joint venture closed the pilot facility as it shifted focus to a second generation bulking agent. The joint venture is exploring establishing a manufacturing arrangement with a third party to produce these bulking agents. We account for our investment in the joint venture under the equity method, under which we recognize our share of the income and losses of the joint venture. In 1999, we reduced the carrying value of our initial investment in the joint venture of approximately $0.4 million to zero to reflect our share of the joint venture's losses. We recorded this amount as research and development expense in our consolidated statements of operations. We will record our share of post-1999 losses of the joint venture, however, only to the extent of our actual or committed investment in the joint venture. For the year ended December 31, 2001, the joint venture had a net loss and a loss from continuing operations of approximately $6.5 million. The joint venture had no revenues during 2001. As of December 31, 2001, the joint venture had no assets, $0.2 million of current liabilities, and $8.1 million noncurrent liabilities, which consisted of amounts owed to McNeil Nutritionals. If the joint venture becomes profitable, we will recognize our share of the joint venture's profits only after the amount of our capital contributions to the joint venture is equivalent to our share of the joint venture's accumulated loss. As of December 31, 2001, the joint venture had accumulated losses since inception of approximately $9.8 million, of which our share, assuming a 50% ownership interest, is approximately $4.9 million. Until the joint venture is profitable, McNeil Nutritionals is required to fund, as a non-recourse, no-interest loan, all of the joint venture's aggregate capital expenditures in excess of an agreed-upon amount, and all of the joint venture's operating losses. The loan balance would be repayable by the joint venture to McNeil Nutritionals over a seven-year period commencing on the earlier of September 30, 2006 or the date on which Neose attains a 50% ownership interest in the joint venture after having had a lesser ownership interest. In the event of any dissolution of the joint venture, the loan balance would be payable to McNeil Nutritionals before any distribution of assets to us. During the years ended December 31, 2000 and 2001, the joint venture reimbursed Neose approximately $1.6 million and $0.8 million, respectively, for the cost of research and development services and supplies provided to the joint venture. There were no such reimbursements during the year ended December 31, 1999. This amount has been reflected as a reduction of research and development expense in our consolidated statements of operations. As of December 31, 2001, the joint venture owed Neose approximately $0.2 million. This amount is included in prepaid expenses and other current assets in our consolidated balance sheet. We may be required to make additional investments in the joint venture to fund capital expenditures. If the joint venture builds additional production facilities, and we wish to have a 50% ownership interest in the joint venture, we are required to invest up to $8.9 million to fund half of such expenditures. However, we may elect to fund as little as $1.9 million of the cost of the facilities, so long as our aggregate investments in the joint venture are at F-13 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements least 15% of the joint venture's aggregate capital expenditures. In this case, McNeil Nutritionals will fund the remainder of our half of the joint venture's capital expenditures, and our ownership percentage will be proportionately reduced. We have an option, expiring in September 2006, to return to 50% ownership of the joint venture by reimbursing McNeil Nutritionals for this amount. The success of our joint venture with McNeil Nutritionals is dependent upon the joint venture's ability to develop, manufacture, sell, and market successfully complex carbohydrates, all of which are in early stages. Agreement with Progenics Pharmaceuticals In May 2001, Bristol-Myers Squibb assigned to Progenics Pharmaceuticals our agreement with Bristol-Myers to develop two synthetic gangliosides for use in two cancer vaccines, GMK and MGV. Progenics is continuing with the development of both vaccines and we are in discussions with them concerning future supply of material for clinical and commercial use, but we will receive no revenue from this agreement unless it is renegotiated. During the years ended December 31, 1999 and 2000, we recorded revenues of $0.2 million and $3.3 million, respectively, from Bristol-Myers. We recorded no revenues related to this collaboration during 2001. Note 4. Marketable Securities As of December 31, 2000, marketable securities consisted of securities and obligations of either the U.S. Treasury or U.S. government agencies. These securities are classified as held-to-maturity. Held-to-maturity securities represent those securities for which we have the intent and ability to hold to maturity, and are carried at amortized cost. Interest on these securities, as well as amortization of discounts and premiums, is included in interest income. During the year ended December 31, 1999, we received proceeds from the sales of marketable securities of approximately $8.9 million. Realized gains on these sales for the year ended December 31, 1999 were approximately $0.8 million. We had no sales of marketable securities, or associated realized gains, during the years ended December 31, 2000 and 2001. Note 5. Property and Equipment Property and equipment consisted of the following (in thousands): December 31, 2000 2001 - --------------------------------- ---------------------------------------------- Building and improvements $ 13,904 $ 14,482 Laboratory and office equipment 6,112 8,227 --------------------------------------------- 20,016 22,709 Less accumulated depreciation (7,139) (8,956) --------------------------------------------- 12,877 13,753 Land 700 700 Construction-in-Progress -- 8,196 --------------------------------------------- $ 13,577 $ 22,649 ============================================= In 2001, we capitalized approximately $0.1 million of interest expense in connection with the construction-in-progress. Depreciation expense was approximately $1.4 million, $1.5 million, and $1.8 million for the years ended December 31, 1999, 2000, and 2001, respectively. F-14 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements Note 6. Other Assets Investment in Genzyme General In 2000, we invested approximately $0.6 million in an 8% convertible subordinated debenture, which included a warrant to purchase shares of common stock, issued by Novazyme Pharmaceuticals, Inc. The investment was charged to expense in the consolidated statement of operations for 2000 due to uncertainty regarding collectibility. In March 2001, Novazyme committed to pay us approximately $1.6 million in November 2002 in exchange for restructuring our agreement. Due to uncertainty regarding collectibility, we elected to defer recognizing this amount as revenue until receiving payment. In September 2001, Genzyme General acquired Novazyme. As a result, we exercised our warrant to purchase shares of Novazyme, converted our debenture into shares of Novazyme, and exchanged our shares of Novazyme for shares of Genzyme. In 2001, we realized a gain of approximately $6.1 million on the sale of Genzyme shares. Genzyme also assumed Novazyme's obligation to pay us approximately $1.6 million in November 2002. This amount will be reflected as other income in our consolidated statements of operations upon receipt of the payment. Acquired Technology In March 1999, we acquired the carbohydrate-manufacturing patents, licenses, and other intellectual property of Cytel Corporation for aggregate consideration of $4.8 million, of which $1.3 million was paid in 2000 to Epimmune, Inc., Cytel's successor corporation, as it satisfied certain milestones relating to the acquired patents and licenses. We charged $0.2 million of the $4.8 million to research and development expense in our consolidated statements of operations in 1998. The acquired intellectual property consists of core technology with alternative future uses. We have capitalized, therefore, the remaining $4.6 million as acquired technology, which is included in other assets in our consolidated balance sheets. The acquired technology balance is being amortized to research and development expense in our consolidated statements of operations over eight years, which is the estimated useful life of the technology. Amortization expense relating to the acquired technology for the years ended December 31, 1999, 2000, and 2001 was approximately $0.4 million, $0.5 million, and $0.6 million, respectively. The net book value of the acquired technology was $3.7 million and $3.1 million as of December 31, 2000 and 2001, respectively. Investment in Convertible Preferred Stock In June 2000, we made an investment of $1.3 million in convertible preferred stock of Neuronyx, Inc., and entered into a research and development collaboration with Neuronyx for the discovery and development of drugs for treating Parkinson's disease and other neurological diseases. The collaboration agreement provides for each of Neose and Neuronyx to perform and fund specific tasks, and to share in any financial benefits of the collaboration. We incurred research and development expense related to this collaboration of approximately $0.4 million and $1.0 million for the years ended December 31, 2000 and 2001, respectively. Our equity investment, which represents an ownership interest of approximately 4%, was made on the same terms as other unaffiliated investors. Accordingly, we have stated the investment at cost. We will continue to evaluate the realizability of this investment and record, if necessary, appropriate impairments in value. No such impairments have occurred as of December 31, 2001. Note 7. Long-Term Debt In 1997, we issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, $9.4 million of taxable and tax-exempt bonds. The bonds were issued to finance the purchase of our previously leased building and the construction of a pilot-scale manufacturing facility within our building. The bonds are supported by an AA-rated letter of credit, and a F-15 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements reimbursement agreement between our bank and the letter of credit issuer. The interest rate on the bonds will vary weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. During 1999, 2000, and 2001, the weighted-average, effective interest rate was 6.5%, 7.5%, and 5.3% per year, including letter-of-credit and other fees. The terms of the bond issuance provide for monthly, interest-only payments and a single repayment of principal at the end of the twenty-year life of the bonds. However, under our agreement with our bank, we are making monthly payments to an escrow account to provide for an annual prepayment of principal. As of December 31, 2001, we had restricted funds relating to the bonds of $0.9 million, which consisted of our monthly payments to an escrow account plus interest earned on the balance of the escrow account. To provide credit support for this arrangement, we have given a first mortgage on the land, building, improvements, and certain machinery and equipment to our bank. The net book value of the pledged assets is $8.4 million as of December 31, 2001. We have also agreed to a covenant to maintain a minimum required cash and short-term investments balance of at least two times the current loan balance. As of December 31, 2001, we were required to maintain a cash and short-term investments balance of $12.4 million. If we fail to comply with this covenant, we are required to deposit with the lender cash collateral up to, but not more than, the loan's unpaid balance, which was $6.2 million as of December 31, 2001. Minimum principal repayments of long-term debt as of December 31, 2001 were as follows (in thousands): 2002--$1,100; 2003--$1,200; 2004--$1,200; 2005--$100; 2006--$200; and thereafter--$2,400 (2007--$100; 2008 through 2011--$200; 2012--$300; 2013--$200; 2014--$300; 2015--$200; 2016--$300; and 2017--$200). Note 8. Accrued Expenses Accrued expenses consisted of the following (in thousands): December 31, 2000 2001 - -------------------------------------------------------------------------------- Accrued property and equipment $ 275 $ 1,800 Accrued outside research expenses 400 286 Accrued professional fees 360 340 Accrued other expenses 492 418 ----------------------------------------- $ 1,527 $ 2,844 ========================================= Note 9. Stockholders' Equity Common Stock During 2001, we purchased 6,000 shares of our common stock in the open market for approximately $0.2 million, or an average price of approximately $29.00 per share. In March 2000, we offered and sold 2.3 million shares of our common stock at a public offering price of $32.00 per share. Our net proceeds from the offering after the payment of underwriting fees and offering expenses were approximately $68.6 million. In June 1999, we sold 1.5 million shares of common stock in a private placement to a group of institutional and individual investors at a price of $9.50 per share, generating net proceeds of approximately $13.4 million. In January 1999, we sold 286,097 shares of common stock to Johnson & Johnson Development Corporation at a price of $13.98 per share, generating net proceeds of $4 million. F-16 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements In January 1997, we sold 1,250,000 shares of common stock in a public offering at a price of $17.50 per share. Our net proceeds from this offering after the payment of placement fees and offering expenses were approximately $20.3 million. Our initial public offering closed in February 1996. We sold 2,587,500 shares of common stock, which included the exercise of the underwriters' over-allotment option in March 1996, at a price of $12.50 per share. Our net proceeds from this offering after the underwriting discount and payment of offering expenses were approximately $29.1 million. In connection with this offering, all outstanding shares of Series A, C, D, E, and F Convertible Preferred Stock converted into 2,410,702 shares of common stock. Some of these common shares have registration rights. From 1991 through 1995, we sold 7,196,884 shares of Series A, B, C, D, E, and F Convertible Preferred Stock. On December 7, 1995, all outstanding shares of Series B Convertible Preferred Stock converted into 472,249 shares of common stock. As discussed above, in connection with the initial public offering, all outstanding shares of Series A, C, D, E, and F converted into 2,410,702 shares of common stock. Warrant In June 1995, we granted a warrant to an equipment finance company to purchase 10,527 shares of common stock at $14.25 per share. The stock warrant, which expires on June 30, 2002, remained outstanding as of December 31, 2001. Shareholder Rights Plan In September 1997, we adopted a Shareholder Rights Plan. Under this plan, which was amended in December 1998, holders of common stock are entitled to receive one right for each share of common stock held. Separate rights certificates would be issued and become exercisable if any acquiring party either accumulates or announces an offer to acquire at least 15% of our common stock. Each right will entitle any holder who owns less than 15% of our common stock to buy one one-hundredth share of the Series A Junior Participating Preferred Stock at an exercise price of $150. Each one one-hundredth share of the Series A Junior Participating Preferred Stock is essentially equivalent to one share of our common stock. If an acquiring party accumulates at least 15% of our common stock, each right entitles any holder who owns less than 15% of our common stock to purchase for $150 either $300 worth of our common stock or $300 worth of the 15% acquiror's common stock. In November 2000, the Plan was amended to increase the threshold from 15% to 20% for Kopp Investment Advisors, Inc. and related parties. The rights expire in September 2007 and may be redeemed by us at a price of $.01 per right at any time up to ten days after they become exercisable. Note 10. Employee Benefit Plans Stock Option Plans We have three stock option plans, the 1991, 1992, and 1995 Stock Option Plans, under which a total of 3,901,666 shares of common stock have been reserved. The 1995 Stock Option Plan, which incorporates the two predecessor plans, provides for the granting of both incentive stock options and nonqualified stock options to our employees, officers, directors, and consultants. In addition, the plan allows us to issue shares of common stock directly either through the immediate purchase of shares or as a bonus tied to either an individual's performance or our attainment of prescribed milestones. F-17 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements Incentive stock options may not be granted at an exercise price less than the fair market value on the date of grant. In addition, the plan includes stock appreciation rights to be granted at our discretion. The stock options are exercisable over a period, which may not exceed ten years from the date of grant, determined by our board of directors. A summary of the status of our stock option plans as of December 31, 1999, 2000, 2001, and changes during each of the years then ended, is presented below:
1999 2000 2001 ---------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Number Price Number Price Number Price Outstanding Per Share Outstanding Per Share Outstanding Per Share ---------------------------------------------------------------------------------------- Balance as of January 1 1,785,489 $ 12.15 2,152,037 $ 12.41 2,506,901 $ 16.61 Granted 443,626 13.22 616,140 28.94 789,035 32.48 Exercised (35,663) 7.41 (247,501) 11.06 (79,055) 11.28 Canceled (41,415) 14.15 (13,775) 12.89 (104,625) 27.98 ---------------------------------------------------------------------------------------- Balance as of December 31 2,152,037 $ 12.41 2,506,901 $ 16.61 3,112,256 $ 20.39 ======================================================================================== Options exercisable as of December 31 1,242,583 $ 11.07 1,412,499 $ 12.29 1,782,271 $ 14.86 ========================================================================================
The following table summarizes information about stock options outstanding as of December 31, 2001:
Options Outstanding Options Exercisable - -------------------------------------------------------------------------------- ---------------------------------- Weighted- Weighted- Weighted- Average Average Average Range of Number Remaining Exercise Number Exercise Exercise Prices Outstanding Life (Years) Price Exercisable Price - ---------------------------------------------------------------------------------------------------------------------- $ 0.90 -- $12.54 658,103 4.2 $ 8.04 586,343 $ 7.79 $12.69 -- $19.00 1,110,480 6.2 $ 14.82 938,005 $ 15.03 $19.44 -- $29.00 878,173 9.2 $ 28.00 158,923 $ 26.99 $30.00 -- $41.13 465,500 9.4 $ 36.78 99,000 $ 35.63 --------------- -------------- 3,112,256 7.1 $ 20.39 1,782,271 $ 14.86 =============== ==============
Fair Value Disclosures We have elected to adopt the disclosure provisions only of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," or SFAS 123. Accordingly, we apply APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for our stock-based compensation plans. We record deferred compensation for option grants to employees for the amount, if any, the market price per share exceeds the exercise price per share. In addition, we record deferred compensation for option grants to non-employees in the amount of the fair value per share, as computed using the Black-Scholes option-pricing model and variable plan accounting. We amortize deferred compensation amounts over the vesting periods of each option. We recognized compensation expense of approximately $0.5 million, $1.1 million, and $1.4 million for the years ended December 31, 1999, 2000, and 2001, respectively. F-18 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements If we had elected to record compensation cost for our stock-based compensation plans consistent with SFAS 123, our net loss and basic and diluted net loss per share would have been increased to the pro forma amounts indicated below (in thousands, except per share data):
Year Ended December 31, 1999 2000 2001 - ------------------------------------------------------------------------------------------------------------------- Net loss - as reported $ (13,318) $ (8,500) $ (13,329) Net loss - pro forma $ (15,853) $ (12,182) $ (21,383) Basic and diluted net loss per share - as reported $ (1.25) $ (0.63) $ (0.95) Basic and diluted net loss per share - pro forma $ (1.48) $ (0.91) $ (1.52)
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. We used the following weighted-average assumptions for 1999, 2000, and 2001 grants, respectively: risk-free interest rate of 5.9%, 4.7%, and 4.9%; expected life of 5.2, 4.3, and 6.1 years; volatility of 60%, 75%, and 75%; and a dividend yield of zero. The weighted-average fair value of employee purchase rights granted under our employee stock purchase plan (see below) in 1999, 2000, and 2001 was $6.25, $8.45, and $11.60, respectively. The fair value of the purchase rights was estimated using the Black-Scholes model with the following weighted-average assumptions for 1999, 2000, and 2001, respectively: risk-free interest rate of 6.5%, 5.0%, and 4.6%; expected life of eighteen, fourteen, and sixteen months; volatility of 60%, 70%, and 75%; and a dividend yield of zero. A summary of options granted at exercise prices equal to, greater than, and less than the market price on the date of grant is presented below:
Year Ended December 31, 1999 2000 2001 - ---------------------------------------------------------------------------------------------------------------------- Exercise Price = Market Value Options granted 397,366 608,900 610,400 Weighted-average exercise price $ 12.17 $ 29.27 $ 30.96 Weighted-average fair value $ 6.89 $ 17.56 $ 21.29 Exercise Price > Market Value Options granted 40,000 -- -- Weighted-average exercise price $ 25.00 $ -- $ -- Weighted-average fair value $ 5.50 $ -- $ -- Exercise Price < Market Value Options granted 6,260 7,240 178,635 Weighted-average exercise price $ 4.75 $ 4.83 $ 37.67 Weighted-average fair value $ 11.01 $ 11.54 $ 26.85
Employee Stock Purchase Plan We maintain an employee stock purchase plan, or ESPP, for which 100,000 shares are reserved for issuance. The ESPP allows any eligible employee the opportunity to purchase shares of our common stock through payroll deductions. The ESPP provides for successive, two-year offering periods, each of which contains four semiannual purchase periods. The purchase price at the end of each purchase period is 85% of the lower of the market price per share on the employee's entry date into the offering period or the market price per share on the purchase date. Any employee who owns less than 5% of our common stock may purchase up to the lesser of: F-19 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements o 10% of his or her eligible compensation; o 1,000 shares per purchase; or o the number of shares per year that does not exceed the quotient of $25,000 divided by the market price per share on the employee's entry date into the offering period. A total of 46,092, 35,102, and 17,312 shares of common stock remained available for issuance under the ESPP as of December 31, 1999, 2000, and 2001, respectively. The total purchases of common stock under the ESPP during the years ended December 31, 1999, 2000, and 2001, were 15,540 shares at a total purchase price of approximately $0.2 million, 10,990 shares at a total purchase price of approximately $0.2 million, and 17,790 shares at a total purchase price of approximately $0.3 million, respectively. We have not recorded any compensation expense for the ESPP. Note 11. Commitments Leases In 1999, we entered into a two-year lease agreement for laboratory and office space in California. This lease expired in September 2001. In April 2001, we entered into a new lease agreement for approximately 10,000 square feet of laboratory and office space in California. The initial term of the lease ends in March 2006, at which time we have an option to extend the lease for an additional five years. In July 2001, we entered into a lease agreement for approximately 5,000 square feet of office and warehouse space in Pennsylvania. The lease term expires in December 2004. Our rental expense for the years ended December 31, 1999, 2000, and 2001 was approximately $19,000, $77,000, and $322,000, respectively. Minimum future annual payments under our operating lease agreements as of December 31, 2001 were as follows (in thousands): 2002--$345; 2003--$349; 2004--$363; 2005--$328; and 2006--$83. Construction Contract In October 2001, we entered into an agreement with a construction firm to renovate and expand our facility in Horsham, Pennsylvania at an expected total cost of approximately $17 million, of which approximately $8.2 million was capitalized as construction-in-progress as of December 31, 2001. License Agreements We have entered into agreements with various entities under which we have been granted licenses to use patent rights and technology. Typically, these agreements will terminate upon the expiration of the applicable patent rights, and require us to reimburse the licensor for fees related to the acquisition and maintenance of the patents licensed to us. In addition, we usually are required to pay royalties to the licensor based either on sales of applicable products by us or specified license fees, milestone fees, and royalties received by us from sublicensees, or both. Employment Agreements In January 2002, we entered into a retirement agreement with our Vice President, Research. Under this agreement, he will terminate his employment effective June 30, 2002. We have committed to pay a retirement benefit over a five-year period. We will record approximately $0.5 million, which is the present value of the retirement benefit, as compensation expense in 2002. In addition, we have extended the period during which he may exercise his stock options after terminating his employment, and will record non-cash compensation expense of approximately $1.7 million in 2002 associated with this option modification. F-20 Neose Technologies, Inc. and Subsidiaries (a development-stage company) Notes to Consolidated Financial Statements In January 2002, we entered into retention agreements with certain employees. Under these agreements, we have committed to pay severance equal to one years' salary in the event of the involuntary termination of, or the resignation with good reason by, the covered employees. In certain circumstances, the employees' stock options would continue to vest and be exercisable for one year following termination. Note 12. Income Taxes As of December 31, 2001, we had net operating loss carryforwards for federal and state income tax purposes of approximately $9.6 million and $6.3 million, respectively. In addition, we had federal research and development credit carryforwards of approximately $2.7 million. All of these carryforwards begin to expire in 2004. Due to the uncertainty surrounding the realization of the tax benefit associated with these carryforwards, we have provided a full valuation allowance against this tax benefit. In addition, pursuant to the Tax Reform Act of 1986, the annual utilization of our net operating loss carryforwards will be limited. We do not believe that these limitations will have a material adverse impact on the utilization of our net operating loss carryforwards. The approximate income tax effect of each type of temporary difference and carryforward is as follows (in thousands):
December 31, 2000 2001 - ------------------------------------------------------------------------------------------------------- Benefit of net operating loss carryforwards $ 1,621 $ 1,141 Research and development credit carryforwards 2,129 2,686 Capitalized research and development 11,890 14,532 Start-up costs 9,411 11,906 Nondeductible depreciation and amortization 3,242 3,485 Deferred compensation 905 1,494 Accrued expenses not currently deductible 209 147 Deferred revenue 124 56 Other 4 35 ----------------------------------------- 29,535 35,482 Valuation allowance (29,535) (35,482) ----------------------------------------- $ -- $ -- =========================================
Note 13. Related-Party Transactions Paramount Capital, Inc., of which the sole shareholder is a member of our Board of Directors, acted as a finder for our private placement of common stock in June 1999 (see Note 9). We paid Paramount Capital approximately $0.8 million for its assistance in completing the private placement. Entities affiliated with Paramount Capital purchased 110,000 shares of common stock in the private placement. In 1997, we entered into a consulting agreement with an employee of Paramount Capital. Under the agreement, which may be terminated by either party upon sixty days prior notice, we are obligated to pay the consultant an annual amount of $50,000, which was paid in each of the years ended December 31, 1999, 2000 and 2001. During 1999, we granted the consultant an option to purchase 30,000 shares of common stock at an exercise price of $10.38, the market price on the date of grant. The option vests in equal, annual amounts in 2002 and 2003. In connection with this option grant, we have recorded non-cash compensation expense of approximately $0.1 million, $0.3 million, and $0.3 million for each of the years ended December 31, 1999, 2000, and 2001, respectively. F-21 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 3.1 Second Amended and Restated Certificate of Incorporation. (Exhibit 3.1)(1) 3.2 Amended and Restated By-Laws. (Exhibit 3.3)(5) 3.4 Certificate of Designation establishing and designating the Series A Junior Participating Preferred Stock. (Exhibit 3.2)(5) 4.2 See Exhibits 3.1, 3.2, and 3.3 for instruments defining rights of holders of common stock. 4.2 Representation pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. (Exhibit 4.1)(3) 4.3 Trust Indenture, dated as of March 1, 1997, between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company. (Exhibit 4.2)(3) 4.4 Form of Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bond (Neose Technologies, Inc. Project) Series B of 1997. (Exhibit 4.3)(3) 4.7 Amended and Restated Rights Agreement, dated as of December 3, 1998, between American Stock Transfer & Trust Company, as Rights Agent, and Neose Technologies, Inc. (Exhibit 4.1)(6) 4.8 Amendment No. 1, dated November 14, 2000, to the Amended and Restated Rights Agreement, dated as of December 3, 1998, between Neose Technologies, Inc. and American Stock Transfer & Trust Company, as Rights Agent. (Exhibit 4.1)(10) 10.1 Stock Purchase Agreement, dated as of August 28, 1990, between University of Pennsylvania and Neose Technologies, Inc. (Exhibit 10.1)(1) 10.2 License Agreement, dated as of August 28, 1990, between University of Pennsylvania and Neose Technologies, Inc., as amended to date. (Exhibit 10.2)(1) 10.3(a)+ Series D Preferred Stock Purchase Agreement, dated as of December 30, 1992, between Abbott Laboratories and Neose Technologies, Inc. (Exhibit 10.8(a))(1) 10.3(b)+ Supply Agreement, dated as of December 30, 1992, between Abbott Laboratories and Neose Technologies, Inc. (Exhibit 10.8(b))(1) 10.3(c)+ Research and License Agreement, dated as of December 30, 1992, between Abbott Laboratories and Neose Technologies, Inc. (Exhibit 10.8(c))(1) 10.3(d)+ Amendment to the Research and License Agreement, dated as of January 18, 1995, between Abbott Laboratories and Neose Technologies, Inc. (Exhibit 10.8(d))(2) 10.4 Form of Series E Preferred Stock Investors' Rights Agreement. (Exhibit 10.9)(1) 10.5 Form of Series F Preferred Stock Investors' Rights Agreement. (Exhibit 10.10)(1) 10.6 Form of Warrant to Purchase Common Stock, dated as of February 23, 1991. (Exhibit 10.11)(1) 10.7 Form of Warrant to Purchase Common Stock, dated as of June 30, 1993. (Exhibit 10.12)(1) 10.8 Form of Warrant to Purchase Common Stock, dated as of February 16, 1994. (Exhibit 10.13)(1) 10.9 Form of Warrant to Purchase Series E Preferred Stock, dated as of July 29, 1994. (Exhibit 10.14)(1) 10.10 Warrant for the Purchase of Common Stock, dated as of June 30, 1995, between Financing for Science International, Inc. and Neose Technologies, Inc. (Exhibit 10.15)(1) 10.11++ 1995 Stock Option/Stock Issuance Plan, as amended. (Exhibit 99.1)(4) 10.12++ Employee Stock Purchase Plan. (Exhibit 10.17)(1) 10.13++ Employment Agreement, dated April 1, 1992, between David A. Zopf and Neose Technologies, Inc., as amended to date. (Exhibit 10.18)(1) 10.14++ Employment Agreement, dated December 1, 1994, between P. Sherrill Neff and Neose Technologies, Inc. (Exhibit 10.19)(1) 10.15 Agreement for Purchase and Sale of Real Property, dated March 14, 1997, by and between Pennsylvania Business Campus Delaware, Inc. and Neose Technologies, Inc. (Exhibit 2.1)(3) 10.16 Loan Agreement, dated as of March 1, 1997, between Montgomery County Industrial Development Authority and Neose Technologies, Inc. (Exhibit 10.1)(3) 10.17 Participation and Reimbursement Agreement, dated as of March 1, 1997, between Jefferson Bank and CoreStates Bank, N.A. (Exhibit 10.2)(3) 10.18 Form of CoreStates Bank, N.A. Irrevocable Letter of Credit. (Exhibit 10.3)(3)
10.19 Pledge, Security and Indemnification Agreement, dated as of March 1, 1997, by and among CoreStates Bank, N.A., Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.4)(3) 10.20 Reimbursement Agreement, dated as of March 1, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.5)(3) 10.21 Specimen of Note from Company to Jefferson Bank. (Exhibit 10.6)(3) 10.22 Mortgage, Assignment and Security Agreement, dated March 20, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.7)(3) 10.23 Security Agreement, dated as of March 1, 1997, by and between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.8)(3) 10.24 Assignment of Contract, dated as of March 20, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.9)(3) 10.25 Custodial and Collateral Security Agreement, dated as of March 20, 1997, by and among Offitbank, Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.10)(3) 10.26 Placement Agreement, dated March 20, 1997, among Montgomery County Industrial Development Authority, CoreStates Capital Markets, and Neose Technologies, Inc. (Exhibit 10.11)(3) 10.27 Remarketing Agreement, dated as of March 1, 1997, between CoreStates Capital Markets and Neose Technologies, Inc. (Exhibit 10.12)(3) 10.28 Form of Purchase Agreement, dated as of June 25, 1999, between Neose Technologies, Inc. and the purchasers set forth on the signature pages thereto. (Exhibit 99.1)(7) 10.29 Form of Amended and Restated Purchase Agreement, dated as of June 25, 1999, between Neose Technologies, Inc. and the purchasers set forth on the signature pages thereto. (Exhibit 99.2)(7) 10.30+ Research and Development Agreement, dated June 1, 1998, between Neose Technologies, Inc. and the Pharmaceutical Research Institute of Bristol-Myers Squibb Company. (Exhibit 99.1)(8) 10.31+ Operating Agreement of Magnolia Nutritionals LLC, dated October 12, 1999, between Neose Technologies, Inc. and McNeil PPC, Inc. acting through its division McNeil Specialty Products Company. (Exhibit 99.2)(8) 10.32+ Collaboration and License Agreement, dated November 3, 1999, between Neose Technologies, Inc. and American Home Products Corporation. (Exhibit 99.3)(8) 10.33 Modification Agreement Relating To Reimbursement Agreements, dated as of May 1, 2000, between Hudson United Bank, Jefferson Bank Division, successor to Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.1)(9) 10.34 Modification Agreement Relating to Custodial Bank Agreement, dated as of May 1, 2000, by and among Offitbank, Hudson United Bank, Jefferson Bank Division, successor to Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.2)(9) 10.35++ Employment Offer Letter, dated November 27, 2000, between Eric Sichel and Neose Technologies, Inc. (Exhibit 10.35)(11) 10.36 Amendment No. 1 to Research and Development Agreement, dated May 14, 2001, between Neose Technologies, Inc. and the Pharmaceutical Research Institute of Bristol-Myers Squibb Company. (Exhibit 99.2)(12) 10.37 Separation of Employment Agreement, dated as of May 18, 2001, between Eric Sichel and Neose Technologies, Inc. (Exhibit 10.1)(13) 10.38# Research, Development and License Agreement, dated December 19, 2001, between American Home Products Corporation and Neose Technologies, Inc. (Exhibit 10.1)(14) 10.39*++ Employment Offer Letter, dated effective July 11, 2001 between George J. Vergis and Neose Technologies, Inc. 10.40* Agreement of Lease, dated as of February 15, 2002, between Liberty Property Leased Partnership and Neose Technologies, Inc. 10.41*++ Retirement Agreement, dated as of January 14, 2002, between Edward J. McGuire and Neose Technologies, Inc. 10.42*++ Retention Agreement, dated as of January 21, 2002, between David A. Zopf and Neose Technologies, Inc. 10.43*++ Retention Agreement, dated as of January 21, 2002, between George J. Vergis and Neose Technologies, Inc.
10.44*++ Tuition Reimbursement Agreement, dated as of May 24, 2001, between A. Brian Davis and Neose Technologies, Inc. 10.45*++ Retention Agreement, dated as of January 21, 2002, between A. Brian Davis and Neose Technologies, Inc. 10.46*++ Retention Agreement, dated as of January 21, 2002, between Debra J. Poul and Neose Technologies, Inc. 10.47* Standard Industrial/Commercial Multi-Tenant Lease-Net, dated February 2, 2001, between Nancy Ridge Technology Center, LLC and Neose Technologies, Inc. 10.48* First Amendment to Lease, dated May 18, 2001, between Nancy Ridge Technology Center, LLC and Neose Technologies, Inc. 10.49* Agreement, dated as of August 24, 2001, between IPS and Neose Technologies, Inc. 11* Statement re: Computation of Net Loss Per Common Share. 23.1* Consent of Arthur Andersen LLP. 24* Powers of Attorney (included as part of signature page hereof). 99* Letter to the SEC from Neose Technologies, Inc. regarding Arthur Andersen LLP.
- ----------------- * Filed herewith. + Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to an order of the SEC granting our application for confidential treatment filed pursuant to Rule 406 under the Securities Act. ++ Compensation plans and arrangements for executives and others. # Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC. (1) Filed as an Exhibit to our Registration Statement on Form S-1 (Registration No. 33-80693) filed with the SEC on December 21, 1995, as amended. (2) Filed as an Exhibit to our Registration Statement on Form S-1 (Registration No. 333-19629) filed with the SEC on January 13, 1997. (3) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997. (4) Filed as an Exhibit to our Registration Statement on Form S-8 (Registration No. 333-73340) filed with the SEC on November 14, 2001. (5) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on October 1, 1997. (6) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on January 8, 1999. (7) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on July 14, 1999. (8) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on February 2, 2000. (9) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000. (10) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on November 15, 2000. (11) Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2000. (12) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on May 18, 2001. (13) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001. (14) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on February 1, 2002. EX-10 3 ex10-39.txt EXHIBIT 10.39 EXHIBIT 10.39 July 2, 2001 George Vergis 25 Chamberlain Road Flemington, NJ 08822 Dear George: On behalf of Neose Technologies, Inc., I am pleased to offer you the position of Vice President, Business and Commercial Development, effective July 11, 2001. In this capacity, you will have executive responsibility for all aspects of the Company's sales, marketing, business development, licensing, acquisition, and commercialization activities. With these responsibilities, you will be considered an "Executive Officer" under SEC rules and therefore, subject to Section 16 reporting. While you will not have direct responsibility for research and development, manufacturing operations, patent strategy, or regulatory affairs, you will be expected to be deeply involved in the development of each of those aspects of the Company's strategic development. You will report directly to me; however, to be successful you will need to interface effectively with all levels of the organization. The following summarizes the offer that we have made to you. Neose is offering you an annual base salary of $210,000 earned and paid semi-monthly, and a bonus target of 25% of your base salary. The amount of bonus actually paid will be based on the achievement of individual and company goals and could exceed the target based on superior performance, or be less than target based on less than expected performance. As part of your compensation, Management will recommend to the Board of Directors that, as of the date hereof, you be granted options to acquire an aggregate of 175,000 shares of Neose common stock. The exercise price per share of these options shall be $38.25. All of the options shall be non-qualified stock options. George Vergis July 2, 2001 Page 2 The options shall vest as follows: 1. 75,000 options to be vested as follows: 25,000 upon the commencement of your employment, and the balance of 50,000 to vest in four equal annual installments. No unusual contingencies other than continued employment would apply to the vesting of these options. 2. 50,000 options to vest in four equal annual installments, but the entire vesting to be further contingent on Neose having accomplished the completion of six (6) business transactions (or equivalent transactions) set forth on Schedule 1 hereto, on or before December 31, 2001. In the event that two (2) or more, but fewer than six (6) such transactions are completed prior to such date, the amount to be vested will be prorated according to the number of transactions actually completed. 3. 50,000 options to vest in four equal installments, but the entire vesting to be further contingent on Neose having accomplished the completion of certain major business transactions set forth on Schedule 1 hereto, on or before December 31, 2002. In the event that two (2) or more, but fewer than four (4) such transactions are completed prior to such date, the amount to be bested will be prorated according to the number of transactions actually completed. All Neose Stock Options are subject to the terms of the Neose Stock Option Plan. In addition, most Neose employees receive additional annual stock option grants based upon individual performance, although we would not expect to make additional grants to you before year-end 2002. The Company also agrees to pay reasonable expenses to relocate to a new home and move household goods within two years of your date of hire, and up to 3 months of temporary housing. In addition, we would agree to reimburse normal out-of-pocket closing costs involved in the sale of your existing home and the purchase of a new home, including brokerage commissions and loan origination fees, up to an aggregate amount of $75,000. The Company offers employees and their eligible dependents a variety of benefits such as medical and dental coverage, flexible spending accounts, a 401(k) Plan, an Employee Stock Purchase Plan, Long Term Disability, etc. Detailed information concerning all benefits and policies are contained in the Neose Technologies, Inc. Employee Handbook, which will be given to you during the first day orientation session. The Employee Handbook is not a contract between the employee and Neose Technologies, Inc. but rather sets forth current policies of the Company, subject to change any time. George Vergis July 2, 2001 Page 3 The nature of Neose's business requires that all employees sign a non-competition and confidentiality agreement. Two copies of this agreement are enclosed. If you have questions regarding this agreement, please feel free to contact me directly. This will confirm our agreement that in the event your employment with Neose is terminated, for any reason other than "for cause", we would make severance payments to you in the amount of your then base salary for a period of one year. This will also confirm our agreement with you that if your employment is terminated or constructively terminated within the one-year period following a change of control of Neose, you will be entitled to a lump sum severance payment in the amount of one year's then base salary. In addition, upon a change of control, any earned but unvested options would immediately vest, under the terms of the Neose Stock Option Plan. We are pleased to offer you this opportunity to join the Neose team. Your experience, commitment, and dedication can and will contribute to the success of Neose Technologies, Inc. We look forward to working with you. Please acknowledge your acceptance of the offer by signing all copies of this offer and the enclosed non-competition and confidentiality agreement and return one copy of each in the enclosed envelope. Sincerely, /s/ P. Sherrill Neff - -------------------- P. Sherrill Neff President and Chief Operating Officer Accepted: /s/ George Vergis - ----------------- George Vergis Date: July 2, 2001 EX-10 4 ex10-40.txt EXHIBIT 10.40 EXHIBIT 10.40 AGREEMENT OF LEASE between LIBERTY PROPERTY LIMITED PARTNERSHIP ("LANDLORD") and NEOSE TECHNOLOGIES, INC. ("TENANT") for 102 Rock Road Pennsylvania Business Campus Horsham, Pennsylvania 19044 Lease Agreement (Multi-Tenant Industrial) INDEX - ----- ss. SECTION PAGE - --- ------- ---- 1. Summary of Terms and Certain Definitions .................................1 2. Premises .................................................................2 3. Acceptance of Premises ...................................................2 4. Use; Compliance ..........................................................2 5. Term .....................................................................2 6. Minimum Annual Rent ......................................................3 7. Operation of Property; Payment of Expenses ...............................3 8. Signs ....................................................................4 9. Alterations and Fixtures..................................................5 10. Mechanics' Liens ........................................................5 11. Landlord's Right of Entry.................................................5 12. Damage by Fire or Other Casualty..........................................5 13. Condemnation..............................................................6 14. Non-Abatement of Rent.....................................................6 15. Indemnification of Landlord...............................................6 16. Waiver of Claims..........................................................6 17. Quiet Enjoyment ..........................................................6 18. Assignment and Subletting ................................................6 19. Subordination; Mortgagee's Rights ........................................7 20. Recording; Tenant's Certificate ..........................................7 21. Surrender; Abandoned Property ............................................8 22. Curing Tenant's Defaults..................................................8 23. Defaults - Remedies ......................................................8 24. Representations of Tenant ................................................9 25. Liability of Landlord ....................................................9 26. Interpretation; Definitions...............................................10 27. Notices ..................................................................10 28. Security Deposit..........................................................11 RIDER - ----- ss. SECTION PAGE - --- ------- ---- 29. Pa Additional Remedies ....................................................1 30. Completion by Tenant ......................................................1 31. Options to Extend Term ....................................................3 32. Right of First Refusal ....................................................4 33. Generator .................................................................6 34. Option to Purchase ........................................................7 35. Brokers ...................................................................8 36. Additional Provisions Relating to Premises ................................9 37. Additional Provisions Relating to Acceptance of Premises ..................9 38. Additional Provisions Relating to Use; Compliance . .......................9 39. Additional Provisions Relating to Term ...................................10 40. Additional Provisions Relating to Minimum Annual Rent ....................10 41. Additional Provisions Relating to Operation of Property; Payment of Expenses .....................................................10 42. Additional Provisions Relating to Signs ..................................14 43. Additional Provisions Relating to Alterations and Fixtures . .............15 44. Additional Provisions Relating to Mechanics' Liens .......................15 45. Additional Provisions Relating to Landlord's Right of Entry ..............15 46. Additional Provisions Relating to Damage by Fire or Other Casualty .......16 47. Additional Provisions Relating to Condemnation . .........................16 48. Additional Provisions Relating to Non-Abatement of Rent ..................17 49. Additional Provisions Relating to Indemnification ........................17 50. Additional Provisions Relating to Waiver of Claims .......................17 51. Additional Provisions Relating to Assignment and Subletting ..............17 52. Additional Provisions Relating to Subordination; Mortgagee's Rights . ....18 53. Additional Provisions Relating to Recording; Tenant's Certificate . ......19 54. Additional Provisions Relating to Surrender; Abandoned Property ..........19 55. Additional Provisions Relating to Curing Tenant's Defaults ...............19 56. Additional Provisions Relating to Defaults - Remedies . ..................20 57. Additional Provisions Relating to Representations of Landlord ............22 58. Additional Provisions Relating to Liability of Landlord . ................22 59. Additional Provisions Relating to Interpretation; Definitions . ..........22 60. Additional Provisions Relating to Notices ................................22 61. Additional Provisions Relating to Security Deposit . .....................23 62. Additional Provisions Relating to Building Rules (Exhibit "C") . .........23 63. Subordination of Landlord's Lien .........................................24 64. Force Majeure ............................................................24 65. Parking ..................................................................24 66. Tenant's Rights to Terminate Lease .......................................25 THIS LEASE AGREEMENT is made by and between Liberty Property Limited Partnership, a Pennsylvania limited partnership ("LANDLORD") with its address at 125 Witmer Road, Horsham, Pennsylvania 19044 and Neose Technologies, Inc. a corporation organized under the laws of Pennsylvania ("TENANT") with its address at 102 Witmer Road, Horsham, Pennsylvania 19044 is dated as of the date on which this lease has been fully executed by Landlord and Tenant. 1. Summary of Terms and Certain Definitions. (a) "PREMISES": Approximate rentable square feet: 40,472 (Section 2) (b) "BUILDING": Approximate rentable square feet: 40,472 (ss.2) Address: 102 Rock Road Pennsylvania Business Campus Horsham, Pennsylvania 19044 (Horsham Township, Montgomery County) (c) "TERM" (ss.5): Twenty (20) Years (i) "COMMENCEMENT DATE": July 22, 2002 (ii) "EXPIRATION DATE": See Section 5 (d) Minimum Rent (ss.6) & Operating Expenses (ss.7) (i) "MINIMUM ANNUAL RENT":
Lease Year Annual Monthly Lease Year Annual Monthly ---------- ------ ------- ---------- ------ ------- 1 $407,957.76 $33,996.48 11 $497,298.23 $41,441.52 2 $416,116.92 $34,676.41 12 $507,244.20 $42,270.35 3 $424,439.25 $35,369.94 13 $517,389.08 $43,115.76 4 $432,928.04 $36,077.34 14 $527,736.86 $43,978.07 5 $441,586.60 $36,798.88 15 $538,291.60 $44,857.63 6 $450,418.33 $37,534.86 16 $549,057.43 $45,754.79 7 $459,426.70 $38,285.56 17 $560,038.58 $46,669.88 8 $468,615.23 $39,051.27 18 $571,239.35 $47,603.28 9 $477,987.54 $39,832.29 19 $582,664.14 $48,555.34 10 $487,547.29 $40,628.94 20 $594,317.42 $49,526.45
(ii) Estimated "ANNUAL OPERATING EXPENSES": $183,742.88 (One Hundred Eighty-Three Thousand Seven Hundred Forty-Two and 88/100 Dollars), payable in monthly installments of $15,311.91 (Fifteen Thousand Three Hundred Eleven and 91/100 Dollars), subject to adjustment (ss.7(a)) (e) "PROPORTIONATE SHARE" 100% (Ratio of approximate rentable square feet in (ss.7(a)): the Premises to approximate rentable square feet in the Building) (f) "USE" (ss.4): Business office, storage, warehousing and distribution, research, development, light manufacturing and related uses. (g) "SECURITY DEPOSIT" (ss.28): $55,000.00 (Five-Five Thousand and 00/100 Dollars) (h) CONTENTS: This lease consists of the Index, pages 1 through 11 containing Sections 1 through 28 and the following, all of which are attached hereto and made a part of this lease: Rider with Sections 29 through 66 Exhibits: "A"-Plan showing Premises "B"-Commencement Certificate Form "C"-Building Rules "D"-Estoppel Certificate "E"-Plans "F"-Specifications "G"-Permitted Exceptions "H"-Cleaning Schedule "I"-Tenant's Signage "J-1" - Proposed Parking Plan "J-2" - Alternate Parking Plan "K" Preferential Leasing Rights - ROFR Space 2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises as shown on attached Exhibit "A" within the Building (the Building and the lot on which it is located, the "PROPERTY"), together with the nonexclusive right with Landlord and other occupants of the Building to use all areas and facilities provided by Landlord for the use of all tenants in the Property including any driveways, sidewalks and parking, loading and landscaped areas (the "COMMON AREAS"). 3. Acceptance of Premises. Tenant has examined and knows the condition of the Property, the zoning, streets, sidewalks, parking areas, curbs and access ways adjoining it, visible easements, any surface conditions and the present uses, and Tenant accepts them in the condition in which they now are, without relying on any representation, covenant or warranty by Landlord. Tenant and its agents shall have the right, at Tenant's own risk, expense and responsibility, at all reasonable times prior to the Commencement Date, to enter the Premises for the purpose of taking measurements and installing its furnishings and equipment; provided that the Premises are vacant and Tenant obtains Landlord's prior written consent. 4. Use; Compliance. (a) Permitted Use. Tenant shall occupy and use the Premises for and only for the Use specified in Section l(f) above and in such a manner as is lawful, reputable and will not create any nuisance or otherwise interfere with any other tenant's normal operations or the management of the Building. Without limiting the foregoing, such Use shall exclude any use that would cause the Premises or the Property to be deemed a "place of public accommodation" under the Americans with Disabilities Act (the "ADA") as further described in the Building Rules (defined below). All Common Areas shall be subject to Landlord's exclusive control and management at all times. Tenant shall not use or permit the use of any portion of the Property for outdoor storage or installations outside of the Premises nor for any use that would interfere with any other person's use of any portion of the Property outside of the Premises. (b) Compliance. Landlord represents that, as of the date of this lease, there is no action required with respect to the Premises or Common Areas under any laws (including Title III of the ADA), ordinances, notices, orders, rules, regulations and requirements applicable to the Premises or to the Common Areas. From and after the Commencement Date, Tenant shall comply promptly, at its sole expense, (including making any alterations or improvements) with all laws (including the ADA), ordinances, notices, orders, rules, regulations and requirements regulating the Property during the Term which impose any duty upon Landlord or Tenant with respect to Tenant's use, occupancy or alteration of, or Tenant's installations in or upon, the Property including the Premises, (as the same may be amended, the "LAWS AND REQUIREMENTS") and the building rules attached as Exhibit "C", as amended by Landlord from time to time (the "BUILDING RULES"). Provided, however, that Tenant shall not be required to comply with the Laws and Requirements with respect to the footings, foundations, structural steel columns and girders forming a part of the Property unless the need for such compliance arises out of Tenant's use, occupancy or alteration of the Property, or by any act or omission of Tenant or any employees, agents, contractors, licensees or invitees ("AGENTS") of Tenant. With respect to Tenant's obligations as to the Property, other than the Premises, at Landlord's option and at Tenant's expense, Landlord may comply with any repair, replacement or other construction requirements of the Laws and Requirements and Tenant shall pay to Landlord all costs thereof as additional rent. (c) Environmental. Tenant shall comply, at its sole expense, with all Laws and Requirements as set forth above, all manufacturers' instructions and all requirements of insurers relating to the treatment, production, storage, handling, transfer, processing, transporting, use, disposal and release of hazardous substances, hazardous mixtures, chemicals, pollutants, petroleum products, toxic or radioactive matter (the "RESTRICTED ACTIVITIES"). Tenant shall deliver to Landlord copies of all Material Safety Data Sheets or other written information prepared by manufacturers, importers or suppliers of any chemical and all notices, filings, permits and any other written communications from or to Tenant and any entity regulating any Restricted Activities. (d) Notice. If at any time during or after the Term, Tenant becomes aware of any inquiry, investigation or proceeding regarding the Restricted Activities or becomes aware of any claims, actions or investigations regarding the ADA, Tenant shall give Landlord written notice, within 5 days after first learning thereof, providing all available information and copies of any notices. 5. Term. The Term of this lease shall commence on the Commencement Date and shall end at 11:59 p.m. on the last day of the Term (the "EXPIRATION DATE"), without the necessity for notice from either party, unless sooner terminated in accordance with the terms hereof. At Landlords request, Tenant shall confirm the Commencement Date and Expiration Date by executing a lease commencement certificate in the form attached as Exhibit "B". 2 6. Minimum Annual Rent. Tenant agrees to pay to Landlord the Minimum Annual Rent in equal monthly installments in the amount set forth in Section 1(d) (as increased at the beginning of each lease year as set forth in Section 1(d)), in advance, on the first day of each calendar month during the Term, without notice, demand or setoff, at Landlord's address designated at the beginning of this lease unless Landlord designates otherwise; provided that rent for the first full month shall be paid at the signing of this lease. If the Commencement Date falls on a day other than the first day of a calendar month, the rent shall be apportioned pro rata on a per diem basis for the period from the Commencement Date until the first day of the following calendar month and shall be paid on or before the Commencement Date. As used in this lease, the term "lease year" means the period from the Commencement Date through the succeeding 12 full calendar months (including for the first lease year any partial month from the Commencement Date until the first day of the first full calendar month) and each successive 12 month period thereafter during the Term. 7. Operation of Property; Payment of Expenses. (a) Payment of Operating Expenses. Tenant shall pay to Landlord the Annual Operating Expenses in equal monthly installments in the amount set forth in Section 1(d) (prorated for any partial month), from the Commencement Date and continuing throughout the Term on the first day of each calendar month during the Term, as additional rent, without notice, demand or setoff, provided that the monthly installment for the first full month shall be paid at the signing of this lease. Landlord shall apply such payments to the operating expenses owed to Landlord by Tenant pursuant to the following Sections 7(b)-(f). The amount of the Annual Operating Expenses set forth in Section 1(d) represents Tenant's Proportionate Share of the estimated operating expenses during the first calendar year of the Term on an annualized basis; from time to time Landlord may adjust such estimated amount if the estimated operating expenses increase. By April 30th of each year (and as soon as practical after the expiration or termination of this lease or at any time in the event of a sale of the Property), Landlord shall provide Tenant with a statement of the actual amount of such expenses for the preceding calendar year or part thereof. Landlord or Tenant shall pay to the other the amount of any deficiency or overpayment then due from one to the other or, at Landlord's option, Landlord may credit Tenant's account for any overpayment. Tenant's obligation to pay the Annual Operating Expenses pursuant to this Section 7 shall survive the expiration or termination of this lease. (b) Taxes and Other Impositions. Tenant shall pay prior to delinquency all levies, taxes (including sales taxes and gross receipt taxes), assessments, liens, license and permit fees, which are applicable to the Term, and which are imposed by any authority or under any law, ordinance or regulation thereof, or pursuant to any recorded covenants or agreements, and the reasonable cost of contesting any of the foregoing (the "IMPOSITIONS") upon or with respect to the Premises, or any improvements thereto, or directly upon this lease or the Rent (defined in Section 7(f)) or amounts payable by any subtenants or other occupants of the Premises, or against Landlord because of Landlord's estate or interest herein. Additionally, Tenant shall pay as aforesaid its Proportionate Share of any Imposition which is not imposed upon the Premises as a separate entity but which is imposed upon all or part of the Property or upon the leases or rents relating to the Property. (i) Nothing herein contained shall be interpreted as requiring Tenant to pay any income, excess profits or corporate capital stock tax imposed or assessed upon Landlord, unless such tax or any similar tax is levied or assessed in lieu of all or any part of any Imposition or an increase in any Imposition. (ii) If it shall not be lawful for Tenant to reimburse Landlord for any of the Impositions, the Minimum Annual Rent shall be increased by the amount of the portion of such Imposition allocable to Tenant, unless prohibited by law. (c) Insurance. (i) Property. Landlord shall keep in effect, and Tenant shall pay to Landlord its Proportionate Share of the cost of, insurance against loss or damage to the Building or the Property by fire and such other casualties as may be included within fire, extended coverage and special form insurance covering the full replacement cost of the Building (but excluding coverage of Tenant's personal property in, and any alterations by Tenant to, the Premises), and such other insurance as Landlord may reasonably deem appropriate or as may be required from time-to-time by any mortgagee. (ii) Liability. Tenant, at its own expense, shall keep in effect comprehensive general public liability insurance with respect to the Premises and the Property, including contractual liability insurance, with such limits of liability for bodily injury (including death) and property damage as reasonably may be required by Landlord from time-to-time, but not less than a combined single limit of $1,000,000 per occurrence and a general aggregate limit of not less than $3,000,000 (which aggregate limit shall apply separately to each of Tenant's locations if more than the Premises); however, such limits shall not limit the liability of Tenant hereunder. The policy of comprehensive general public liability insurance also shall name Landlord and Landlord's agent as insured parties with respect to the Premises, shall be written on an "occurrence" basis and not on a "claims made" basis, shall provide that it is primary with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, shall provide that it shall not be cancelable or reduced without at least 30 days prior written notice to Landlord and shall be issued in form satisfactory to Landlord. The insurer shall be a responsible insurance carrier which is authorized to issue such insurance and licensed to do business in the state in which the Property is located and which has at all times during the Term a rating of no less than A VII in the most current edition of Best's Insurance Reports. Tenant shall deliver to Landlord on or before the Commencement Date, and subsequently renewals of, a certificate of insurance evidencing such coverage and the waiver of subrogation described below. 3 (iii) Waiver of Subrogation. Landlord and Tenant shall have included in their respective property insurance policies waivers of their respective insurers' right of subrogation against the other party. If such a waiver should be unobtainable or unenforceable, then such policies of insurance shall state expressly that such policies shall not be invalidated if, before a casualty, the insured waives the right of recovery against any party responsible for a casualty covered by the policy. (iv) Increase of Premiums. Tenant agrees not to do anything or fail to do anything which will increase the cost of Landlord's insurance or which will prevent Landlord from procuring policies (including public liability) from companies and in a form satisfactory to Landlord. If any breach of the preceding sentence by Tenant causes the rate of fire or other insurance to be increased, Tenant shall pay the amount of such increase as additional rent promptly upon being billed. (d) Repairs and Maintenance; Common Areas; Building Management. Except as specifically otherwise provided in this Section (d), Tenant at its sole expense shall maintain the Premises in good order and condition, promptly make all repairs necessary to maintain such condition, and repair any damage to the Premises caused by Tenant or its Agents. All repairs made by Tenant shall utilize materials and equipment which are comparable to those originally used in constructing the Building and Premises. When used in this Section (d), the term "repairs" shall include replacements and renewals when necessary. (i) Landlord, at its sole expense, shall make all necessary repairs to the footings, foundations, structural steel columns and girders forming a part of the Premises, provided that Landlord shall have no responsibility to make any repair until Landlord receives written notice of the need for such repair. (ii) Landlord, at Tenant's sole expense, shall maintain and repair the HVAC systems appurtenant to the Premises. (iii) Landlord shall make all necessary repairs to the root exterior portions of the Premises and the Building, utility and communications lines, equipment and facilities in the Building, which serve more than one tenant, and to the Common Areas. the cost of which shall be an operating expense of which Tenant shall pay its Proportionate Share, provided that Landlord shall have no responsibility to make any repair until Landlord receives written notice of the need for such repair. Landlord shall operate and manage the Property and shall maintain all Common Areas and any paved area appurtenant to the Property in a clean and orderly condition. Landlord reserves the right to make alterations to the Common Areas from time to time. Operating expenses also shall include (A) all sums expended by Landlord for the supervision, maintenance, repair, replacement and operation of the Common Areas (including the costs of utility services), (B) any costs of building improvements made by Landlord to the Property that are required by any governmental authority or for the purpose of reducing operating expenses and (C) a management and administrative fee applicable to the overall operation of the Property. (iv) Notwithstanding anything herein to the contrary, repairs and replacements to the Property including the Premises made necessary by Tenant's use, occupancy or alteration of, or Tenant's installation in or upon the Property or by any act or omission of Tenant or its Agents shall be made at the sole expense of Tenant to the extent not covered by any applicable insurance proceeds paid to Landlord. tenant shall not bear the expense of any repairs or replacements to the Property arising out of or caused by any other tenant's use, occupancy or alteration of, or any other tenant's installation in or upon, the Property or by any act or omission of any other tenant or any other tenant's Agents. (e) Utility Charges. Tenant shall pay for water, sewer, gas, electricity, heat, power, telephone and other communication services and any other utilities supplied to or consumed in or on the Premises. Landlord shall not be responsible or liable for any interruption in utility service, nor shall such interruption affect the continuation or validity of this lease. (f) Net lease. Except for the obligations of Landlord expressly set forth herein, this lease is a "triple net lease" and Landlord shall receive the Minimum Annual Rent as net income from the Premises, not diminished by any expenses other than payments under any mortgages, and Landlord is not and shall not be required to render any services of any kind to Tenant. The term "RENT" as used in this lease means the Minimum Annual Rent, Annual Operating Expenses and any other additional rent or sums payable by Tenant to Landlord pursuant to this lease, all of which shall be deemed rent for purposes of Landlords rights and remedies with respect thereto. Tenant shall pay all Rent to Landlord within 30 days after Tenant is billed, unless otherwise provided in this lease, and interest shall accrue on all sums due but unpaid. 4 8. Signs. Except for signs which are located wholly within the interior of the Premises and not visible from the exterior of the Premises, no signs shall be placed on the Property without the prior written consent of Landlord. All signs installed by Tenant shall be maintained by Tenant in good condition and Tenant shall remove all such signs at the termination of this lease and shall repair any damage caused by such installation, existence or removal. 9. Alterations and Fixtures. (a) Subject to Section 10, Tenant shall have the right to install its trade fixtures in the Premises, provided that no such installation or removal thereof shall affect any structural portion of the Property nor any utility lines, communications lines, equipment or facilities in the Building serving any tenant other than Tenant. At the expiration or termination of this lease and at the option of Landlord or Tenant, Tenant shall remove such installation(s) and, in the event of such removal, Tenant shall repair any damage caused by such installation or removal; if Tenant, with Landlords written consent, elects not to remove such installation(s) at the expiration or termination of this lease, all such installations shall remain on the Property and become the property of Landlord without payment by Landlord. (b) Except for non-structural changes which do not exceed S5000 in the aggregate, Tenant shall not make or permit to be made any alterations to the Premises without Landlord's prior written consent. Tenant shall pay the costs of any required architectural/engineering reviews. In making any alterations, (i) Tenant shall deliver to Landlord the plans, specifications and necessary permits, together with certificates evidencing that Tenant's contractors and subcontractors have adequate insurance coverage naming Landlord and Landlord's agent as additional insureds, at least 10 days prior to commencement thereof, (ii) such alterations shall not impair the structural strength of the Building or any other improvements or reduce the value of the Property or affect any utility lines, communications lines, equipment or facilities in the Building serving any tenant other than Tenant, (iii) Tenant shall comply with Section 10 and (iv) the occupants of the Building and of any adjoining property shall not be disturbed thereby. All alterations to the Premises by Tenant shall be the property of Tenant until the expiration or termination of this lease; at that time all such alterations shall remain on the Property and become the property of Landlord without payment by Landlord unless Landlord gives written notice to Tenant to remove the same, in which event Tenant will remove such alterations and repair any resulting damage. At Tenant's request prior to Tenant making any alterations, Landlord shall notify Tenant in writing, whether Tenant is required to remove such alterations at the expiration or termination of this lease. 10. Mechanics' Liens. Tenant shall pay promptly any contractors and materialmen who supply labor, work or materials to Tenant at the Property and shall take all steps permitted by law in order to avoid the imposition of any mechanic's lien upon all or any portion of the Property. Should any such lien or notice of lien be filed for work performed for Tenant other than by Landlord, Tenant shall bond against or discharge the same within 5 days after Tenant has notice that the lien or claim is filed regardless of the validity of such lien or claim. Nothing in this lease is intended to authorize Tenant to do or cause any work to be done or materials to be supplied for the account of Landlord, all of the same to be solely for Tenant's account and at Tenant's risk and expense. Throughout this lease the term "mechanic's lien" is used to include any lien, encumbrance or charge levied or imposed upon all or any portion of interest in or income from the Property on account of any mechanic's, laborer's, materialman's or construction lien or arising out of any debt or liability to or any claim of any contractor, mechanic, supplier, materialman or laborer and shall include any mechanic's notice of intention to file a lien given to Landlord or Tenant, any stop order given to Landlord or Tenant, any notice of refusal to pay naming Landlord or Tenant and any injunctive or equitable action brought by any person claiming to be entitled to any mechanic's lien. 11. Landlord's Right of Entry. Tenant shall permit Landlord and its Agents to enter the Premises at all reasonable times following reasonable notice (except in the event of an emergency), for the purpose of inspection, maintenance or making repairs, alterations or additions as well as to exhibit the Premises for the purpose of sale or mortgage and, during the last 12 months of the Term, to exhibit the Premises to any prospective tenant. Landlord will make reasonable efforts not to inconvenience Tenant in exercising the foregoing rights, but shall not be liable for any loss of occupation or quiet enjoyment thereby occasioned. 12. Damage by Fire or Other Casualty. (a) If the Premises or Building shall be damaged or destroyed by fire or other casualty, Tenant promptly shall notify Landlord and Landlord, subject to the conditions set forth in this Section 12, shall repair such damage and restore the Premises to substantially the same condition in which they were immediately prior to such damage or destruction, but not including the repair, restoration or replacement of the fixtures or alterations installed by Tenant. Landlord shall notify Tenant in writing, within 30 days after the date of the casualty, if Landlord anticipates that the restoration will take more than 180 days from the date of the casualty to complete; in such event, either Landlord or Tenant may terminate this lease effective as of the date of casualty by giving written notice to the other within 10 days after Landlord's notice. Further, if a casualty occurs during the last 12 months of the Term or any extension thereof, Landlord may cancel this lease unless Tenant has the right to extend the Term for at least 3 more years and does so within 30 days after the date of the casualty. 5 (b) Landlord shall maintain a 12 month rental coverage endorsement or other comparable form of coverage as part of its fire, extended coverage and special form insurance. Tenant will receive an abatement of its Minimum Annual Rent and Annual Operating Expenses to the extent the Premises are rendered untenantable as determined by the carrier providing the rental coverage endorsement. 13. Condemnation. (a) Termination. If (i) all of the Premises are taken by a condemnation or otherwise for any public or quasi-public use, (ii) any part of the Premises is so taken and the remainder thereof is insufficient for the reasonable operation of Tenant's business or (iii) any of the Property is so taken, and, in Landlord's opinion, it would be impractical or the condemnation proceeds are insufficient to restore the remainder of the Property, then this lease shall terminate and all unaccrued obligations hereunder shall cease as of the day before possession is taken by the condemnor. (b) Partial Taking. If there is a condemnation and this lease has not been terminated pursuant to this Section, (i) Landlord shall restore the Building and the improvements which are a part of the Premises to a condition and size as nearly comparable as reasonably possible to the condition and size thereof immediately prior to the date upon which the condemnor took possession and (ii) the obligations of Landlord and Tenant shall be unaffected by such condemnation except that there shall be an equitable abatement of the Minimum Annual Rent according to the rental value of the Premises before and after the date upon which the condemnor took possession and/or the date Landlord completes such restoration. (c) Award. In the event of a condemnation affecting Tenant, Tenant shall have the right to make a claim against the condemnor for moving expenses and business dislocation damages to the extent that such claim does not reduce the sums otherwise payable by the condemnor to Landlord. Except as aforesaid and except as set forth in (d) below, Tenant hereby assigns all claims against the condemnor to Landlord. (d) Temporary Taking. No temporary taking of the Premises shall terminate this lease or give Tenant any right to any rental abatement. Such a temporary taking will be treated as if Tenant had sublet the Premises to the condemnor and had assigned the proceeds of the subletting to Landlord to be applied on account of Tenant's obligations hereunder. Any award for such a temporary taking during the Term shall be applied first, to Landlord's costs of collection and, second, on account of sums owing by Tenant hereunder, and if such amounts applied on account of sums owing by Tenant hereunder should exceed the entire amount owing by Tenant for the remainder of the Term, the excess will be paid to Tenant. 14. Non-Abatement of Rent. Except as otherwise expressly provided as to damage by fire or other casualty in Section 12(b) and as to condemnation in Section 13(b), there shall be no abatement or reduction of the Rent for any cause whatsoever, and this lease shall not terminate, and Tenant shall not be entitled to surrender the Premises. 15. Indemnification of Landlord. Subject to Sections 7(c)(iii) and 16, Tenant will protect, indemnify and hold harmless Landlord and its Agents from and against any and all claims, actions, damages, liability and expense (including fees of attorneys, investigators and experts) in connection with loss of life, personal injury or damage to property in or about the Premises or arising out of the occupancy or use of the Premises by Tenant or its Agents or occasioned wholly or in part by any act or omission of Tenant or its Agents, whether prior to, during or after the Term, except to the extent such loss, injury or damage was caused by the negligence of Landlord or its Agents. In case any action or proceeding is brought against Landlord and/or its Agents by reason of the foregoing. Tenant, at its expense, shall resist and defend such action or proceeding, or cause the same to be resisted and defended by counsel (reasonably acceptable to Landlord and its Agents) designated by the insurer whose policy covers such occurrence or by counsel designated by Tenant and approved by Landlord and its Agents. Tenant's obligations pursuant to this Section 15 shall survive the expiration or termination of this lease. 16. Waiver Of Claims. Landlord and Tenant each hereby waives all claims for recovery against the other for any loss or damage which may be inflicted upon the property of such party even if such loss or damage shall be brought about by the fault or negligence of the other party or its Agents; provided, however, that such waiver by Landlord shall not be effective with respect to any liability of Tenant described in Sections 4(c) and 7(d)(iv). 17. Quiet Enjoyment. Landlord covenants that Tenant, upon performing all of its covenants, agreements and conditions of this lease, shall have quiet and peaceful possession of the Premises as against anyone claiming by or through Landlord, subject, however, to the exceptions, reservations and conditions of this lease. 6 18. Assignment and Subletting. (a) Limitation. Tenant shall not transfer this lease, voluntarily or by operation of law, without the prior written consent of Landlord which shall not be withheld unreasonably. However, Landlord's consent shall not be required in the event of any transfer by Tenant to an affiliate of Tenant which is at least as creditworthy as Tenant as of the date of this lease and provided Tenant delivers to Landlord the instrument described in Section (c)(iii) below, together with a certification of such creditworthiness by Tenant and such affiliate. Any transfer not in conformity with this Section 18 shall be void at the option of Landlord, and Landlord may exercise any or all of its rights under Section 23. A consent to one transfer shall not be deemed to be a consent to any subsequent transfer. "Transfer" shall include any sublease, assignment, license or concession agreement, change in ownership or control of Tenant, mortgage or hypothecation of this lease or Tenant's interest therein or in all or a portion of the Premises. (b) Offer to Landlord. Tenant acknowledges that the terms of this lease, including the Minimum Annual Rent, have been based on the understanding that Tenant physically shall occupy the Premises for the entire Term. Therefore, upon Tenant's request to transfer all or a portion of the Premises, at the option of Landlord, Tenant and Landlord shall execute an amendment to this lease removing such space from the Premises, Tenant shall be relieved of any liability with respect to such space and Landlord shall have the right to lease such space to any party, including Tenant's proposed transferee. (c) Conditions. Notwithstanding the above, the following shall apply to any transfer, with or without Landlords consent: (i) As of the date of any transfer, Tenant shall not be in default under this lease nor shall any act or omission have occurred which would constitute a default with the giving of notice and/or the passage of time. (ii) No transfer shall relieve Tenant of its obligation to pay the Rent and to perform all its other obligations hereunder. The acceptance of Rent by Landlord from any person shall not be deemed to be a waiver by Landlord of any provision of this lease or to be a consent to any transfer. (iii) Each transfer shall be by a written instrument in form and substance satisfactory to Landlord which shall (A) include an assumption of liability by any transferee of all Tenants obligations and the transferee's ratification of and agreement to be bound by all the provisions of this lease, (B) afford Landlord the right of direct action against the transferee pursuant to the same remedies as are available to Landlord against Tenant and (C) be executed by Tenant and the transferee. (iv) Tenant shall pay, within 10 days of receipt of an invoice which shall be no less than $250, Landlords reasonable attorneys' fees and costs in connection with the review, processing and documentation of any transfer for which Landlord's consent is requested. 19. Subordination; Mortgagee's Rights. (a) This lease shall be subordinate to any first mortgage or other primary encumbrance now or hereafter affecting the Premises. Although the subordination is self-operative, within 10 days after written request, Tenant shall execute and deliver any further instruments confirming such subordination of this lease and any further instruments of attornment that may be desired by any such mortgagee or Landlord. However, any mortgagee may at any time subordinate its mortgage to this lease, without Tenant's consent, by giving written notice to Tenant, and thereupon this lease shall be deemed prior to such mortgage without regard to their respective dates of execution and delivery, provided, however, that such subordination shall not affect any mortgagee's right to condemnation awards, casualty insurance proceeds, intervening Hens or any right which shall arise between the recording of such mortgage and the execution of this lease. (b) It is understood and agreed that any mortgagee shall not be liable to Tenant for any funds paid by Tenant to Landlord unless such funds actually have been transferred to such mortgagee by Landlord. (c) Notwithstanding the provisions of Sections 12 and 13 above, Landlords obligation to restore the Premises after a casualty or condemnation shall be subject to the consent and prior rights of Landlord's first mortgagee. 20. Recording; Tenant's Certificate. Tenant shall not record this lease or a memorandum thereof without Landlord's prior written consent. Within 10 days after Landlord's written request from time to time: 7 (a) Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying the Commencement Date and Expiration Date of this lease, that this lease is in full force and effect and has not been modified and otherwise as set forth in the form of estoppel certificate attached as Exhibit "D" or with such modifications as may be necessary to reflect accurately the stated facts and/or such other certifications as may be requested by a mortgagee or purchaser. Tenant understands that its failure to execute such documents may cause Landlord serious financial damage by causing the failure of a financing or sale transaction. (b) Tenant shall furnish to Landlord, Landlord's mortgagee, prospective mortgagee or purchaser reasonably requested financial information. 21. Surrender; Abandoned Property. (a) Subject to the terms of Sections 9(b), 12(a) and 13(b), at the expiration or termination of this lease, Tenant promptly shall yield up in the same condition, order and repair in which they are required to be kept throughout the Term, the Premises and all improvements thereto, and all fixtures and equipment servicing the Building, ordinary wear and tear excepted. (b) Upon or prior to the expiration or termination of this lease, Tenant shall remove any personal property from the Property. Any personal property remaining thereafter shall be deemed conclusively to have been abandoned, and Landlord, at Tenant's expense, may remove, store, sell or otherwise dispose of such property in such manner as Landlord may see fit and/or Landlord may retain such property as its property. If any part thereof shall be sold, then Landlord may receive and retain the proceeds of such sale and apply the same, at its option, against the expenses of the sale, the cost of moving and storage and any Rent due under this lease. (c) If Tenant, or any person claiming through Tenant, shall continue to occupy the Premises after the expiration or termination of this lease or any renewal thereof, such occupancy shall be deemed to be under a month-to-month tenancy under the same terms and conditions set forth in this lease, except that the monthly installment of the Minimum Annual Rent during such continued occupancy shall be double the amount applicable to the last month of the Term. Anything to the contrary notwithstanding, any holding over by Tenant without Landlord's prior written consent shall constitute a default hereunder and shall be subject to all the remedies available to Landlord. 22. Curing Tenant's Defaults. If Tenant shall be in default in the performance of any of its obligations hereunder, Landlord, without any obligation to do so, in addition to any other rights it may have in law or equity, may elect to cure such default on behalf of Tenant after written notice (except in the case of emergency) to Tenant. Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord in curing such default, including interest thereon from the respective dates of Landlord's incurring such costs, which sums and costs together with interest shall be deemed additional rent. 23. Defaults - Remedies. (a) Defaults. It shall be an event of default: (i) If Tenant does not pay in full when due any and all Rent; (ii) If Tenant fails to observe and perform or otherwise breaches any other provision of this lease; (iii) If Tenant abandons the Premises, which shall be conclusively presumed if the Premises remain unoccupied for more than 10 consecutive days, or removes or attempts to remove Tenant's goods or property other than in the ordinary course of business; or (iv) If Tenant becomes insolvent or bankrupt in any sense or makes a general assignment for the benefit of creditors or offers a settlement to creditors, or if a petition in bankruptcy or for reorganization or for an arrangement with creditors under any federal or state law is filed by or against Tenant, or a bill in equity or other proceeding for the appointment of a receiver for any of Tenant's assets is commenced, or if any of the real or personal property of Tenant shall be levied upon, provided, however, that any proceeding brought by anyone other than Landlord or Tenant under any bankruptcy, insolvency, receivership or similar law shall not constitute a default until such proceeding has continued unstayed for more than 60 consecutive days. (b) Remedies. Then, and in any such event, Landlord shall have the following rights: (i) To charge a late payment fee equal to the greater of $100 or 5% of any amount owed to Landlord pursuant to this lease which is not paid within 5 days after the due date. 8 (ii) To enter and repossess the Premises, by breaking open locked doors if necessary, and remove all persons and all or any property therefrom, by action at law or otherwise, without being liable for prosecution or damages therefor, and Landlord may, at Landlord's option, make alterations and repairs in order to relet the Premises and relet all or any part(s) of the Premises for Tenant's account. Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting. In the event of reletting without termination of this lease, Landlord may at any time thereafter elect to terminate this lease for such previous breach. (iii) To accelerate the whole or any part of the Rent for the balance of the Term, and declare the same to be immediately due and payable. (iv) To terminate this lease and the Term without any right on the part of Tenant to save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken. (c) Grace Period. Notwithstanding anything hereinabove stated, neither party will exercise any available right because of any default of the other, except those remedies contained in subsection (b)(i) of this Section, unless such party shall have first given 10 days written notice thereof to the defaulting party, and the defaulting party shall have failed to cure the default within such period, provided, however, that: (i) No such notice shall be required if Tenant fails to comply with the provisions of Sections 10 or 20(a), in the case of emergency as set forth in Section 22 or in the event of any default enumerated in subsections (a)(iii) and (iv) of this Section. (ii) Landlord shall not be required to give such 10 days notice more than 2 times during any 12 month period. (iii) If the default consists of something other than the failure to pay money which cannot reasonably be cured within 10 days, neither party will exercise any right if the defaulting party begins to cure the default within the 10 days and continues actively and diligently in good faith to completely cure said default. (iv) Tenant agrees that any notice given by Landlord pursuant to this Section which is served in compliance with Section 27 shall be adequate notice for the purpose of Landlord's exercise of any available remedies. (d) Non-Waiver, Non-Exclusive. No waiver by Landlord of any breach by Tenant shall be a waiver of any subsequent breach, nor shall any forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of any rights and remedies with respect to such or any subsequent breach. Efforts by Landlord to mitigate the damages caused by Tenant's default shall not constitute a waiver of Landlord's right to recover damages hereunder. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy provided herein or by law, but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the total amount due Landlord under this lease shall be deemed to be other than on account, nor shall any endorsement or statement on any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of Rent due, or Landlords right to pursue any other available remedy. (e) Costs and Attorneys' Fees. If either party commences an action against the other party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party attorneys' fees, costs of suit, investigation expenses and discovery costs, including costs of appeal. 24. Representations of Tenant. Tenant represents to Landlord and agrees that: (a) The word "Tenant" as used herein includes the Tenant named above as well as its successors and assigns, each of which shall be under the same obligations and liabilities and each of which shall have the same rights, privileges and powers as it would have possessed had it originally signed this lease as Tenant. Each and every of the persons named above as Tenant shall be bound jointly and severally by the terms, covenants and agreements contained herein. However, no such rights, privileges or powers shall inure to the benefit of any assignee of Tenant immediate or remote, unless Tenant has complied with the terms of Section 18 and the assignment to such assignee is permitted or has been approved in writing by Landlord. Any notice required or permitted by the terms of this lease may be given by or to any one of the persons named above as Tenant, and shall have the same force and effect as if given by or to all thereof. (b) If Tenant is a corporation, partnership or any other form of business association or entity, Tenant is duly formed and in good standing, and has full corporate or partnership power and authority, as the case may be, to enter into this lease and has taken all corporate or partnership action, as the case may be, necessary to carry out the transaction contemplated herein, so that when executed, this lease constitutes a valid and binding obligation enforceable in accordance with its terms. Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord. authorizing the execution of this lease at the time of such execution. 9 25. Liability of Landlord. The word "Landlord" as used herein includes the Landlord named above as well as its successors and assigns, each of which shall have the same rights, remedies, powers, authorities and privileges as it would have had it originally signed this lease as Landlord. Any such person or entity, whether or not named herein, shall have no liability hereunder after it ceases to hold title to the Premises except for obligations already accrued (and, as to any unapplied portion of Tenant's Security Deposit, Landlord shall be relieved of all liability therefor upon transfer of such portion to its successor in interest) and Tenant shall look solely to Landlord's successor in interest for the performance of the covenants and obligations of the Landlord hereunder which thereafter shall accrue. Neither Landlord nor any principal of Landlord nor any owner of the Property, whether disclosed or undisclosed, shall have any personal liability with respect to any of the provisions of this lease or the Premises, and if Landlord is in breach or default with respect to Landlord's obligations under this lease or otherwise, Tenant shall look solely to the equity of Landlord in the Property for the satisfaction of Tenant's claims. Notwithstanding the foregoing, no mortgagee or ground lessor succeeding to the interest of Landlord hereunder (either in terms of ownership or possessory rights) shall be (a) liable for any previous act or omission of a prior landlord, (b) subject to any rental offsets or defenses against a prior landlord or (c) bound by any amendment of this lease made without its written consent, or by payment by Tenant of Minimum Annual Rent in advance in excess of one monthly installment. 26. Interpretation; Definitions. (a) Captions. The captions in this lease are for convenience only and are not a part of this lease and do not in any way define, limit, describe or amplify the terms and provisions of this lease or the scope or intent thereof. (b) Entire Agreement. This lease represents the entire agreement between the parties hereto and there are no collateral or oral agreements or understandings between Landlord and Tenant with respect to the Premises or the Property. No rights, easements or licenses are acquired in the Property or any land adjacent to the Property by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. This lease shall not be modified in any manner except by an instrument in writing executed by the parties. The masculine (or neuter) pronoun and the singular number shall include the masculine, feminine and neuter genders and the singular and plural number. The word "including" followed by any specific item(s) is deemed to refer to examples rather than to be words of limitation. Both parties having participated fully and equally in the negotiation and preparation of this lease, this lease shall not be more strictly construed, nor any ambiguities in this lease resolved, against either Landlord or Tenant. (c) Covenants. Each covenant, agreement, obligation, term, condition or other provision herein contained shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, not dependent on any other provision of this lease unless otherwise expressly provided. All of the terms and conditions set forth in this lease shall apply throughout the Term unless otherwise expressly set forth herein. (d) Interest. Wherever interest is required to be paid hereunder, such interest shall be at the highest rate permitted under law but not in excess of 15% per annum. (e) Severability; Governing Law. If any provisions of this lease shall be declared unenforceable in any respect, such unenforceability shall not affect any other provision of this lease, and each such provision shall be deemed to be modified, if possible, in such a manner as to render it enforceable and to preserve to the extent possible the intent of the parties as set forth herein. This lease shall be construed and enforced in accordance with the laws of the state in which the Property is located. (f) "Mortgage" and "Mortgagee." The word "mortgage" as used herein includes any lien or encumbrance on the Premises or the Property or on any part of or interest in or appurtenance to any of the foregoing, including without limitation any ground rent or ground lease if Landlord's interest is or becomes a leasehold estate. The word "mortgagee" as used herein includes the holder of any mortgage, including any ground lessor if Landlord's interest is or becomes a leasehold estate. Wherever any right is given to a mortgagee, that right may be exercised on behalf of such mortgagee by any representative or servicing agent of such mortgagee. (g) "Person." The word "person" is used herein to include a natural person, a partnership, a corporation, an association and any other form of business association or entity. 10 (h) Proportionate Share. At any time or times, upon request of Landlord or of any tenant of the Building, the method for allocating Tenant's Proportionate Share of any Impositions, cost, charge, rent, expense or payment then or thereafter payable shall be redetermined by an independent qualified expert. The cost of such redetermination shall be borne by the tenants of the Building in the same proportion as that determined by such expert for reallocation of said relevant sum; except that if such redetermination requested by tenant, the cost thereof shall be borne entirely by such tenant if the proportionate share of said relevant sum allocable such tenant as the result of such redetermination shall not vary by at least 5% from the amount which would have been allocable such tenant in accordance with the percentage based on square foot area. 27. Notices. Any notice or other communications under this lease shall be in writing and addressed to Landlord or Tenant at the respective addresses specified at the beginning of this lease, except that after the Commencement Date Tenant's address shall be at the Premises, (or to such other address as either may designate by notice to the other) with a copy to any mortgagee or other party designated by Landlord. Each notice or other communication shall be deemed given if sent by prepaid overnight delivery service by certified mail, return receipt requested, postage prepaid or in any other manner, with delivery in any case evidenced by a receipt, and shall be deemed received on the day of actual receipt by the intended recipient or on the business day delivery is refused. The giving of notice by Landlord's attorneys, representatives and agents under this Section shall be deemed to be the acts of Landlord; however, the foregoing provisions governing the date on which a notice deemed to have been received shall mean and refer to the date on which a party to this lease, and not its counsel or other recipient to which a copy of the notice may be sent, is deemed to ha received the notice. 28. Security Deposit. At the time of signing this lease, Tenant shall deposit with Landlord the Security Deposit to be retained Landlord as cash security for the faithful performance and observance by Tenant of the provisions of this lease. Tenant shall not entitled to any interest whatever on the Security Deposit. Landlord shall have the right to commingle the Security Deposit with its other funds. Landlord may use the whole or any part of the Security Deposit for the payment of any amount as to which Tenant is in default hereunder or to compensate Landlord for any loss or damage it may suffer by reason of Tenant's default under this lease. If Landlord uses all or any portion of the Security Deposit as herein provided, within 10 days after written demand therefor, Tenant shall pay Landlord cash in amount equal to that portion of the Security Deposit used by Landlord. If Tenant shall comply fully and faithfully with all the provisions of this lease, the Security Deposit shall be returned to Tenant after the Expiration Date and surrender of the Premises to Landlord. IN WITNESS WHEREOF, and in consideration of the mutual entry into this lease and for other good and valuable consideration, and intending to be legally bound, Landlord and Tenant have executed this lease. Landlord: LIBERTY PROPERTY LIMITED PARTNERSHIP Date Signed: By: Liberty Property Trust, Sole General Partner 2/15/02 By: /s/ Ward J. Fitzgerald - -------------------------- -------------------------------- Ward J. Fitzgerald Senior Vice President, Regional Director Tenant: Date Signed: Neose Technologies, Inc. 2/15/02 By: /s/ A. Brian Davis - -------------------------- ---------------------------- Name: A. Brian Davis Title: Acting CFO Attest: ____________________________ Name: ____________________________ Title: ____________________________ [Corporate Seal] 11 RIDER ----- 29. Pa Additional Remedies. (a) When this lease and the Term or any extension thereof shall have been terminated on account of any default by Tenant which has continued beyond applicable notice and/or cure periods contained in this lease, or when the Term or any extension thereof shall have expired, Tenant hereby authorizes any attorney of any court of record of the Commonwealth of Pennsylvania, upon an additional five (5) days' prior written notice to Tenant, to appear for Tenant and for anyone claiming by, through or under Tenant and to confess judgment against all such parties, and in favor of Landlord, in ejectment and for the recovery of possession of the Premises, for which this lease or a true and correct copy hereof shall be good and sufficient warrant. AFTER THE ENTRY OF ANY SUCH JUDGMENT, A WRIT OF POSSESSION MAY BE ISSUED THEREON WITHOUT FURTHER NOTICE TO TENANT AND WITHOUT A HEARING. If for any reason after such action shall have been commenced it shall be determined and possession of the Premises remain in or be restored to Tenant, Landlord shall have the right for the same default and upon any subsequent default(s) or upon the termination of this lease or Tenant's right of possession as herein set forth, to again confess judgment as herein provided, for which this lease or a true and correct copy hereof shall be good and sufficient warrant. (b) The warrant of attorney to confess judgment set forth above shall continue in full force and effect and be unaffected by amendments to this lease or other agreements between Landlord and Tenant even if any such amendments or other agreements increase Tenant's obligations or expand the size of the Premises. Tenant waives any procedural errors in connection with the entry of any such judgment or in the issuance of any one or more writs of possession or execution thereon. (c) TENANT KNOWINGLY AND EXPRESSLY WAIVES ANY RIGHT, INCLUDING, WITHOUT LIMITATION, UNDER ANY APPLICABLE STATUTE, WHICH TENANT MAY HAVE TO RECEIVE A NOTICE TO QUIT PRIOR TO LANDLORD COMMENCING AN ACTION FOR REPOSSESSION OF THE PREMISES. NEOSE TECHNOLOGIES, INC. By: /s/ A. Brian Davis --------------------------- Name: A. Brian Davis Title: Acting CFO R-1 30. Completion by Tenant. (a) The Premises shall be completed by Tenant and its contractor(s), at Tenant's sole expense (except for the Allowance [as hereinafter defined]), in accordance with the plans to be prepared by Tenant, approved by Landlord and attached hereto as Exhibit "E" (the "Plans") and the specifications attached hereto as Exhibit "F" (the "Specifications"). Subject to Landlord's approval of the Plans, Landlord hereby consents to the alterations Tenant intends to make to the Premises in accordance with the Plans and Specifications, provided that Tenant complies with Sections 9 and 10 of this lease and the following conditions: (i) At least ten (10) days prior to commencement of construction, Tenant shall deliver to Landlord a certificate of insurance for each of Tenant's contractors evidencing adequate insurance coverage naming Landlord and Landlord's agent as additional insureds. (ii) Prior to commencement of construction on or the delivery of any materials to the Property, Tenant shall deliver to Landlord a true and correct copy of a waiver of mechanic's liens executed by Tenant's general contractor in form and substance reasonably satisfactory to Landlord and duly filed with the Office of the Prothonotary of Montgomery County, waiving on behalf of said contractor and its subcontractors and suppliers, any right to file a mechanic's lien against the Property. (iii) In addition to the right of Landlord and its Agents to inspect the Premises set forth in Section 11 of this lease, Landlord and its Agents shall have the right to conduct a walk-through inspection of the Premises as completed by Tenant. (iv) The warranties from Tenant's contractor(s) shall be for the benefit of Landlord as well as Tenant and, upon request, Tenant shall deliver copies of such warranties to Landlord upon receipt. (iv) All construction shall be done in a good and workmanlike manner and shall comply at the time of completion with all Laws and Requirements. Tenant shall deliver to Landlord copies of all certificates of occupancy, permits and licenses required to be issued by any authority in connection with Tenant's construction. (b) Tenant may, at Tenant's expense, construct a walkway, including the installation of fiber optic cable beneath same (the "Walkway"), for pedestrians from the Property through property owned by Landlord at 100 Witmer Road and/or 101 Rock Road (the "Walkway Properties") to property owned by Tenant at 102 Witmer Road, as shown on the Plans and Specifications. Prior to entering upon the Walkway Properties for construction of the Walkway or delivery of materials therefor, Tenant shall comply with the provisions of subsections 30(a)(i) and (ii) above with respect to the Walkway Properties. During the Term, Landlord shall maintain, repair and, if requested by Tenant, replace the Walkway, all at Tenant's expense. Upon the expiration or earlier termination of the lease, Tenant shall have no obligation to remove the Walkway. (c) Subject to Landlord's approval of the Plans therefor, Tenant shall provide any additional fire service upgrades required by Tenant, gas service to the Building, and new telecommunications conduits to the Building, all as shown on the Plans and Specifications. R-2 (d) Landlord agrees as follows: (i) Tenant shall have the right to modify the exterior of the Building, including but not limited to skylights and/or entranceway, pursuant to the Plans and Specifications. (ii) Upon the later of (A) the Commencement Date, or (B) thirty (30) days after issuance of a Certificate of Occupancy for the Premises, Landlord shall pay to Tenant the lesser of (1) the reasonable, out-of-pocket, third party costs paid by Tenant therefor, or (2) $250,524.00 (the "Allowance"). All costs incurred by Tenant for construction of such items which exceed the Allowance shall be paid for by Tenant. (iii) No supervisory fee shall be charged by Landlord to Tenant in connection with the improvements described in this Section; however, Tenant shall reimburse Landlord for the actual reasonable costs incurred by Landlord for review of the Plans and Specifications by Landlord's architect and its electrical, mechanical and structural engineers, not to exceed $5,000 per Plan revision. 31. Options to Extend Term. Provided that Landlord has not given Tenant notice of default more than two (2) times in the twelve (12) month period immediately preceding the Expiration Date, and that there then exists no event of default by Tenant under this lease Tenant shall have the right and option to extend the Term for one (1) additional period of sixty (60) months and one (1) additional period of fifty-four (54) months thereafter, exercisable by giving Landlord prior written notice, at least twelve (12) months in advance of the Expiration Date or the first extended Expiration Date, as the case may be, of Tenant's election to extend the Term; it being agreed that time is of the essence and that these options are personal to Tenant and any assignee for whom Landlord's consent is not required under subsection 18(a) and are non-transferable to any other assignee or any sublessee (regardless of whether any such assignment or sublease was made with or without Landlord's consent) or other party. Any such extension shall be under the same terms and conditions as provided in this lease except as follows: (a) the first additional period shall begin on the Expiration Date and thereafter the Expiration Date shall be deemed to be the date which is sixty (60) months after the Expiration Date, and the second additional period shall begin on the first extended Expiration Date and thereafter the Expiration Date shall be deemed to be the date which is fifty-four (54) months after the first extended Expiration Date; (b) there shall be no further options to extend; and (c) The minimum annual rent for the first year of each additional term shall be equal to the greater of (i) the minimum annual rent then being paid by Tenant hereunder, or (ii) the fair market rental value of the Premises, determined pursuant to subsection (d) hereof. The minimum annual rent for each year of each additional term after the first year of such additional term shall increase by 2% over the minimum annual rent paid by Tenant in the immediately preceding lease year. R-3 (d) For purposes of this Section 31, if Landlord and Tenant cannot agree as to the fair market rental value within ninety (90) days after receipt of Tenant's notice to Landlord under subsection 31(a), the fair market rental value shall be determined by appraisal, which, if Tenant has received a rent reduction pursuant to subsection 65(a) of this Rider, shall take into consideration, among other things, the necessity for Tenant's Agents to use the Off-Site Parking (as hereinafter defined). Within ten (10) days after the expiration of such ninety (90) day period, Landlord and Tenant shall give written notice to the other setting forth the name and address of an appraiser designated by the party giving notice. All appraisers selected shall be members of the American Institution of Real Estate Appraisers and shall have had at least ten (10) years continuous experience in the business of appraising office buildings in the greater Philadelphia, Pennsylvania area. If either party shall fail to give notice of such designation within the time period provided, then the party who has designated its appraiser (the "Designating Party") shall notify the other party (the "Non-Designating Party") in writing that the Non-Designating Party has an additional ten (10) days to give notice of its designation, otherwise the appraiser, if any, designated by the Designating Party shall conclusively determine the fair market rental value. If two appraisers have been designated, such appraisers shall attempt to agree upon the fair market rental value. If the two appraisers do not agree on the fair market rental value within twenty (20) days of their designation, the two appraisers shall designate a third appraiser. If the two appraisers shall fail to agree upon the identity of a third appraiser within five (5) business days following the end of such twenty (20) day period, then either Landlord or Tenant may apply to the American Arbitration Association, or any successor thereto having jurisdiction, for the settlement of the dispute as to the designation of the third appraiser and the American Arbitration Association shall designate a third appraiser in accordance with the Real Estate Valuation Arbitration Rules of the American Arbitration Association. The three appraisers shall conduct such hearings as they may deem appropriate, shall make their determination of fair market rental value in writing and shall give notice to Landlord and Tenant of such determination within twenty (20) days after the appointment of the third appraiser. If the three appraisers cannot agree upon the fair market rental value, each appraiser shall submit in writing to Landlord and Tenant the fair market rental value as determined by such appraiser. The fair market rental value for the purposes of this paragraph shall be equal to the arithmetic average of the two closest fair market rental values submitted by the appraisers. Each party shall pay its own fees and expenses in connection with any appraiser selected by such party under this paragraph, and the parties shall share equally all other expenses and fees of the arbitration, including the fees and expenses charged by the third appraiser. The fair market rental value as determined in accordance with the provisions of this Section shall be final and binding upon Landlord and Tenant. 32. Right of First Refusal. (a) In the event Tenant requires additional space for the conduct of its business, Tenant shall notify Landlord in writing of its space needs ("Tenant's Space Notice"). Thereafter, for a period of six (6) months from the date of Landlord's receipt of Tenant's Space Notice, subject to the following provisions of this Section, provided that Landlord has not given Tenant notice of default more than two (2) times during the immediately preceding twelve (12) months, and that there then exists no event of default by Tenant under this lease, Tenant shall have the right of first refusal as to any available space in excess of 5,000 square feet in 100 Witmer Road, 104 Witmer Road, 101-111 Rock Road, 104 Rock Road, 113-123 Rock Road and 123-125 Rock Road (individually the "ROFR Space") on the terms set forth in this Section 32; provided such right with respect to any ROFR Space is only effective so long as Landlord or an affiliate of Landlord continues to own both the Building and the building in which such ROFR Space is located. R-4 (b) Subject to the prior rights of existing tenants, if a person or entity, other than the tenant then in occupancy thereof, desires to lease space which includes any ROFR Space (the "Offered Space") and Landlord submits a proposal in connection therewith, Landlord shall provide Tenant with written notification of the material business terms contained therein (the "Offer Notice"). Within five (5) business days after Tenant's receipt of such Offer Notice, Tenant shall notify Landlord in writing whether it intends to lease the Offered Space and Tenant's failure to so notify Landlord shall be deemed a waiver of Tenant's right to lease the Offered Space at such time and shall permit Landlord to lease the Offered Space to the prospective tenant. In the event Tenant notifies Landlord that it desires to lease the Offered Space as set forth above ("Tenant's Notification"), Landlord and Tenant shall enter into a lease for the Offered Space on the terms set forth in the Offer Notice and the terms and conditions contained in this lease which are not inconsistent with the Offer Notice. Time is of the essence with respect to Tenant's obligations hereunder. In the event that Tenant does not timely deliver Tenant's Notification or enter into a lease for the Offered Space within 10 days after receipt thereof from Landlord, Tenant's right of first refusal with respect to the Offered Space shall be null and void and Landlord shall have the right to lease the Offered Space to the prospective tenant. (c) This right of first refusal to lease the ROFR Space is a continuing right if and when each ROFR Space becomes available during the six (6) month term of any Tenant Space Notice, is personal to Tenant and any assignee of Tenant as to whom Tenant is permitted to transfer this lease without Landlord's prior consent pursuant to subsection 18(a), and, except as specifically set forth in this subsection (c), is non-transferable to any other assignee or sublessee (regardless of whether any such assignment or sublease was made with or without Landlord's consent) or other party. (d) It is expressly agreed and understood that this right of first refusal shall not apply to (i) any assignment or subletting of a ROFR Space, (ii) any renewal or extension of a lease on a ROFR Space, or (iii) the exercise of a preferential leasing right (e.g., right of first offer or right of first refusal) in favor of any of the parties listed on Exhibit "K" attached hereto. Landlord's approval: Ward J. Fitzgerald - ------------------------------------------ Senior Vice President, Regional Director R-5 33. Generator. Tenant shall have the right to install, maintain and repair a back-up generator and auxiliary equipment (the "Generator"), subject to the specifications therefor set forth in the Specifications (the "Generator Specifications") and the following conditions: (a) Tenant shall comply with all laws, ordinances, notices, orders, rules, regulations and requirements regulating the Property (the "Laws and Requirements") with respect to the installation, maintenance, repair and removal of the Generator and shall obtain, and deliver to Landlord written evidence of, any approval(s) required therefor under any Laws or Requirements or recorded covenants or restrictions applicable to the Property and copies of all permits and approvals therefor. (b) The Generator shall be installed, maintained and repaired, at Tenant's sole cost and expense, in the location shown on Exhibit "A" attached hereto and in strict accordance with the Generator Specifications. The Generator shall be maintained on a concrete pad flush with the current asphalt and shall be painted to blend with the building exterior. All PVC conduits shall be underground. Any asphalt trenching shall be refilled and compacted to match existing asphalt conditions. The Generator shall be screened from view pursuant to landscaping and screening approved by Landlord. (c) Tenant shall comply with the provisions of Sections 9 and 10 of the lease; provided, however, unless Tenant elects to remove the Generator (in which event the provisions of subsections 33(d), (e) and (f) shall apply), the Generator shall remain on the Property and become the property of Landlord without payment by Landlord upon the expiration or earlier termination of the lease. (d) In the event Tenant elects to remove the Generator, at least 3 business days prior to removal, Tenant shall notify Landlord of the date and time of the removal. Tenant shall remove the Generator only if Landlord is present with Tenant at the time of the removal thereof. (e) Tenant shall maintain the Generator in a safe, good and orderly condition in strict accordance with manufacturers' instructions and recommendations and the Generator Specifications. Tenant shall maintain in good condition and repair parking bollards around the Generator, painting them to match existing bollards. The maintenance, repair and, if Tenant so elects, removal of the Generator and the bollards shall be performed, at Tenant's sole expense, in a manner which will not impair the integrity of, damage or adversely affect the warranty applicable to, any portion of the Property. (f) In the event Tenant elects to remove the Generator, Tenant shall remove the Generator and the bollards and repair any resulting damage, including without limitation, damage to concreted areas and landscaping. In such event, if Tenant has modified the electrical connections between the transformer serving the Property and the electrical room of the Property or in the event Tenant has modified the electrical metering to the Premises, Tenant shall restore the connection between the transformer and the electrical room and the electrical metering to the same condition as existed prior to installation of the Generator. Tenant shall comply with all Laws and Requirements in connection with the removal of the Generator and the bollards and shall deliver to Landlord copies of all required permits and approvals in connection with such removal. R-6 (g) Tenant's indemnification of Landlord pursuant to Section 15 of the lease also applies to the Generator and Tenant's use of any portion of the Property therefor. Without limiting the foregoing, Tenant solely shall be responsible for any damage or injury caused by or in any way relating to the Generator, including, but not limited to, damage or injury to persons or property, including the Property, caused by reason of any leaking of fuel therefrom. The obligations of Tenant hereunder shall survive the termination of the Lease. 34. Option To Purchase. (a) Provided Tenant is not then in default hereunder, Tenant shall have the option to purchase the Property by giving written notice to Landlord not later than the Commencement Date (the "Purchase Notice"), it being agreed that time is of the essence. Upon exercise by Tenant of its option to purchase, this lease and the Purchase Notice shall constitute an agreement of sale and purchase between the parties whereby Landlord shall agree to sell and Tenant shall agree to purchase the Property upon the following terms and conditions: (i) The purchase price for the Property (the "Purchase Price") shall be $4,700,000.00 (ii) Settlement for the purchase of the Property shall be held at the offices of Landlord's attorneys at Schnader Harrison Segal & Lewis, Suite 3600, 1600 Market Street, Philadelphia, Pennsylvania 19103-7286 at 10:00 a.m. on the date which is sixty (60) days after Landlord's receipt of the Purchase Notice, or if such date is not a business day, on the first business day thereafter, such time to be of the essence. (iii) The purchase price shall be payable by Tenant to Landlord at the time of settlement by wire transfer of immediately available federal funds. (iv) Landlord and Tenant shall share equally in the payment for any documentary stamps to be affixed to the deed of conveyance and any realty transfer taxes imposed upon or in connection with the conveyance. All amounts prepaid by Landlord for operating expenses and any other charges which are applicable to the period of time after settlement and which have not been paid previously by Tenant shall be paid by Tenant to Landlord at the time of settlement. Tenant shall pay to Landlord all Rent that accrues pursuant to this lease prior to the date of settlement. R-7 (v) Landlord shall convey to Tenant a good and marketable fee simple title to the Property by Special Warranty Deed which shall be in sufficient form to be recorded, in which Landlord shall covenant and agree that the grantor has not done, committed, or knowingly or willingly suffered to be done or committed, any act, matter or thing whatsoever whereby the Property granted, or any part thereof, is charged or encumbered. Tenant shall accept title to the Property subject to this lease; any and all title exceptions listed on Exhibit "G" attached hereto (the "Permitted Exceptions"); all liens, restrictions, encumbrances and exceptions hereafter created by Landlord with the written consent of Tenant; all utility easements and public road rights-of-way hereafter created by Landlord which are reasonably desirable for the development and/or maintenance of the Property, as reasonably determined by Tenant; any violations of building codes, fire laws and other laws and regulations; any liens, encumbrances and exceptions created by or resulting from the act, omission or default of Tenant or its Agents; all zoning rules, regulations, restrictions or ordinances; all standard title objections of the title insurance company insuring Tenant's title; and any liens, encumbrances and exceptions created or suffered by Tenant; provided, however, that if Landlord cannot convey title as aforesaid at the time of settlement, Landlord shall have the right, at its option, to postpone the date of settlement for sixty (60) days during which time Landlord shall attempt to cure or satisfy the title defects. Landlord shall not be required to bring any action or proceeding or otherwise incur any expense to cure or satisfy the title defects. If Landlord is unable to deliver title as required above, Tenant either shall accept such title as Landlord can deliver, without abatement of the purchase price, or rescind its exercise of its purchase option and this lease shall continue in effect, except that Tenant thereafter shall have no option to purchase and this Section shall be deemed to be null and void and of no further force or effect. Tenant's title shall be insurable as aforesaid at ordinary rates by any reputable title insurance company. (vi) Landlord shall have the right to require the purchase of the Property by Tenant pursuant to this Section to be structured as a tax deferred exchange under Section 1031 of the Internal Revenue Code and the regulations adopted thereunder, or such substantially equivalent provision of the Internal Revenue Code as is then applicable to sales of property; in which event Tenant shall execute such documents and instruments as may be required by Landlord to facilitate a tax deferred exchange under applicable law. Any out-of-pocket costs and expenses incurred in connection with the creation of such tax deferred exchange shall be at Landlord's sole cost and expense. (b) The option to purchase set forth in this Section shall terminate automatically if, at any time after Tenant delivers the Purchase Notice, Tenant defaults under any of the provisions of this lease and Landlord gives Tenant written notice of such default; in which event this Section shall be deemed to be null and void and of no further force or effect. In addition, the option to purchase shall terminate automatically if Tenant transfers this lease (as described in Section 18) or, at Tenant's option, if the Property is wholly or partially destroyed by casualty or taken by a condemnation or otherwise for any public or quasi-public use, and if Tenant does not elect to terminate the option to purchase as a result of a casualty or condemnation, Tenant shall pay the full purchase price to Landlord and Landlord shall assign to Tenant all of Landlord's right, title and interest in all insurance or condemnation proceeds with respect to the Property. Landlord's approval: Ward J. Fitzgerald - ---------------------------------------- Senior Vice President, Regional Director R-8 35. Brokers. The parties agree that they have dealt with no brokers in connection with this lease, except for CB Richard Ellis, Inc. whose commission shall be paid by Landlord pursuant to separate agreement. Each party agrees to indemnify and hold the other harmless from any and all claims for commissions or fees in connection with the Premises and this lease from any other real estate brokers or agents with whom they may have dealt. 36. Additional Provisions Relating to Premises. Section 2 of the lease is amended by adding at the end thereof: "Tenant and its Agents shall also have the exclusive right, during the Term, to use the Walkway (as defined in subsection 30(b) above); provided, however, Landlord shall have no obligation to enforce such exclusive right. Landlord covenants and agrees that Landlord will not permit the Walkway to become a part of any common walkway through the Pennsylvania Business Campus." 37. Additional Provisions Relating to Acceptance of Premises. Section 3 of the lease is amended as follows: (a) on the third (3rd) line after "Landlord", by adding "..., except as otherwise expressly set forth herein". (b) on the fifth (5th) and sixth (6th) lines, by deleting "; provided that the Premises are vacant and Tenant obtains Landlord's prior written consent". (c) by adding at the end thereof: "Landlord represents and warrants that the Property is zoned 'I-1 Industrial'." 38. Additional Provisions Relating to Use; Compliance. (a) Subsection 4(a) of the lease is amended on the second (2nd) line before "interfere", by adding "unreasonably". (b) Subsection 4(b) of the lease is amended as follows: (i) on the first (1st) and third (3rd) lines, by changing "Premises" to "exterior of the Building". (ii) on the sixth (6th) and tenth (10th) lines before "use", by adding "manner of". (iii) on the eleventh (11th) line after "obligations", by adding "set forth in this subsection 4(b)". (c) Subsection 4(c) of the, lease is amended as follows: (i) on the second (2nd) line before "requirements", by adding "reasonable". R-9 (ii) on the fifth (5th) line after "chemical", by adding "... used, stored or handled by Tenant or its Agents on the Property upon reasonable request of Landlord specifying a commercially reasonable basis for the need therefor; and (iii) at the end thereof, by adding "by Tenant or its Agents on the Property. Tenant, shall defend, indemnify, and hold harmless Landlord from all claims, costs, liabilities, attorneys' fees, actions and expenses caused by Restricted Activities by Tenant or its Agents on the Property and Tenant shall promptly clean up such contamination as required by applicable law. Landlord shall defend, indemnify, and hold harmless Tenant from all claims, costs, liabilities, attorneys' fees, actions and expenses arising out of any Restricted Activities which occurred on the Property prior to the date of this lease or which are caused by Restricted Activities by Landlord or its Agents on the Property and Landlord shall promptly clean up such contamination as required by applicable law. 39. Additional Provisions Relating to Term. Section 5 of the lease is amended on the second (2nd) line after "terminated", by adding "or extended". 40. Additional Provisions Relating to Minimum Annual Rent. Section 6 of the lease is amended as follows: (a) on the third (3rd) line after "setoff", by adding "(except as expressly otherwise set forth herein)". (b) on the fourth (4th) line after "otherwise", by adding "in writing" and deleting "provided that rent for the first full month shall be paid at the signing of this lease". 41. Additional Provisions Relating to Operation of Property; Payment of Expenses. (a) Subsection 7(a) of the lease is amended as follows: (i) on the fourth (4th) line, by deleting "provided that the monthly installment for the first full month shall be paid at the signing of this lease" and substituting therefor "(except as expressly otherwise set forth herein)". (ii) on the seventh (7th) line after "time to time", by adding "(but not more often than twice per calendar year)". (iii) on the ninth (9th) line before "statement", by adding "reasonably detailed". (iv) on the next to last line after "Expenses", by adding "and Landlord's obligation to refund any overpayment thereof to Tenant". (v) by adding at the end thereof: R-10 Operating expenses will include the following: (1) Impositions (as more fully described in Section 7(b)); (2) insurance premiums (as more fully described in Section 7(c)); (3) repairs, maintenance and improvements to be performed by Landlord under this lease which are not expressly required to be performed at Landlord's sole expense (as more fully described in Section 7(d)), including without limitation, snow removal, landscaping, parking lot maintenance, repair and replacement (provided that if replacement of the parking lot is required during the first five (5) years of the Term, such replacement shall be at Landlord's sole cost and expense and not included in Operating Expenses, any replacement required after such five (5) year period to be included in Operating Expenses); (4) janitorial (as more fully described in Section 7(g)), including without limitation, trash removal, Tenant Services and exterminating; (5) administrative and management fees (as more fully described in Section 7(d)(iii)) in an amount which shall be 5% of the sum of Minimum Annual Rent plus Annual Operating Expenses, (6) Pennsylvania Business Campus Owner's Association charges; (7) charges for fire protection; (8) maintenance, repair and replacement of the Walkway (as more fully described in Section 30(b)); and (9) such other services as Landlord may elect to provide at Tenant's request." (b) Subsection 7(b) of the lease is amended on the fourth (4th) line after "foregoing", by adding "(but not in excess of the savings resulting therefrom)". (c) Subsection 7(b)(i) of the lease is amended as follows: (i) on the first (1st) line before "income", by adding "franchise, gift, estate, inheritance". (ii) by adding at the end thereof ", nor any interest, fine or penalty for late payment or non-payment by Landlord unless as a result of late payment or non-payment by Tenant." (d) A new subsection 7(b)(iii) is added to the lease as follows: "(iii) If Landlord receives any refunds of impositions for periods covered by the Term of the lease of which Tenant has paid its Proportionate Share, Landlord shall reimburse Tenant for Tenant's Proportionate Share of the amount of such refunds received by Landlord after deduction of all of Landlord's costs and expenses, including reasonable attorneys' fees, incurred by Landlord in obtaining such refunds." (e) Subsection 7(c)(i) of the lease is amended on the fourth (4th) and fifth (5th) lines, by deleting "Landlord may reasonably deem appropriate or as may be required from time to time by any mortgagee" and substituting therefor "may be required from time to time by prudent owners or mortgagees of similar buildings in the greater Philadelphia area. Upon request, Landlord shall provide to Tenant a copy of a certificate of insurance indicating the applicable coverages." (f) Subsection 7(c)(ii) of the lease is amended as follows: R-11 (i) on the first (1st) and sixth (6th) lines, by changing "comprehensive" to "commercial". (ii) on the third (3rd) line, by deleting "Landlord from time to time" and substituting therefor "prudent owners and mortgagees of similar buildings in the greater Philadelphia area". (iii) on the sixth (6th) and seventh (7th) lines, by deleting "insured parties" and substituting therefor "additional insureds". (iv) on the ninth (9th) line after "form", by adding "reasonably". (v) by adding at the end thereof: "Landlord shall maintain commercial general liability insurance with respect to the Property with a combined single limit of not less than $1,000,000 per occurrence and $3,000,000 in the aggregate and will, upon request, provide to Tenant a copy of a certificate of insurance evidencing such coverage." (g) Subsection 7(c)(iii) of the lease is amended by deleting the last sentence thereof. (h) Subsection 7(c)(iv) of the lease is amended by adding at the end thereof: "Tenant's use of the Premises for the Use shall not be deemed to increase the cost of such insurance, specifically excepting any increase due to Tenant's manner of use of the Premises." (i) Subsection 7(d) of the lease is amended as follows: (i) on the second (2nd) line after "Premises", by adding "(including the roof of the Building)". (ii) on the fourth (4th) line, by deleting "and equipment". (j) Subsection 7(d)(i) of the lease is amended as follows: (i) on the second (2nd) line after "Premises", by adding "and to any exterior walls of the Building not altered by Tenant," (ii) on the last line after "notice", by adding "or has actual knowledge". (k) Subsection 7(d)(ii) of the lease is amended as follows: (i) by changing "Landlord" to "Tenant" R-12 (ii) by adding at the end thereof "Tenant shall maintain a comprehensive service contract for the HVAC systems appurtenant to the Premises from a contractor satisfactory to Landlord, the cost thereof to be paid for by Tenant, or shall, at Tenant's sole expense, employ an in-house maintenance professional to perform such services." (1) Subsection 7(d)(iii) of the lease is amended as follows: (i) on the first (1st) line, by deleting "roof,". (ii) on the first (1st) and second (2nd) lines, by deleting "and communications". (iii) on the second (2nd) line, by deleting "in the Building which serve more than one tenant", and substituting therefor "from the Property line to the Building". (iv) on the fourth (4th) line after "notice", by adding "or has actual knowledge". (v) on the sixth (6th) line after "time to time", by adding "provided same does not, except in the event of an emergency, materially affect access to the Premises, visibility of the Building or operation of Tenant's business in the Premises". (vi) on the seventh (7th) line before "sums", by adding "reasonable". (vii) on the eighth (8th) and ninth (9th) lines, by deleting all of subsection (B) and substituting therefor: "(B) any reasonable costs of building improvements made by Landlord to the Property that are required by any governmental authority pursuant to Laws and Requirements or changes in interpretation thereof which are first effective after the date of this lease or for the purpose of reducing operating expenses (but not in excess of the savings in operating expenses resulting therefrom)". (m) Subsection 7(d)(iv) of the lease is amended on the second (2nd) line before "use", by adding "particular manner of". (n) Except as set forth in subsection 7(d)(iv) and except for damage caused by Tenant or its Agents, any costs payable by Tenant pursuant to subsections 7(d)(i) and 7(d)(iii) which under generally accepted accounting principles are classified as capital expenditures shall only be included in annual operating costs to the extent of the annual amortization of such costs (including financing charges) over the useful life thereof determined in accordance with generally accepted accounting principles. R- 13 (o) Subsection 7(e) of the lease is amended by adding at the end thereof. "Notwithstanding the foregoing, in the event any utility service supplied to the Premises is unavailable for two (2) consecutive business days due solely to the negligence or willful misconduct of Landlord or its Agents, Rent shall abate thereafter, to the extent the Premises cannot reasonably be used and are not used for the conduct of Tenant's business, until such utility service is restored. Electric, gas and water and sewer service to the Building will be separately metered and paid for by Tenant in addition to Annual Operating Expenses." (p) Subsection 7(f) of the lease is amended on the third (3rd) line after "mortgages and", by adding "except for the obligations of Landlord expressly set forth herein,". (q) A new subsection 7(g) is added to the lease as follows: (g) Janitorial Services. Landlord will provide Tenant with trash removal and janitorial services and supplies pursuant to a cleaning schedule attached as Exhibit "H". Tenant will pay for the costs incurred by Landlord therefor as part of Annual Operating Expenses. Notwithstanding the foregoing, disposal of hazardous substances from the Premises shall be performed by Tenant at its sole cost and expense and in accordance with all Laws and Requirements, subject to Landlord's obligations under subsection 38(c)." (r) A new subsection 7(h) is added to the lease as follows: "(h) Inspection of Books and Records. Tenant shall be entitled at any reasonable time during regular business hours, but no more than once in each calendar year, after giving to Landlord at least five (5) business days prior written notice, to inspect in Landlord's business office all Landlord's records necessary to satisfy itself that all charges have been correctly allocated to Tenant, for either or both of the two (2) calendar years immediately preceding the year during which such notice is given, and to obtain an audit thereof by an independent certified public accountant (selected by Tenant with Landlord's written consent, which shall not be withheld unreasonably) to determine the accuracy of Landlord's certification of the amount of additional rent charged Tenant. If it is determined that Tenant's liability for additional rent for either such calendar year is less than ninety-five percent (95%) of that amount which Landlord previously certified to Tenant for such calendar year, Landlord shall pay to Tenant the cost of such audit and regardless of such percentage shall refund promptly to Tenant the amount of the additional rent paid by Tenant for such calendar year which exceeds the amount for which Tenant actually is liable, as determined following such audit. Except as set forth above, Tenant shall bear the total cost of any such audit." 42. Additional Provisions Relating to Signs. Section 8 of the lease is amended by adding at the end thereof: "Landlord shall, at its sole cost and expense, provide a monument sign at the entrance to the Property in the form of Landlord's other monument signs in the Pennsylvania Business Campus, listing Tenant's name and logo, as shown on Exhibit "I"." R-14 43. Additional Provisions Relating to Alterations and Fixtures. (a) Subsection 9(a) of the lease is amended by deleting the last sentence and substituting therefor: "At the expiration or earlier termination of this lease, all such installations shall remain on the Property and become the property of Landlord without payment by Landlord unless Tenant elects to remove such installations in which event Tenant shall repair any damage caused by such installation or removal." (b) Subsection 9(b) of the lease is amended as follows: (i) on the first (1st) line after "Except for", by adding "(i) any changes in location of lobbies or bathrooms and (ii)" and by changing "$5,000" to "$500,000". (ii) on the second (2nd) line after "consent", by adding "..., which shall not be unreasonably withheld or delayed. Whether or not Landlord's consent is required hereunder, Tenant shall advise Landlord in writing prior to the commencement of any alterations which will cost more than $100,000 in the aggregate." (iii) on the second (2nd) line before "costs", by adding "reasonable". (iv) on the ninth (9th) line, at the end of the second (2nd) sentence, by adding: "Within five (5) business days of Tenant's delivery to Landlord of Tenant's plans and specifications for any alterations, Landlord shall advise Tenant in writing of Landlord's approval or disapproval (in which case Landlord shall include the specific reasons therefor) of Tenant's proposed alterations as depicted on the plans and specifications. If Landlord does not so notify Tenant, Landlord shall be deemed to have approved the proposed alterations. If Landlord does not approve Tenant's proposed alterations, Tenant shall deliver revised plans and specifications to Landlord and Landlord shall, within three (3) business days of Tenant's delivery of the revised plans and specifications, advise Tenant in writing of Landlord's approval or disapproval (in which case Landlord shall specify the reasons therefor) of Tenant's proposed alterations. If Landlord does not so notify Tenant, Landlord shall be deemed to have approved the proposed alterations as depicted on the revised plans and specifications." (v) by deleting the last sentence thereof. 44. Additional Provisions Relating to Mechanics' Liens. Section 10 of the lease is amended on the fourth (4th) line, by changing "5 days" to "10 days". 45. Additional Provisions Relating to Landlord's Right of Entry. Section 11 of the lease is amended by adding at the end thereof: R-15 "Landlord agrees that, except in the event of an emergency, it shall not exercise its rights under this Section without being accompanied by a representative of Tenant, provided Tenant shall make such representative available as necessary." 46. Additional Provisions Relating to Damage by Fire or Other Casualty. (a) Subsection 12(a) of the lease is amended as follows: (i) on the sixth (6th) line, by deleting "either Landlord or". (ii) on the seventh (7th) line, by changing "10 days" to "30 days". (iii) by adding at the end thereof: "If this lease shall not be terminated pursuant to subsection 12(a), Landlord shall thereafter use due diligence to restore the Premises to proper condition for Tenant's use and occupation. If, for any reason, such restoration shall not be substantially completed within the later of (i) two hundred ten (210) days after the occurrence of such casualty, or (ii) thirty (30) days after the expiration of the time Landlord advised Tenant would be required to substantially complete such restoration, as such date(s) shall be extended for delays caused by Tenant and for Force Majeure (as defined in Section 64), Tenant shall have the additional right to terminate this lease by giving thirty (30) days notice to Landlord thereof within thirty (30) days after the expiration of such period. Upon the giving of such notice, this lease shall cease and come to an end without further liability or obligation on the part of either party, unless, within such thirty (30) day period, Landlord substantially completes such restoration." (b) Subsection 12(b) of the lease is amended on the third (3rd) and fourth (4th) lines, by deleting "as determined by the carrier providing the rental coverage endorsement" and substituting therefor ", such abatement to be in the proportion that the number of rentable square feet of the Premises which are untenantable (and such additional number of rentable square feet which cannot reasonably be used and are not used for the conduct of Tenant's business) bears to the total number of rentable square feet in the Premises, such abatement to continue until the Premises is reasonably usable for the conduct of Tenant's business or is used for the conduct of Tenant's business". 47. Additional Provisions Relating to Condemnation. (a) Subsection 13(b) of the lease is amended on the fifth (5th) line, by deleting "Minimum Annual". (b) Subsection 13(c) of the lease is amended on the second (2nd) line after "expenses", by adding ", furnishings, fixtures and equipment and leasehold improvements paid for by Tenant out-of-pocket, lost business". R-16 (c) Subsection 13(d) of the lease is amended by deleting the last two sentences and substituting therefor: "Any proceeds payable by the condemnor to Landlord or Tenant on account of a temporary taking shall belong to Tenant." 48. Additional Provisions Relating to Non-Abatement of Rent. Section 14 of the lease is amended on the first (1st) and second (2nd) lines, by deleting "as to damage by fire or other casualty in Section 12(b) and as to condemnation in Section 13(b)" and substituting therefor "in this lease". 49. Additional Provisions Relating to Indemnification. Section 15 of the lease is amended as follows: (a) on the first (1st) line, by deleting "of Landlord" in the caption and adding "(a)" prior to "Subject". (b) on the second (2nd) line before "fees", by adding "reasonable" (c) by adding a new subsection (b) as follows: "Subject to Section 7(c)(iii), Landlord will protect, indemnify, and hold harmless Tenant and its Agents from and against any and all claims, actions, damages, liability and expense (including reasonable fees of attorneys, investigators and experts) in connection with loss of life, personal injury or damage to property in or about the Property (other than the Premises) which is occasioned wholly or in part by any act or omission of Landlord or its Agents, whether prior to, during or after the Term, except to the extent such loss, injury or damage was caused by the negligence of Tenant or its Agents. In case any action or proceeding is brought against Tenant and/or its Agents by reason of the foregoing, Landlord, at its expense, shall resist and defend such action or proceeding, or cause the same to be resisted and defended by counsel (reasonably acceptable to Tenant and its Agents) designated by the insurer whose policy covers such occurrence or by counsel designated by Landlord and approved by Tenant and its Agents. Landlord's obligations pursuant to this Section 15 shall survive the expiration or termination of this lease." 50. Additional Provisions Relating to Waiver of Claims. Section 16 of the lease is amended by adding at the beginning thereof: "To the extent such loss or damage arises from an insured peril under the insurance policies required to be or actually maintained by the parties hereunder,". 51. Additional Provisions Relating to Assignment and Subletting. (a) Subsection 18(a) of the lease is amended as follows: R-17 (i) on the second (2nd) line after "withheld", by adding "delayed or conditioned". (ii) by deleting the second (2nd) sentence and substituting the following therefor: "However, Landlord's consent shall not be required in the event of any transfer by Tenant to any (i) parent of Tenant or wholly owned subsidiary of Tenant or parent, or (ii) entity in which Tenant or parent of Tenant has a 50% or more ownership interest, provided Tenant delivers to Landlord the instrument described in Section (c)(iii) below. In connection with an assignment to an entity which is a successor to Tenant by way of merger, consolidation or sale of all or substantially all of Tenant's assets or stock, Landlord's consent shall not be required unless such surviving entity has a net worth of less than $20,000,000. (iii) on the fifth (5th) line, by changing "void" to "voidable". (b) Subsection 18(b) of the lease is deleted in its entirety and the following is substituted therefor: "In the event of any transfer of this lease to any person or entity for whom Landlord's consent is required under subsection 18(a), Landlord shall be entitled to, and Tenant shall promptly remit to Landlord, 50% of any profit which may inure to the benefit of Tenant as a result of such transfer, whether or not consented to by Landlord." (c) Subsection 18(c)(i) of the lease is deleted and the following is substituted therefor: "(i) As of the date of any transfer, Tenant shall not be in default under this lease beyond any applicable notice and/or cure periods contained herein." (d) Subsection 18(c)(iii) of the lease is amended on the first (1st) line before "satisfactory", by adding "reasonably". (e) Subsection 18(c)(iv) of the lease is amended on the first (1st) line, by deleting "which shall be no less than $250" and substituting therefor "which shall be no more than $1,000". 52. Additional Provisions Relating to Subordination; Mortgagee's Rights. (a) Subsection 19(a) of the lease is amended by adding at the end thereof: R-18 "Notwithstanding the foregoing, the subordination provisions of this subsection 19(a) are subject to the express condition that Tenant receive from any mortgagee an agreement to the effect that so long as Tenant is not in default in its obligations hereunder beyond any applicable notice and/or cure periods contained herein, (a) Tenant's possession shall not be disturbed or its rights diminished by any such mortgagee, and (b) this lease shall not be cancelled by any such mortgagee and shall continue in full force and effect upon such foreclosure or recovery of possession as a direct lease between Tenant and the party acquiring the interest of Landlord, upon all of the terms, conditions and agreements set forth in this lease. Landlord shall request and use reasonable efforts to obtain such an agreement from the holder of any mortgage recorded against the Property after the date of this lease and Landlord's failure to obtain such an agreement shall render any such mortgage subordinate to this lease. Landlord represents and warrants to Tenant that there is no mortgage recorded against the Property as of the date of this lease." (b) Subsection 19(c) of the lease is deleted in its entirety. 53. Additional Provisions Relating to Recording; Tenant's Certificate. (a) Section 20 of the lease is amended by deleting the first (1st) sentence and substituting therefor: "Tenant may record (i) a memorandum of this lease, (ii) a document with respect to the Walkway Properties confirming Tenant's rights with respect to the Walkway, and (iii) a document with respect to the Off-Site Parking Properties (as defined in Section 65) confirming Tenant's rights with respect to the Off-Site Parking (as defined in Section 65). In the event the Walkway is constructed on only one of the Walkway Properties or in the event the Off-Site Parking is placed on only one of the Off-Site Properties, the parties shall record a document terminating the document set forth in (ii) or (iii) of the preceding sentence as to the other Walkway Property or Off-Site Parking Property. Such memorandum and other documents shall be in form approved by Landlord, such approval not to be unreasonably withheld or delayed. Landlord represents and warrants to Tenant that there are no mortgages recorded against the Off-Site Parking Properties or the Walkway Properties, except for a mortgage on 100 Witmer Road in favor of The Variable Annuity Life Insurance Company ("100 Witmer Mortgagee"). Landlord agrees to request and use commercially reasonable efforts to obtain a non-disturbance agreement from the 100 Witmer Mortgagee in form and substance satisfactory to Tenant and the 100 Witmer Mortgagee." (b) Subsection 20(b) of the lease is amended by adding at the end thereof: "So long as Tenant is a publicly-traded company with financial information publicly available, Tenant shall not be required to furnish such information." 54. Additional Provisions Relating to Surrender; Abandoned Property. Subsection 21 (a) of the lease is amended on the last line after "tear", by adding "and damage by casualty and condemnation". 55. Additional Provisions Relating to Curing Tenant's Defaults. Section 22 of the lease is amended as follows: (a) on the fourth (4th) line before "sums", by adding "reasonable". R-19 (b) on the fifth (5th) line before "sums", by adding "reasonable". 56. Additional Provisions Relating to Defaults - Remedies. (a) Subsection 23(a)(iii) of the lease is amended by adding at the end thereof: "..., provided that it shall not be deemed to be an abandonment of the Premises for Tenant, and Tenant shall have the right, to vacate the Premises or remove Tenant's goods or property therefrom so long as it has first paid to Landlord in full all minimum rent, additional rent and other charges that may have become due to the date of such removal or vacation; provided further, that Tenant shall, after vacating the Premises, remain responsible for timely performance of all of its obligations under this Lease, including without limitation, those with respect to payment of minimum rent and additional rent and those with respect to the maintenance and repair of the Premises". (b) Subsection 23(b) of the lease is amended as follows: (i) on the first (1st) line, by deleting "Then, and in any such event" and substituting therefor "Upon the occurrence of an event of default,". (ii) in subsection (i), by adding at the end thereof: "provided that no late payment fee shall be charged with respect to either of the first two late payments in any lease year unless such payment is not made within 5 days after receipt of notice by Tenant that such payment has not been received by Landlord". (iii) in subsection (ii), (A) on the first (1st) line after "necessary", by adding "and lawful". (B) on the second (2nd) line after "otherwise", by adding "in accordance with law". (C) by adding at the end thereof: "Landlord shall use reasonable efforts to relet the Premises in order to mitigate its damages, but shall not be required to prefer the Premises over other space available for lease in any buildings owned by Landlord or its affiliates in the geographical area in which the Property is located." (iv) by deleting subsection (iii) and substituting therefor: "(iii) To accelerate the whole or any part of the Rent for the balance of the Tenn (and, for purposes of acceleration of Annual Operating Expenses, the amount to be accelerated shall be based upon the assumption that Annual Operating Expenses for each lease year of the balance of the Term would be equal to the amount of Annual Operating Expenses which were payable by Tenant in the lease year immediately preceding the acceleration); provided, however, Tenant shall have the right, in any judicial proceedings brought to collect same, to assert a credit for the fair rental value of the Premises for the balance of the Term, the burden of proving such credit to be on Tenant. The fair rental value of the Premises shall be net of the costs which would be reasonably incurred by Landlord in releasing the Premises, including without limitation, reasonable demolition and fit-out costs, brokerage commissions and reasonable legal fees and expenses. The amount determined to be payable to Landlord hereunder shall be reduced to present value at the rate of six (6%) percent per annum at the time of actual payment. Landlord shall use reasonable efforts to relet the Premises in order to mitigate its damages." R-20 (c) Subsection 23(c) of the lease is amended as follows: (i) On the third (3rd) line after "10 days", by adding "(for a default consisting of the failure to pay money) or 30 days (for a default consisting of something other than the failure to pay money)". (ii) in subsection (iii), by changing "10 days" to "30 days" in the two places in which it appears. (d) Subsection 23(d) of the lease is amended by deleting the first (1st) sentence and substituting therefor: "No waiver by either party of any breach by the other shall be a waiver of any subsequent breach, nor shall any forbearance by either party to seek a remedy for any breach by the other be a waiver by the other of any rights or remedies with respect to such or any subsequent breach." (e) Subsection 23(e) of the lease is amended on the second (2nd) line before "attorneys"', by adding "reasonable". (f) by adding a new subsection (f) as follows: "If Landlord shall default in the performance of any agreement or condition of this lease, and such default shall continue for 30 days after notice from Tenant specifying Landlord's default (except that if such default cannot reasonably be cured within such 30 day period, this period shall be extended for such additional time as is reasonably necessary to cure such default, provided that Landlord commences to cure such default within the 30 day period and proceeds diligently thereafter to effect such cure), Tenant may, without prejudice to any of its other rights under this lease, cure such default for the account of Landlord and any reasonable amount paid by Tenant in so doing shall be reimbursed by Landlord to Tenant within 30 days of its receipt of an invoice therefor and if not so reimbursed within such 30 day period and for an additional 10 days following Landlord's receipt of a second written notice from Tenant, may be deducted by Tenant from the next or any succeeding installment of the Minimum Rent due hereunder; provided, however, in no event shall Tenant be entitled to deduct more than 10% of any one monthly installment of Minimum Rent unless Landlord's default consists of the failure to pay the Allowance in which event Tenant may deduct the amount of the Allowance, together with interest thereon, from the next or any succeeding installment of the Minimum Rent due hereunder without such 10% limitation. Tenant may correct such default prior to the expiration of the 30 day period upon giving notice to Landlord that the curing of such default prior to the expiration of such period is reasonably necessary to avoid imminent damage to the Premises or imminent harm to persons." R-21 57. Additional Provisions Relating to Representations of Landlord. A new Section 24.1 is added to the lease as follows: "24.1 Representations of Landlord. Landlord represents to Tenant and agrees that Landlord is a partnership, duly formed and in good standing, and has full partnership power and authority to enter into this lease and has taken all partnership action necessary to carry out the transaction contemplated herein, so that when executed, this lease constitutes a valid and binding obligation enforceable in accordance with its terms." 58. Additional Provisions Relating to Liability of Landlord. Section 25 of the lease is amended as follows: (a) on the seventh (7th) line after "accrue", by adding "provided such successor assumes Landlord's obligations under this lease after the date of transfer of title". (b) on the tenth (10th) line after "Property", by adding ", rents, issues, profits, insurance and sales proceeds". (c) on the twelfth (12th) line after "landlord", by adding "except for continuing such act or omission after the date such mortgagee succeeds to the interest of Landlord". (d) on the twelfth (12th) 2th and thirteenth (13th) lines, by deleting subsection (c). (e) by adding at the end thereof "unless such payment is actually received by such mortgagee or ground lessor". 59. Additional Provisions Relating to Interpretation; Definitions. (a) Subsection 26(d) of the lease is amended on the second (2nd) line, by deleting "15% per annum" and substituting therefor "4% above the prime interest rate set forth from time to time in The Wall Street Journal or successor publication". (b) Subsection 26(h) of the lease is deleted in its entirety. 60. Additional Provisions Relating to Notices. Section 27 of the lease is amended as follows: R-22 (a) on the third (3rd) line before "notice", by adding "written". (b) on the fourth (4th) line after "designated", by adding "in writing". 61. Additional Provisions Relating to Security Deposit. Section 28 of the lease is amended as follows: (a) on the fourth (4th) line before "Landlord", by adding: "Upon the occurrence of an event of default,". (b) on the next to last line after "Tenant", by adding "within 45 days after". 62. Additional Provisions Relating to Building Rules (Exhibit "C"). (a) Paragraph 4 of the Building Rules is amended by deleting the second (2nd) sentence thereof in its entirety. (b) Paragraph 5 of the Building Rules is deleted in its entirety. (c) Paragraph 6 of the Building Rules is deleted in its entirety. (d) Paragraph 7 of the Building Rules is amended on the first (1st) line after "doors", by adding "without providing duplicate keys or passes therefor to Landlord within 24 hours thereafter". (e) Paragraph 8 of the Building Rules is amended by adding at the beginning thereof "Except in the ordinary course of its business,". (f) Paragraph 9 of the Building Rules is deleted in its entirety and the following is substituted thereof: "All wires installed by Tenant must be clearly tagged at the distributing boards and junction boxes and elsewhere where required by Landlord, with the number of the office to which said wires lead, and the purpose for which the wires respectively are used, together with the name of the concern, if any, operating same." (g) Paragraph 12 of the Building Rules is deleted in its entirety and the following is substituted therefor: "Parked vehicles shall not be used for vending or any other business or other activity while parked in the parking areas. Vehicles shall be parked only in striped parking spaces, except for loading and unloading, which shall occur solely in zones marked for such purposes. All vehicles entering or parking in the parking areas 'shall do so at owner's sole risk, and Landlord assumes no responsibility for any damage, destruction, vandalism or theft. Each vehicle owner shall promptly respond to any sounding vehicle alarm or horn, and failure to do so may result in temporary or permanent exclusion of such vehicle from the parking areas. Any vehicle which violates the parking regulations may be cited, towed at the expense of the owner, temporarily or permanently excluded from the parking areas, or subject to other lawful consequences." R-23 (h) Paragraph 15 of the Building Rules is deleted in its entirety. (i) Paragraph 17 of the Building Rules is amended on the second (2nd) line before "judgment", by adding "good faith". 63. Waiver of Landlord's Lien. As to any third party lender ("Lender") having a security interest in any removable fixtures, inventory, equipment and other personal property installed by Tenant in the Premises ("Collateral"), Landlord hereby waives Landlord's statutory lien in the Collateral, subject to the express covenant that such Lender: (a) indemnify, defend and hold Landlord harmless from any claims, expenses, damages, liabilities and expenses in connection with bodily injury (including death) or property damage occasioned by Lender's entry on the Premises and/or removal of the Collateral; (b) reimburse Landlord for the costs of repair for any damage done to the Premises as a result of Lender's entry and/or removal; and (c) remove the Collateral from the Premises within thirty (30) days following receipt of notice from Landlord that Tenant has vacated the Premises and either Tenant has been dispossessed from the Premises or the Term has expired; provided, however that if Lender elects not to remove the Collateral within such thirty (30) day period, the Collateral shall be deemed abandoned by Lender, Lender's security interest in the Collateral shall be of no further force or effect and Lender shall, at Landlord's request, execute and deliver to Landlord a termination of security interest with respect to the Collateral. 64. Force Majeure. Neither party shall be responsible to the other for any losses resulting from the failure to perform any terms or provisions of this lease not involving the payment of money if the party's failure to perform is attributable to war, riot, Acts of God or the elements or any other unavoidable act not within the control of the party whose performance is interfered with and which by reasonable diligence such party is unable to prevent ("Force Majeure"). 65. Parking. (a) Landlord shall provide 162 exclusive parking spaces for use by Tenant for the Term of the lease. The Property presently contains 114 parking spaces. Landlord shall, at its sole cost and expense, promptly apply for and diligently seek to obtain required approvals and permits from Horsham Township (the "Township") for implementation of the proposed parking plan attached hereto as Exhibit "J-1" (the "Proposed Parking Plan"), including a Connector (as hereinafter defined) between the Property and 104 Rock Road. R-24 (b) In the event the Proposed Parking is approved by the Township, Landlord will provide for Tenant 129 parking spaces on the Property and off-site parking (the "Off-Site Parking") for 25 cars at 104 Rock Road in the location shown on the Proposed Parking Plan and 8 cars at 101 Rock Road in the location shown on the Proposed Parking Plan. 101 Rock Road and 104 Rock Road are hereinafter referred to collectively as the "Off-Site Parking Properties". (c) In the event the Proposed Parking Plan is not approved by the Township, Landlord will provide not fewer than 114 parking spaces on the Property and the balance of the parking spaces at the Off-Site Parking Properties in the locations shown on the alternate parking plan attached hereto as Exhibit "J-2" (the "Alternate Parking Plan"); provided that, at Landlord's election, all of the off-site spaces may be moved to either or both of the Off-Site Parking Properties in the locations shown on the Alternate Parking Plan. In the event the Alternate Parking Plan is implemented, Landlord shall apply for and use diligent efforts to seek to obtain approval by the Township of driveways connecting the parking lot of the Property with the parking lots of the Off-Site Parking Properties (the "Connectors"). If such approval is obtained, Landlord shall construct the Connectors. (d) In the event Tenant, in its good faith judgment, determines that other tenants of either of the Off-Site Parking Properties unreasonably interfere with Tenant's exclusive parking spaces thereon, Tenant shall notify Landlord thereof in writing and provide specific examples thereof and if Landlord is unable to cure such interference within a reasonable period of time, Landlord shall, at Landlord's sole cost and expense, mark Tenant's exclusive spaces, by signage or painting, as reserved for Tenant. Except as aforesaid, Landlord shall have no obligation to police or enforce the use of Tenant's exclusive spaces. (e) In the event (i) the Proposed Parking Plan is not approved by the Township on or before the later of (A) thirty (30) months after the Commencement Date or (B) six (6) months after the date Tenant, in good faith, notifies Landlord in writing that the number of employees then working at the Premises is such that parking spaces in excess of those available on the Property are required in order for Tenant to reasonably conduct business at the Premises, and (ii) the parking lot of the Property is not then connected by Connectors to all of the Off-Site Properties on which parking spaces for Tenant's use are then located, Minimurn Annual Rent for the remainder of the initial Term shall be reduced by the percentage determined by multiplying .00125 by the number of Off-Site Parking Spaces in excess of eight (8) in lots which are not connected to the parking lot of the Property by a Connector. For example, if there are 48 Off-Site Parking Spaces on the Off-Site Properties which are not connected by Connectors, the percentage reduction of Minimum Annual Rent for the remainder of the initial Term would be 5% (48 spaces minus 8 spaces = 40 spaces multiplied by .00125 = 5%). As a further example, if there are 48 Off-Site Parking Spaces of which 24 are in a lot connected to the Property by a Connector, the percentage reduction in Minimum Annual Rent for the remainder of the initial Term would be 2% (24 spaces minus 8 spaces = 16 spaces multiplied by .00125 = 2%). If Tenant is entitled to a reduction in Minimum Annual Rent hereunder, the parties shall promptly execute an amendment to this lease effectuating same. R-25 66. Tenant's Rights to Terminate Lease. (a) Tenant shall have the right to terminate this lease by written notice delivered to Landlord on or before the date which is thirty (30) days after execution of this lease in the event either of the following conditions is not satisfied: (i) Tenant shall not have received a zoning and use permit (the "Zoning and Use Permit") from the Township confirming that Tenant may utilize the Premises for the Use set forth in Section I (f) of the lease. Tenant represents and warrants to Landlord that it has filed with the Township a written and complete application for the Zoning and Use Permit and will seek to obtain same diligently and in good faith within the thirty (30) day contingency period. (ii) Tenant shall not have received a building permit (the "Building Permit") from the Township for the work to be performed by Tenant pursuant to the Plans and Specifications solely as a result of (i) the Township not having approved Landlord's stormwater management plan for the Pennsylvania Business Campus, or (ii) the number of parking spaces on the Premises failing to meet requirements of the Township zoning ordinance. Tenant represents and warrants to Landlord that (A) it has obtained written approval of the Plans from the Pennsylvania Department of Labor and Industry and filed with the Township a written and complete application for the Building Permit, except for stamped Plans which it covenants will be filed with the Township on or before February 22, 2002. Tenant further covenants that it will seek to obtain the Building Permit diligently and in good faith within the thirty (30) day contingency period. (b) In the event Tenant does not deliver written notice of termination of this lease to Landlord within such thirty (30) day period, Tenant shall be deemed to have waived its rights to terminate this lease under this Section 66 and this Section 66 shall be null and void and of no further force or effect. (c) Landlord shall have no obligation to agree to extend the thirty (30) day contingency periods set forth herein. R-26 EX-10 5 ex10-41.txt EXHIBIT 10.41 EXHIBIT 10.41 RETIREMENT AGREEMENT THIS RETIREMENT AGREEMENT (the "Agreement") is made as of January 14, 2002 between Neose Technologies, Inc., a Delaware corporation (the "Company"), and Edward J. McGuire, Ph.D. ("Employee"). Background Employee and the Company have agreed that Employee will retire from the Company effective June 30, 2002 (the "Retirement Date"). The parties are entering into this Agreement to set forth the terms and conditions of Employee's retirement. Terms NOW, THEREFORE, in consideration of the covenants and conditions set forth in this Agreement, the parties, intending to be legally bound, agree as follows: 1. Termination of Employment. Employee's employment with the Company will terminate as of the Retirement Date. Employee hereby confirms that he voluntarily and irrevocably will resign, as of the Retirement Date, any and all positions he holds with the Company, except as set forth in Section 6. Except as expressly provided in this Agreement, all rights and obligations of the Company and Employee with respect to such employment will be effectively terminated on the Retirement Date. 2. Period Through Termination. 2.1 From the date hereof through the Retirement Date, except as provided in Section 2.2, Employee will remain employed by the Company in his current capacity of Vice President, Research and Development. 2.2 Employee acknowledges that the Company has begun a search for a successor Vice President, Research and Development. If a successor is hired or appointed by the Company prior to the Retirement Date, Employee will resign as Vice President, Research and Development as of the date of such successor's hire or appointment, but will remain an employee of the Company through the Retirement Date. 3. Rights to Retirement Benefits. Employee understands and acknowledges that, in consideration for signing this Agreement, Employee is receiving rights which he is not otherwise entitled to receive, and that payments made or to be made and benefits provided or to be provided hereunder are in lieu of any and all compensation and benefits due to Employee under the terms of any agreement, arrangement or understanding (whether written or oral) binding upon the Company and Employee. 4. Payments and Benefits. 4.1 Annual Retirement Benefit. From and after the Retirement Date, Neose will pay to Employee, or his applicable heirs or personal representatives, an annual retirement benefit, payable bimonthly, less applicable withholding, at the following rates: 4.1.1 From the Retirement Date, through December 31, 2002, at an annual rate of $175,000. 4.1.2 From January 1, 2003 through December 31, 2003, at an annual rate of $125,000. 4.1.3 From January 1, 2004 through December 31, 2006, at an annual rate of $100,000. 4.2 Benefits. 4.2.1 During the period within which the Company must make available the purchase of continued health insurance under COBRA (pursuant to Section 4980B of the Internal Revenue Code), such period commencing on the Retirement Date and ending on December 31, 2003, the Company waive payment of any applicable premium otherwise due for any group health continuation coverage elected by the Employee or his or her spouse or dependents under COBRA (29 U.S.C. ss.ss. 1161-1169) to the extent the Company would have paid such premiums for an employee of the Company. Except as expressly provided in this Agreement, Employee shall not be entitled to any benefits provided to employees of the Company after the Retirement Date, other than benefits previously accrued under the terms of the Company's 401(k) or pension plans, if any. Employee specifically acknowledges that he is not entitled to participate after the Retirement Date in any of the Company's benefit plans, including, without limitation, the Company's life insurance, disability insurance or 401(k) or pension plans. 4.2.2 From the Retirement Date through December 31, 2006, the Company will provide Employee with an office comparable to the offices provided to director-level scientists within the Company. 4.3 Taxes. Employee will be solely responsible for payment of all federal, state and local taxes in respect of the payments to be made and benefits to be provided to him under this Agreement including, without limitation, under Sections 3 and 5. Employee hereby acknowledges that the Company is responsible for the withholding of income, FICA, FUTA and other payroll taxes, and the Company is authorized to make such withholdings or to require that Employee pay to the Company the amount of any such required withholdings as a condition of any payment or benefit. 2 5. Options. All unvested stock options granted to Employee under the Company's Amended and Restated 1995 Stock Option/Stock Issuance Plan (the "Plan") will vest as of the Retirement Date. The exercise period of all outstanding stock options will be extended through December 31, 2006, but in no event beyond the expiration date of any such option. 6. Consulting Services. From the Retirement Date through December 31, 2006, Employee will be available, up to 10 days per month, on reasonable notice, to provide consulting services to the Company, without further compensation, on research programs, outside research programs, technology assessment, publications, facilities, and other matters requested by senior executives of the Company. In addition, Employee will continue to serve as a member of the Company's Scientific Advisory Board and the Company's GlycoAdvance(TM) Advisory Board without further compensation. 7. Release. 7.1 In consideration of the foregoing (including without limitation the promises and payments as described in Sections 4 and 5, which are in excess of that to which Employee would have otherwise been entitled upon termination of employment), Employee hereby knowingly, willingly and voluntarily remises, waives, releases and forever discharges the Company and its subsidiaries and affiliates, the directors, officers, employees, advisors and agents of the Company and its subsidiaries and affiliates, and the heirs, executors, administrators, predecessors, successors, joint venture partners, and assigns of such parties (collectively referred to as the "Releasees"), of and from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, claims and demands whatsoever in law or equity which Employee, his heirs, executors, administrators or assigns has, had or may hereafter have against the Releasees or any of them from or by reason of any cause, matter or thing whatsoever from the beginning of his employment with the Company to the Retirement Date, excepting only claims against the Company relating to its obligations under Sections 4 and 5 of this Agreement, and including any claims arising from or relating in any way to his employment relationship with the Company, the termination of that relationship, the terms and conditions of that employment relationship, including, but not limited to, any claims arising under the Age Discrimination in Employment Act, 29 U.S.C. ss. 621 et seq., Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss. 2000e-1 et seq., as amended, the Americans with Disabilities Act, 42 U.S.C. ss.12101 et seq., the Employee Retirement Income Security Act, 29 U.S.C. ss. 1001 et seq., the Family and Medical Leave Act, the Fair Labor Standards Act, and any and all state statutory analogues; and any other any federal or state common law or statutory claims now existing or hereinafter recognized including, but not limited to, claims for breach of contract, defamation, wrongful discharge, intentional and/or negligent infliction of emotional distress, outrageous conduct, invasion of privacy, promissory estoppel and attorney's fees and costs. 3 7.2 Covenant Not to Sue. Employee agrees and covenants that neither he, nor any person, organization, or other entity on his behalf, will file, charge, claim, sue or cause or permit to be filed, charged or claimed, any civil action, suit, or legal proceeding for personal relief (including any action for damages, injunctive, declaratory, monetary, or other relief) against Neose involving any matter occurring at any time in the past up to and including the date of this Separation Agreement and General Release or involving any continuing effects of any acts or practices which may have arisen or occurred prior to the date of this Agreement. Employee further agrees that if any person, organization, or other entity should bring a claim against Neose involving any such matter, Employee will not accept any personal relief in any such action. 8. Confidential Information. 8.1 Existing Agreement. Employee acknowledges that, upon, and as a condition of, first becoming an employee of the Company, he executed and delivered to the Company the Company's standard form of noncompete and confidentiality agreement, dated April 30, 1992 (the "Confidentiality Agreement"). In consideration of the provisions of this Agreement, Employee (i) is reaffirming the Confidentiality Agreement contemporaneously with the execution of the Agreement, thereby confirming that he is and shall be legally bound by its terms and (ii) acknowledges that the terms of the Confidentiality Agreement are valid, binding and enforceable, and that he is and shall remain legally bound thereby at all times after the Retirement Date regardless of termination of his employment by the Company. Employee agrees that he will provide, and that the Company may similarly provide, a copy of the Confidentiality Agreement to any business or enterprise (i) which he may directly or indirectly own, manage, advise, operate, finance, join, control or participate in the ownership, management, operation, financing or control of or (ii) with which he may be connected with as an officer, director, advisor, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which he may use or permit his name to be used. 8.2 Third Party Information. Employee recognizes that the Company has received from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Employee shall hold all such confidential or proprietary information in the strictest confidence and shall not disclose it to any person or entity or use it except as consistent with the Company's agreements with such third parties. 9. Time Allowed to Review this Agreement: In compliance with the Older Workers Benefit Protection Act ("OWBPA"), Employee has twenty-one (21) days to consider this Agreement and is hereby advised to consult an attorney prior to signing the Agreement. If Employee signs the Agreement, Employee will have the right to revoke or cancel the Agreement within seven (7) days after Employee signs the Agreement by submitting written notice of revocation to Sandra Keller, Neose Technologies, Inc., 102 Witmer Road, Horsham, PA 19044. If Employee signs the Agreement and does not revoke the Agreement, the Agreement becomes binding, irrevocable, and enforceable at the expiration of such seven (7) day revocation period. Employee is not obligated to sign this Agreement, and refusal to do so will not jeopardize Employee's right to benefits to which Employee is already entitled. 4 10. Governing Law. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania, without giving effect to the principles of conflicts of law thereof. 11. Confidentiality. The parties agree that, except as required by law, the terms and conditions of this Agreement shall be kept confidential, and shall not be published, revealed, publicized, communicated, or otherwise made public in any manner or form. 12. No Admission of Liability. This Agreement is not to be construed as an admission of any violation of any federal, state or local statute, ordinance or regulation or of any duty owed by the Company (or any of its agents) to Employee. There have been no such violations, and the Company specifically denies any such violations. 13. Preservation of Privilege. Employee will assist and cooperate with the Company in holding, preserving and not waiving any privilege or protection of the Company, including without limitation the attorney-client privilege and work product doctrine, as to any matter. 14. Section 16 Compliance. Employee represents and confirms that all transactions reportable on Form 3, 4, or 5 under Section 16 of the Securities Exchange Act of 1934, as amended, have been so reported. 15. Notices. All notices that are permitted or required to be given under this Agreement shall be hand-delivered or sent by registered or certified mail, nationally recognized overnight delivery service, or by facsimile to each party at the following addresses: If to Neose, to: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attention: General Counsel Fax: (215) 441-5896 If to Employee, to: Edward J. McGuire, Ph.D. 3065 Cloverly Drive Furlong, PA 18925 Fax: _____________ or to such other names or addresses as the Company or Employee, as the case may be, shall designate by notice to the other in the manner specified in this Section. 5 16. Miscellaneous. 16.1 Compensation Committee Approval. This Agreement is conditioned upon, and shall not be effective until, the approval of the Compensation Committee of the Board of Directors of the Company. 16.2 Entire Agreement. This Agreement supersedes all prior agreements and sets forth the entire understanding among the parties hereto with respect to the subject matter hereof, except that this Agreement shall not supersede and shall be in addition to the Confidentiality Agreement. This Agreement may not be changed, modified, extended or terminated except upon written amendment executed by Employee and approved by the board of directors of the Company and executed on behalf of the Company by a duly authorized officer. Without limitation of the foregoing, Employee and the Company acknowledge that the effect of this provision is that no oral modifications of any nature whatsoever to this Agreement shall be permitted. 16.3 Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto. 16.4 Severability. If any provision of this Agreement is held invalid or unenforceable in any jurisdiction, the remaining provisions shall remain in full force and effect. 16.5 Remedies Cumulative; No Waiver. No remedy conferred upon the Company by this Agreement or the Confidentiality Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Company in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the Company from time to time and as often as may be deemed expedient or necessary by the Company in its sole discretion. 17. Consultation with Legal Counsel. Employee and the Company acknowledge that no promise or inducement for this Agreement has been made except as set forth herein. Employee acknowledges that this Agreement is executed without Employee's reliance upon any statement or representation by or on behalf of the Company; that Employee has had an opportunity to discuss this Agreement with his attorney, and that Employee is legally competent to and does voluntarily execute this Agreement and accept full responsibility therefor. 6 IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have executed this Agreement as of the date first written above. NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff ------------------------------------- P. Sherrill Neff President and Chief Operating Officer /s Edward J. McGuire ---------------------------------------- Edward J. McGuire, Ph.D. 7 EX-10 6 ex10-42.txt EXHIBIT 10.42 EXHIBIT 10.42 RETENTION AGREEMENT THIS RETENTION AGREEMENT (this "Agreement") is made as of the 21st day of January, 2002 (the "Effective Date") by and between Neose Technologies, Inc. (the "Company") and David A. Zopf, M.D. ("Employee"). WHEREAS, the Employee serves as a senior executive of the Company; and WHEREAS, the Company and Employee desire to establish certain protections for Employee in the event of his or her termination of employment without Cause or resignation for Good Reason; and NOW THEREFORE, in consideration of these premises and intending to be legally bound hereby, the parties agree as follows: SECTION 1. Definitions. To the extent not defined in the preamble of this Agreement, capitalized terms used herein will have the meanings provided below: 1.1. "Annual Salary" means, as of any given date, the annual base rate of salary payable to Employee by the Company, as then in effect; provided, however, that in the case of a resignation by Employee for the Good Reason described in Section 1.8.3, "Annual Salary" will mean the annual base rate of salary payable to Employee by the Company, as in effect immediately prior to the reduction giving rise to the Good Reason. 1.2. "Board" means the Board of Directors of the Company. 1.3. "Cause" means any of the following: 1.3.1. Employee's engagement in dishonesty, willful misconduct or fraud in the performance of his or her duties to the Company; 1.3.2. Employee's conviction of, or plea of guilty or nolo contendere to, any felony or of any lesser crime or offense involving moral turpitude; 1.3.3. Employee's refusal to carry out the reasonable instructions of the Board, which instructions are consistent with Employee's responsibilities; or 1.3.4. any willful violation by Employee of any statute, regulation or ordinance the compliance with which is necessary for the operation of the business of the Company. 1.4. "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: 1.4.1. the direct or indirect acquisition by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13(d)(3) of the Securities Exchange Act of 1934, as amended) of securities possessing more than 50% of the total combined voting power of the Company's outstanding securities; 1.4.2. a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time such election or nomination was approved by the Board; 1.4.3. a merger or consolidation in which the Company's shareholders, as determined immediately prior to the transaction, do not hold more than 50% of the total combined voting power of the combined company upon completion of the transaction; 1.4.4. the sale, transfer or other disposition of all or substantially all of the Company's assets; or 1.4.5. a complete liquidation or dissolution of the Company; provided, however, for purposes of determining the precise date of any Change in Control, an event described above will be deemed to have occurred on the date on which the last condition required for the consummation of that event is fulfilled or otherwise completed. 1.5. "Code" means the Internal Revenue Code of 1986, as amended. 1.6. "Covered Termination" means a resignation by Employee with Good Reason or a termination of Employee's employment by the Company without Cause (but not including a termination by reason of the Employee's death or Disability). 1.7. "Disability" means a condition that would give rise to an entitlement to benefits under the terms of the Company's long term disability plan or, if no such plan is then in effect, a condition that would prevent Employee from performing the essential functions of his or her job, as determined by the Board in its discretion. 1.8. "Excess Parachute Payment" has the same meaning as used in Section 280G(b)(1) of the Code. 1.9. "Good Reason" means, without Employee's prior written consent, any of the following: 1.9.1. the reduction of Employee's title, authority, duties or responsibilities, or the assignment to Employee of duties that are inconsistent, in a material respect, with Employee's position; 1.9.2. the relocation of the Company's headquarters more than fifteen (15) miles from Horsham, Pennsylvania, unless such move reduces Employee's commuting time; or 1.9.3. a reduction in Employee's Annual Salary; -2- provided, however, the foregoing events or conditions will constitute Good Reason only if Employee provides the Company with written objection to the event or condition within sixty (60) days following the occurrence thereof, the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving that written objection and Employee resigns his or her employment within ninety (90) days following the expiration of that cure period. 1.10. "Overpayment" means any amount paid to Employee in excess of the maximum payment limit of Section 3.2.1 of this Agreement. SECTION 2. Benefits Upon Covered Termination. 2.1. Employee's Entitlement. Within five (5) days after the occurrence of a Covered Termination, the Company will: 2.1.1. pay Employee all of his or her accrued and unpaid Annual Salary, including payment for any accrued but unused vacation days, through the date of the Covered Termination; 2.1.2. pay Employee any annual bonus payable with respect to a fiscal year of the Company ending prior to the Covered Termination; and 2.1.3. pay Employee a lump sum payment of an amount equal to the Annual Salary of the Employee as of the date of the Covered Termination. 2.2. Waiver Of Insurance Premium. Company hereby waives, conditioned and effective upon the occurrence of a Covered Termination, any applicable premium otherwise due for any group health continuation coverage elected by the Employee or his or her spouse or dependents under COBRA (29 U.S.C.ss.ss.1161-1169) for coverage through the first anniversary of the date of the Covered Termination. 2.3. Release. Notwithstanding the foregoing, no amount will be paid or benefit or right provided under Sections 2.1.3 or 2.2 unless, following any Covered Termination, Employee executes and delivers to the Company a release substantially identical to that attached hereto as Exhibit A in a manner consistent with the requirements of the Older Workers Benefit Protection Act. SECTION 3. Covered Termination Following a Change in Control. 3.1. Employee's Additional Entitlement. If a Covered Termination occurs within the eighteen (18) month period beginning upon any Change in Control, then subject to the execution of the release described above in Section 2.3, in addition to the payments and benefits described above in Section 2 and notwithstanding anything to the contrary contained in any other agreement between Employee and the Company and any equity incentive plan of the Company, Employee will be deemed to continue to be employed by the Company through the first anniversary of the Covered Termination for purposes of any vesting, forfeiture, survival, exercise or similar term or condition applicable to any stock option, restricted stock, phantom stock, stock appreciation right or other equity-based incentive held by Employee immediately prior to his or her termination. -3- 3.2. Maximum Payment Limit. 3.2.1. If any payment or benefit due under this Agreement, together with all other payments and benefits that Employee receives, or is entitled to receive, from the Company or any of its subsidiaries, affiliates or related entities, would (if paid or provided) constitute an Excess Parachute Payment, the amounts otherwise payable and benefits otherwise due under this Agreement will be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Company by reason of Section 280G of the Code. The determination of whether any payment or benefit would (if paid or provided) constitute an Excess Parachute Payment will be made by the Board, in its sole discretion, based on the advice of the Company's auditors. 3.2.2. If, notwithstanding the initial application of Section 3.2.1, the Internal Revenue Service determines that any amount paid or benefit provided to Employee would constitute an Excess Parachute Payment, Section 3.2.1 will be reapplied based on the Internal Revenue Service's determination and any Overpayment will be deemed to be a loan from the Company to Employee. Employee will be required to repay that loan immediately upon receipt of written notice of the applicability of this section, together with interest from the date the Overpayment was paid to Employee (determined at the applicable federal rate in effect under Section 1274(d) of the Code as of the date of the Overpayment). SECTION 4. No Further Liabilities. Except as otherwise provided in Sections 2 and/or 3, all Annual Salary and benefits will cease at the time of the Covered Termination and the Company shall have no further liability or obligation to Employee following the Covered Termination. The payments, benefits and rights described in Sections 2 and/or 3 will be paid and provided in lieu of and not in addition to any other severance arrangement maintained by the Company. The foregoing will not be construed to limit Employee's right to payment or reimbursement for claims incurred prior to the date of such termination under any insurance contract funding an employee benefit plan, policy or arrangement of the Company in accordance with the terms of such insurance contract. SECTION 5. Miscellaneous. 5.1. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors, administrators and heirs. Employee may make any assignment of this Agreement or any interest herein, by operation of law or otherwise. The Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise. -4- 5.2. Notice. Any notice or communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested or (c) sent by telecopier, addressed as follows: If to Employee: David A. Zopf, M.D. 560 Beechtree Lane Wayne, PA 19087 Fax: If to Company: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attn: General Counsel Fax: 215-441-5896 with a copy to: Pepper Hamilton LLP 3000 Two Logan Square 18th & Arch Streets Philadelphia, PA 19103 Attn: Barry M. Abelson, Esquire Fax: 215-981-4750 or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above. 5.3. Entire Agreement; Amendments. Except for the Employment Agreement dated April 1, 1992, as from time to time extended (the "Employment Agreement"), this Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the subject matter. In the event of any conflict between the provisions of this Agreement and the Employment Agreement, the provisions of this Agreement will control. This Agreement may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto. 5.4. Waiver. Any waiver by either party of any breach of any term or condition in this Agreement shall not operate as a waiver of any other breach of such term or condition or of any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof or constitute or be deemed a waiver or release of any other rights, in law or in equity. 5.5. Governing Law. This Agreement shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without regard to the application of the principles of conflicts of laws. 5.6. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained. -5- 5.7. Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 5.8. No Duty to Mitigate. Employee shall not be required to mitigate damages or the amount of any payments provided for under this Agreement by seeking other employment or otherwise, nor will any payment or benefit hereunder be subject to offset or reduction in the event Employee does mitigate. 5.9. Costs of Enforcement. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief, reasonable attorneys' fees, costs and disbursements. 5.10. Counterparts and Facsimiles. This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Employee has executed this Agreement, in each case as of the date first above written. NEOSE TECHNOLOGIES, INC. By:/s/ P. Sherrill Neff ------------------------------------ P. Sherrill Neff President and Chief Operating Officer /s/ David A. Zopf, M.D. --------------------------- David A. Zopf, M.D. -6- EXHIBIT A RELEASE AND NON-DISPARAGEMENT AGREEMENT THIS RELEASE AND NON-DISPARAGEMENT AGREEMENT (this "Release") is made as of the ___ day of _______, _____ by and between [Employee] ("Employee") and NEOSE TECHNOLOGIES, INC. (the "Company"). WHEREAS, Employee's employment as an executive of the Company has terminated; and WHEREAS, pursuant to Sections 2 [and 3] of the Retention Agreement by and between the Company and Employee dated as of __________, 2002 (the "Retention Agreement"), the Company has agreed to pay Employee certain amounts and to provide him or her with certain rights and benefits, subject to the execution of this Release. NOW THEREFORE, in consideration of these premises and the mutual promises contained herein, and intending to be legally bound hereby, the parties agree as follows: SECTION 1. Consideration. Employee acknowledges that: (i) the payments, rights and benefits set forth in Sections 2 [and 3] of the Retention Agreement constitute full settlement of all his or her rights under the Retention Agreement, (ii) he or she has no entitlement under any other severance or similar arrangement maintained by the Company, and (iii) except as otherwise provided specifically in this Release, the Company does not and will not have any other liability or obligation to Employee. Employee further acknowledges that, in the absence of his or her execution of this Release, the severance benefits specified in Sections 2.1.3[,][and] 2.1.4 [and 3] of the Retention Agreement would not otherwise be due to Employee. SECTION 2. Release and Covenant Not to Sue. Employee hereby fully and forever releases and discharges Company and its parents, affiliates and subsidiaries, including all predecessors and successors, assigns, officers, directors, trustees, employees, agents and attorneys, past and present, from any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities, of whatever kind or nature, direct or indirect, in law, equity or otherwise, whether known or unknown, arising through the date of this Release, out of his or her employment by the Company or the termination thereof, including, but not limited to, any claims for relief or causes of action under the Age Discrimination in Employment Act, 29 U.S.C. ss. 621 et seq., or any other federal, state or local statute, ordinance or regulation regarding discrimination in employment and any claims, demands or actions based upon alleged wrongful or retaliatory discharge or breach of contract under any state or federal law. Employee expressly represents that he or she has not filed a lawsuit or initiated any other administrative proceeding against the Company or any Affiliate, and that he or she has not assigned any claim against the Company or any Affiliate to any other person or entity. Employee further promises not to initiate a lawsuit or to bring any other claim against the Company or any Affiliate arising out of or in any way related to his or her employment by the Company or the termination of that employment. The forgoing will not be deemed to release the Company from (a) claims solely to enforce this Release, (b) claims solely to enforce Sections 2 [and 3] of the Retention Agreement, or (c) claims for indemnification under the Company's By-Laws, under any indemnification agreement between the Company and Employee or under any similar agreement. SECTION 3. Restrictive Covenants. Employee acknowledges that the terms of the [Confidentiality and Non-Compete Agreement] by and between the Employee and the Company dated _____ (the "Non-Compete Agreement") will survive the termination of his or her employment. Employee affirms that the restrictions contained in the Non-Compete Agreement are reasonable and necessary to protect the legitimate interests of the Company, that he or she received adequate consideration in exchange for agreeing to those restrictions and that he or she will abide by those restrictions. SECTION 4. Non-Disparagement. The Company (meaning, solely for this purpose, Company's directors and executive officers and other individuals authorized to make official communications on Company's behalf) will not disparage Employee or Employee's performance or otherwise take any action which could reasonably be expected to adversely affect Employee's personal or professional reputation. Similarly, Employee will not disparage Company or any of its directors, officers, agents or employees or otherwise take any action which could reasonably be expected to adversely affect the reputation of the Company or the personal or professional reputation of any of the Company's directors, officers, agents or employees. SECTION 5. Cooperation. Employee further agrees that, subject to reimbursement of his or her reasonable expenses, he or she will cooperate fully with the Company and its counsel with respect to any matter (including litigation, investigations, or governmental proceedings) which relates to matters with which Employee was involved during his or her employment with Company. Employee shall render such cooperation in a timely manner on reasonable notice from the Company. SECTION 6. Rescission Right. Employee expressly acknowledges and recites that (a) he or she has read and understands this Release in its entirety, (b) he or she understands the terms of this Release has entered into this Release knowingly and voluntarily, without any duress or coercion; (c) he or she has been advised orally and is hereby advised in writing to consult with an attorney with respect to this Release before signing it; (d) he or she was provided twenty-one (21) calendar days after receipt of the Release to consider its terms before signing it; and (e) he or she is provided seven (7) calendar days from the date of signing to terminate and revoke this Release, in which case this Release shall be unenforceable, null and void. Employee may revoke this Release during those seven (7) days by providing written notice of revocation to the Company. A-2 SECTION 7. Challenge. If Employee violates or challenges the enforceability of any provisions of the [Non-Compete Agreement] or this Release, no further payments, rights or benefits under Sections 2 [and 3] of the Retention Agreement will be due to Employee. SECTION 8. Miscellaneous. 8.1. No Admission of Liability. This Release is not to be construed as an admission of any violation of any federal, state or local statute, ordinance or regulation or of any duty owed by the Company to Employee. There have been no such violations, and the Company specifically denies any such violations. 8.2. No Reinstatement. Employee agrees that he or she will not apply for reinstatement with the Company or seek in any way to be reinstated, re-employed or hired by the Company in the future. 8.3. Successors and Assigns. This Release shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors, administrators and heirs. Employee may make any assignment of this Release or any interest herein, by operation of law or otherwise. The Company may assign this Release to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise. 8.4. Severability. Whenever possible, each provision of this Release will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Release is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Release will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained. 8.5. Entire Agreement; Amendments. Except as otherwise provided herein, this Release contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating subject matter hereof. This Release may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto. 8.6. Governing Law. This Release shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania without regard to the application of the principles of conflicts of laws. 8.7. Counterparts and Facsimiles. This Release may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. A-3 IN WITNESS WHEREOF, the Company has caused this Release to be executed by its duly authorized officer, and Employee has executed this Release, in each case as of the date first above written. NEOSE TECHNOLOGIES, INC. By:_____________________________________ Name & Title:___________________________ [EMPLOYEE] ________________________________________ A-4 EX-10 7 ex10-43.txt EXHIBIT 10.43 EXHIBIT 10.43 RETENTION AGREEMENT THIS RETENTION AGREEMENT (this "Agreement") is made as of the 21st day of January, 2002 (the "Effective Date") by and between Neose Technologies, Inc. (the "Company") and George J. Vergis, Ph.D. ("Employee"). WHEREAS, the Employee serves as a senior executive of the Company; and WHEREAS, the Company and Employee desire to establish certain protections for Employee in the event of his or her termination of employment without Cause or resignation for Good Reason; and NOW THEREFORE, in consideration of these premises and intending to be legally bound hereby, the parties agree as follows: SECTION 1. Definitions. To the extent not defined in the preamble of this Agreement, capitalized terms used herein will have the meanings provided below: 1.1. "Annual Salary" means, as of any given date, the annual base rate of salary payable to Employee by the Company, as then in effect; provided, however, that in the case of a resignation by Employee for the Good Reason described in Section 1.8.3, "Annual Salary" will mean the annual base rate of salary payable to Employee by the Company, as in effect immediately prior to the reduction giving rise to the Good Reason. 1.2. "Board" means the Board of Directors of the Company. 1.3. "Cause" means any of the following: 1.3.1. Employee's engagement in dishonesty, willful misconduct or fraud in the performance of his or her duties to the Company; 1.3.2. Employee's conviction of, or plea of guilty or nolo contendere to, any felony or of any lesser crime or offense involving moral turpitude; 1.3.3. Employee's refusal to carry out the reasonable instructions of the Board, which instructions are consistent with Employee's responsibilities; or 1.3.4. any willful violation by Employee of any statute, regulation or ordinance the compliance with which is necessary for the operation of the business of the Company. 1.4. "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: 1.4.1. the direct or indirect acquisition by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13(d)(3) of the Securities Exchange Act of 1934, as amended) of securities possessing more than 50% of the total combined voting power of the Company's outstanding securities; 1.4.2. a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time such election or nomination was approved by the Board; 1.4.3. a merger or consolidation in which the Company's shareholders, as determined immediately prior to the transaction, do not hold more than 50% of the total combined voting power of the combined company upon completion of the transaction; 1.4.4. the sale, transfer or other disposition of all or substantially all of the Company's assets; or 1.4.5. a complete liquidation or dissolution of the Company; provided, however, for purposes of determining the precise date of any Change in Control, an event described above will be deemed to have occurred on the date on which the last condition required for the consummation of that event is fulfilled or otherwise completed. 1.5. "Code" means the Internal Revenue Code of 1986, as amended. 1.6. "Covered Termination" means a resignation by Employee with Good Reason or a termination of Employee's employment by the Company without Cause (but not including a termination by reason of the Employee's death or Disability). 1.7. "Disability" means a condition that would give rise to an entitlement to benefits under the terms of the Company's long term disability plan or, if no such plan is then in effect, a condition that would prevent Employee from performing the essential functions of his or her job, as determined by the Board in its discretion. 1.8. "Excess Parachute Payment" has the same meaning as used in Section 280G(b)(1) of the Code. 1.9. "Good Reason" means, without Employee's prior written consent, any of the following: 1.9.1. the reduction of Employee's title, authority, duties or responsibilities, or the assignment to Employee of duties that are inconsistent, in a material respect, with Employee's position; 1.9.2. the relocation of the Company's headquarters more than fifteen (15) miles from Horsham, Pennsylvania, unless such move reduces Employee's commuting time; or 1.9.3. a reduction in Employee's Annual Salary; -2- provided, however, the foregoing events or conditions will constitute Good Reason only if Employee provides the Company with written objection to the event or condition within sixty (60) days following the occurrence thereof, the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving that written objection and Employee resigns his or her employment within ninety (90) days following the expiration of that cure period. 1.10. "Overpayment" means any amount paid to Employee in excess of the maximum payment limit of Section 3.2.1 of this Agreement. SECTION 2. Benefits Upon Covered Termination. 2.1. Employee's Entitlement. Within five (5) days after the occurrence of a Covered Termination, the Company will: 2.1.1. pay Employee all of his or her accrued and unpaid Annual Salary, including payment for any accrued but unused vacation days, through the date of the Covered Termination; 2.1.2. pay Employee any annual bonus payable with respect to a fiscal year of the Company ending prior to the Covered Termination; and 2.1.3. pay Employee a lump sum payment of an amount equal to the Annual Salary of the Employee as of the date of the Covered Termination. 2.2. Waiver Of Insurance Premium. Company hereby waives, conditioned and effective upon the occurrence of a Covered Termination, any applicable premium otherwise due for any group health continuation coverage elected by the Employee or his or her spouse or dependents under COBRA (29 U.S.C.ss.ss.1161-1169) for coverage through the first anniversary of the date of the Covered Termination. 2.3. Release. Notwithstanding the foregoing, no amount will be paid or benefit or right provided under Sections 2.1.3 or 2.2 unless, following any Covered Termination, Employee executes and delivers to the Company a release substantially identical to that attached hereto as Exhibit A in a manner consistent with the requirements of the Older Workers Benefit Protection Act. SECTION 3. Covered Termination Following a Change in Control. 3.1. Employee's Additional Entitlement. If a Covered Termination occurs within the eighteen (18) month period beginning upon any Change in Control, then subject to the execution of the release described above in Section 2.3, in addition to the payments and benefits described above in Section 2 and notwithstanding anything to the contrary contained in any other agreement between Employee and the Company and any equity incentive plan of the Company, Employee will be deemed to continue to be employed by the Company through the first anniversary of the Covered Termination for purposes of any vesting, forfeiture, survival, exercise or similar term or condition applicable to any stock option, restricted stock, phantom stock, stock appreciation right or other equity-based incentive held by Employee immediately prior to his or her termination. -3- 3.2. Maximum Payment Limit. 3.2.1. If any payment or benefit due under this Agreement, together with all other payments and benefits that Employee receives, or is entitled to receive, from the Company or any of its subsidiaries, affiliates or related entities, would (if paid or provided) constitute an Excess Parachute Payment, the amounts otherwise payable and benefits otherwise due under this Agreement will be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Company by reason of Section 280G of the Code. The determination of whether any payment or benefit would (if paid or provided) constitute an Excess Parachute Payment will be made by the Board, in its sole discretion, based on the advice of the Company's auditors. 3.2.2. If, notwithstanding the initial application of Section 3.2.1, the Internal Revenue Service determines that any amount paid or benefit provided to Employee would constitute an Excess Parachute Payment, Section 3.2.1 will be reapplied based on the Internal Revenue Service's determination and any Overpayment will be deemed to be a loan from the Company to Employee. Employee will be required to repay that loan immediately upon receipt of written notice of the applicability of this section, together with interest from the date the Overpayment was paid to Employee (determined at the applicable federal rate in effect under Section 1274(d) of the Code as of the date of the Overpayment). SECTION 4. No Further Liabilities. Except as otherwise provided in Sections 2 and/or 3, all Annual Salary and benefits will cease at the time of the Covered Termination and the Company shall have no further liability or obligation to Employee following the Covered Termination. The payments, benefits and rights described in Sections 2 and/or 3 will be paid and provided in lieu of and not in addition to any other severance arrangement maintained by the Company. The foregoing will not be construed to limit Employee's right to payment or reimbursement for claims incurred prior to the date of such termination under any insurance contract funding an employee benefit plan, policy or arrangement of the Company in accordance with the terms of such insurance contract. SECTION 5. Miscellaneous. 5.1. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors, administrators and heirs. Employee may make any assignment of this Agreement or any interest herein, by operation of law or otherwise. The Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise. -4- 5.2. Notice. Any notice or communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested or (c) sent by telecopier, addressed as follows: If to Employee: George J. Vergis, Ph.D. 25 Chamberlain Road Flemington, NJ 08822 Fax: 908-534-3809 If to Company: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attn: General Counsel Fax: 215-441-5896 with a copy to: Pepper Hamilton LLP 3000 Two Logan Square 18th & Arch Streets Philadelphia, PA 19103 Attn: Barry M. Abelson, Esquire Fax: 215-981-4750 or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above. 5.3. Entire Agreement; Amendments. This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the subject matter, including the second paragraph of page 3 of the letter agreement dated July 2, 2001 between the Company and Employee. This Agreement may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto. 5.4. Waiver. Any waiver by either party of any breach of any term or condition in this Agreement shall not operate as a waiver of any other breach of such term or condition or of any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof or constitute or be deemed a waiver or release of any other rights, in law or in equity. 5.5. Governing Law. This Agreement shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without regard to the application of the principles of conflicts of laws. 5.6. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained. -5- 5.7. Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 5.8. No Duty to Mitigate. Employee shall not be required to mitigate damages or the amount of any payments provided for under this Agreement by seeking other employment or otherwise, nor will any payment or benefit hereunder be subject to offset or reduction in the event Employee does mitigate. 5.9. Costs of Enforcement. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief, reasonable attorneys' fees, costs and disbursements. 5.10. Counterparts and Facsimiles. This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Employee has executed this Agreement, in each case as of the date first above written. NEOSE TECHNOLOGIES, INC. By:/s/ P. Sherrill Neff ------------------------------------- P. Sherrill Neff President and Chief Operating Officer /s/ George J. Vergis, Ph.D. ----------------------------------- George J. Vergis, Ph.D. -6- EXHIBIT A RELEASE AND NON-DISPARAGEMENT AGREEMENT THIS RELEASE AND NON-DISPARAGEMENT AGREEMENT (this "Release") is made as of the ___ day of _______, _____ by and between [Employee] ("Employee") and NEOSE TECHNOLOGIES, INC. (the "Company"). WHEREAS, Employee's employment as an executive of the Company has terminated; and WHEREAS, pursuant to Sections 2 [and 3] of the Retention Agreement by and between the Company and Employee dated as of __________, 2002 (the "Retention Agreement"), the Company has agreed to pay Employee certain amounts and to provide him or her with certain rights and benefits, subject to the execution of this Release. NOW THEREFORE, in consideration of these premises and the mutual promises contained herein, and intending to be legally bound hereby, the parties agree as follows: SECTION 1. Consideration. Employee acknowledges that: (i) the payments, rights and benefits set forth in Sections 2 [and 3] of the Retention Agreement constitute full settlement of all his or her rights under the Retention Agreement, (ii) he or she has no entitlement under any other severance or similar arrangement maintained by the Company, and (iii) except as otherwise provided specifically in this Release, the Company does not and will not have any other liability or obligation to Employee. Employee further acknowledges that, in the absence of his or her execution of this Release, the severance benefits specified in Sections 2.1.3[,][and] 2.1.4 [and 3] of the Retention Agreement would not otherwise be due to Employee. SECTION 2. Release and Covenant Not to Sue. Employee hereby fully and forever releases and discharges Company and its parents, affiliates and subsidiaries, including all predecessors and successors, assigns, officers, directors, trustees, employees, agents and attorneys, past and present, from any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities, of whatever kind or nature, direct or indirect, in law, equity or otherwise, whether known or unknown, arising through the date of this Release, out of his or her employment by the Company or the termination thereof, including, but not limited to, any claims for relief or causes of action under the Age Discrimination in Employment Act, 29 U.S.C. ss. 621 et seq., or any other federal, state or local statute, ordinance or regulation regarding discrimination in employment and any claims, demands or actions based upon alleged wrongful or retaliatory discharge or breach of contract under any state or federal law. Employee expressly represents that he or she has not filed a lawsuit or initiated any other administrative proceeding against the Company or any Affiliate, and that he or she has not assigned any claim against the Company or any Affiliate to any other person or entity. Employee further promises not to initiate a lawsuit or to bring any other claim against the Company or any Affiliate arising out of or in any way related to his or her employment by the Company or the termination of that employment. The forgoing will not be deemed to release the Company from (a) claims solely to enforce this Release, (b) claims solely to enforce Sections 2 [and 3] of the Retention Agreement, or (c) claims for indemnification under the Company's By-Laws, under any indemnification agreement between the Company and Employee or under any similar agreement. SECTION 3. Restrictive Covenants. Employee acknowledges that the terms of the [Confidentiality and Non-Compete Agreement] by and between the Employee and the Company dated _____ (the "Non-Compete Agreement") will survive the termination of his or her employment. Employee affirms that the restrictions contained in the Non-Compete Agreement are reasonable and necessary to protect the legitimate interests of the Company, that he or she received adequate consideration in exchange for agreeing to those restrictions and that he or she will abide by those restrictions. SECTION 4. Non-Disparagement. The Company (meaning, solely for this purpose, Company's directors and executive officers and other individuals authorized to make official communications on Company's behalf) will not disparage Employee or Employee's performance or otherwise take any action which could reasonably be expected to adversely affect Employee's personal or professional reputation. Similarly, Employee will not disparage Company or any of its directors, officers, agents or employees or otherwise take any action which could reasonably be expected to adversely affect the reputation of the Company or the personal or professional reputation of any of the Company's directors, officers, agents or employees. SECTION 5. Cooperation. Employee further agrees that, subject to reimbursement of his or her reasonable expenses, he or she will cooperate fully with the Company and its counsel with respect to any matter (including litigation, investigations, or governmental proceedings) which relates to matters with which Employee was involved during his or her employment with Company. Employee shall render such cooperation in a timely manner on reasonable notice from the Company. SECTION 6. Rescission Right. Employee expressly acknowledges and recites that (a) he or she has read and understands this Release in its entirety, (b) he or she understands the terms of this Release has entered into this Release knowingly and voluntarily, without any duress or coercion; (c) he or she has been advised orally and is hereby advised in writing to consult with an attorney with respect to this Release before signing it; (d) he or she was provided twenty-one (21) calendar days after receipt of the Release to consider its terms before signing it; and (e) he or she is provided seven (7) calendar days from the date of signing to terminate and revoke this Release, in which case this Release shall be unenforceable, null and void. Employee may revoke this Release during those seven (7) days by providing written notice of revocation to the Company. A-2 SECTION 7. Challenge. If Employee violates or challenges the enforceability of any provisions of the [Non-Compete Agreement] or this Release, no further payments, rights or benefits under Sections 2 [and 3] of the Retention Agreement will be due to Employee. SECTION 8. Miscellaneous. 8.1. No Admission of Liability. This Release is not to be construed as an admission of any violation of any federal, state or local statute, ordinance or regulation or of any duty owed by the Company to Employee. There have been no such violations, and the Company specifically denies any such violations. 8.2. No Reinstatement. Employee agrees that he or she will not apply for reinstatement with the Company or seek in any way to be reinstated, re-employed or hired by the Company in the future. 8.3. Successors and Assigns. This Release shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors, administrators and heirs. Employee may make any assignment of this Release or any interest herein, by operation of law or otherwise. The Company may assign this Release to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise. 8.4. Severability. Whenever possible, each provision of this Release will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Release is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Release will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained. 8.5. Entire Agreement; Amendments. Except as otherwise provided herein, this Release contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating subject matter hereof. This Release may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto. 8.6. Governing Law. This Release shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania without regard to the application of the principles of conflicts of laws. A-3 8.7. Counterparts and Facsimiles. This Release may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Release to be executed by its duly authorized officer, and Employee has executed this Release, in each case as of the date first above written. NEOSE TECHNOLOGIES, INC. By:_____________________________________ Name & Title:___________________________ [EMPLOYEE] ________________________________________ A-4 EX-10 8 ex10-44.txt EXHIBIT 10.44 EXHIBIT 10.44 TUITION REIMBURSEMENT AGREEMENT This Tuition Reimbursement Agreement is dated as of May 24, 2001 between A. Brian Davis, of Willow Grove, PA ("Employee") and Neose Technologies, Inc., a Delaware corporation ("Neose"). Background Neose and Employee believe it is in the best interests of Neose for Employee to pursue and obtain an Executive MBA degree from The Wharton School of the University of Pennsylvania ("Wharton"). Based on Neose's commitment to fund the costs, Employee has enrolled in the Wharton Executive MBA Program ("Program"), which is a two-year program commencing on May 27, 2001. To that end, Neose will pay certain costs of and allow Employee certain time off to attend the Program, in exchange for Employee's commitment to complete the Program and remain at Neose for a specified period. Terms In consideration of the foregoing and intending to be legally bound hereby, the parties agree as follows: 1. Loan. 1.1 Loan of Tuition Amounts. Subject to the terms and conditions of this Agreement, Neose will lend to Employee, by paying in a timely manner on behalf of Employee, or reimbursing Employee for any such amounts paid directly by him, the following amounts ("Loan"): 1.1.1 All tuition payments for the Program invoiced by Wharton. 1.1.2 All application, registration and other program-related fees charged by Wharton in connection with the Program. 1.1.3 The cost of all textbooks required by Wharton for the Program. 1.1.4 The cost of parking necessary to attend the Program, up to a maximum of $700 per year of the Program. 1.2 Interest. The outstanding balance of the Loan will bear interest at a rate of 4.71% per annum, payable annually on May 27 of each year (each, an "Interest Payment Date"), commencing on May 27, 2002. 1.3 Repayment. 1.3.1 Forgiveness of Principal. Neose will forgive repayment by Employee of Loan in four equal installments (each, a "Forgiveness Payment"), on each of May 27, 2004, May 27, 2005, May 27, 2006, and May 27, 2007 (each, a "Forgiveness Date"), if (i) Employee has completed the Program and received an MBA degree, and (ii) Employee is still employed by Neose on such Forgiveness Date. Notwithstanding the foregoing, if Employee's employment has been terminated by Neose for any reason other than "Cause" prior to May 27, 2007 (which date of termination is the "Termination Date"), Neose will forgive on such Termination Date the repayment of the outstanding balance of the Loan and all accrued interest thereon, which forgiveness will constitute a Forgiveness Payment for the purposes of Section 1.4. For purposes of this Agreement, "Cause" shall mean Employee's (i) engagement in dishonesty, willful misconduct or fraud in the performance of his duties to the Company; (ii) conviction of, or plea of guilty or nolo contendere to, any felony or of any lesser crime or offense involving moral turpitude; (iii) refusal to carry out the reasonable instructions of the Board; or (iv) willful violation of any statute, regulation or ordinance the compliance with which is necessary for the operation of the business of the Company. 1.3.2 Forgiveness of Interest. On each Interest Payment Date, the Company will forgive payment of the interest payable by Employee under Section 1.2, which forgiveness shall constitute a Forgiveness Payment for purposes of Section 1.4. 1.3.3 Repayment of Loan. If, prior to any Forgiveness Date, Employee (i) has not completed the Program and received an MBA degree, (ii) has voluntarily terminated his employment, or (iii) is terminated for "Cause," Employee will, on each date that would otherwise be a Forgiveness Date, pay to Neose the amount of the Loan that would otherwise be forgiven on such Forgiveness Date. 1.3.4 Death and Disability. 1.3.4.1 Death. In the event of Employee's death while Employee (i) is an Employee of the Company, and (ii) has completed the Program and received an MBA degree or is then enrolled in the Program, repayment of any unpaid balance of the Loan will be forgiven as of the date of death and the amount so forgiven will be a Forgiveness Payment for the purposes of Section 1.4. 1.3.4.2 Disability. In the event Employee becomes "Disabled" while Employee (i) remains employed by the Company, and (ii) has completed the Program and received an MBA degree or is then enrolled in the Program, and, as a result is forced to terminate his employment with the Company and his enrollment in the Program, repayment of any unpaid balance of the Loan will be forgiven as of the date both his employment and enrollment have been terminated, and the amount so forgiven will be a Forgiveness Payment for the purposes of Section 1.4. For purposes of this Section, "Disabled" shall mean that Employee has a permanent disability that prevents him from attending the Program and from being employed. 2 1.3.4.3 Wife's Death. In the event the death of Employee's wife while Employee (i) remains employed by the Company and (ii) is enrolled in the Program, results in the permanent termination by Employee of his enrollment in the Program, repayment of any unpaid balance of the Loan will be forgiven as of the date of such termination, and the amount so forgiven will be a Forgiveness Payment for the purposes of Section 1.4. 1.4 Tax Effect. On the date on which Employee receives a Forgiveness Payment, Employee will be entitled to an additional payment in an amount such that, after the payment of all federal, state, and local income taxes on such Forgiveness Payment by Employee, Employee will be in the same after-tax position as if the Forgiveness Payment had not been received. Employee will give Neose written notice of the additional amounts owed in respect of such taxes, and Neose will make such payments at the time such taxes are due and payable. 2. Time Off. 2.1 Attendance Requirements. Neose will allow Employee time-off to meet the attendance requirements of the Program without penalty in compensation or benefits, in addition to vacation and personal days to which Employee is entitled. The attendance requirements through May, 2002 are attached hereto. 2.2 Flexibility. Neose and Employee will be flexible in seeking to ensure that Employee is able to fulfill all job responsibilities as well as his Program responsibilities. 2.3 Termination. In the event of Employee's voluntary termination of his employment, or termination of Employee's employment by Neose for "Cause," this Agreement will terminate as of the date of such termination, provided that Employee's obligations under Section 1.3.3 shall survive such termination. Unless terminated as provided in the preceding sentence, this Agreement will terminate on the earlier of Employee's Termination Date or May 27, 2007. 3 3. Miscellaneous. 3.1 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon Neose and Employee and their respective successors, executors, administrators, heirs and permitted assigns, provided that Employee may not make any assignments of this Agreement or any interest herein, by operation of law or otherwise. 3.2 Entire Agreement. This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and supersedes all other discussions, agreements and understandings between the parties relating to the subject matter hereof, and may not be changed or modified, except by an agreement in writing signed by each of the parties hereto. 3.3 Governing Law. This Agreement shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without regard to the application of the principles of conflicts of laws. 3.4 Notices. Any notice or communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested, or (c) sent by telecopier, addressed as follows: If to Neose, to: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044-2211 Attention: President Fax: 215-441-5896 If to Employee, to: A. Brian Davis 504 School House Lane Willow Grove, PA 19090-2821 or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above. 4 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff /s/A. Brian Davis -------------------- ----------------- P. Sherrill Neff A. Brian Davis President and Chief Operating Officer 5 EX-10 9 ex10-45.txt EXHIBIT 10.45 EXHIBIT 10.45 RETENTION AGREEMENT THIS RETENTION AGREEMENT (this "Agreement") is made as of the 21st day of January, 2002 (the "Effective Date") by and between Neose Technologies, Inc. (the "Company") and A. Brian Davis ("Employee"). WHEREAS, the Employee serves as a senior executive of the Company; and WHEREAS, the Company and Employee desire to establish certain protections for Employee in the event of his or her termination of employment without Cause or resignation for Good Reason; and NOW THEREFORE, in consideration of these premises and intending to be legally bound hereby, the parties agree as follows: SECTION 1. Definitions. To the extent not defined in the preamble of this Agreement, capitalized terms used herein will have the meanings provided below: 1.1. "Annual Salary" means, as of any given date, the annual base rate of salary payable to Employee by the Company, as then in effect; provided, however, that in the case of a resignation by Employee for the Good Reason described in Section 1.8.3, "Annual Salary" will mean the annual base rate of salary payable to Employee by the Company, as in effect immediately prior to the reduction giving rise to the Good Reason. 1.2. "Board" means the Board of Directors of the Company. 1.3. "Cause" means any of the following: 1.3.1. Employee's engagement in dishonesty, willful misconduct or fraud in the performance of his or her duties to the Company; 1.3.2. Employee's conviction of, or plea of guilty or nolo contendere to, any felony or of any lesser crime or offense involving moral turpitude; 1.3.3. Employee's refusal to carry out the reasonable instructions of the Board, which instructions are consistent with Employee's responsibilities; or 1.3.4. any willful violation by Employee of any statute, regulation or ordinance the compliance with which is necessary for the operation of the business of the Company. 1.4. "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: 1.4.1. the direct or indirect acquisition by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13(d)(3) of the Securities Exchange Act of 1934, as amended) of securities possessing more than 50% of the total combined voting power of the Company's outstanding securities; 1.4.2. a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time such election or nomination was approved by the Board; 1.4.3. a merger or consolidation in which the Company's shareholders, as determined immediately prior to the transaction, do not hold more than 50% of the total combined voting power of the combined company upon completion of the transaction; 1.4.4. the sale, transfer or other disposition of all or substantially all of the Company's assets; or 1.4.5. a complete liquidation or dissolution of the Company; provided, however, for purposes of determining the precise date of any Change in Control, an event described above will be deemed to have occurred on the date on which the last condition required for the consummation of that event is fulfilled or otherwise completed. 1.5. "Code" means the Internal Revenue Code of 1986, as amended. 1.6. "Covered Termination" means a resignation by Employee with Good Reason or a termination of Employee's employment by the Company without Cause (but not including a termination by reason of the Employee's death or Disability). 1.7. "Disability" means a condition that would give rise to an entitlement to benefits under the terms of the Company's long term disability plan or, if no such plan is then in effect, a condition that would prevent Employee from performing the essential functions of his or her job, as determined by the Board in its discretion. 1.8. "Excess Parachute Payment" has the same meaning as used in Section 280G(b)(1) of the Code. 1.9. "Good Reason" means, without Employee's prior written consent, any of the following: 1.9.1. the reduction of Employee's title, authority, duties or responsibilities, or the assignment to Employee of duties that are inconsistent, in a material respect, with Employee's position; 1.9.2. the relocation of the Company's headquarters more than fifteen (15) miles from Horsham, Pennsylvania, unless such move reduces Employee's commuting time; or 1.9.3. a reduction in Employee's Annual Salary; -2- provided, however, the foregoing events or conditions will constitute Good Reason only if Employee provides the Company with written objection to the event or condition within sixty (60) days following the occurrence thereof, the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving that written objection and Employee resigns his or her employment within ninety (90) days following the expiration of that cure period. 1.10. "Overpayment" means any amount paid to Employee in excess of the maximum payment limit of Section 3.2.1 of this Agreement. SECTION 2. Benefits Upon Covered Termination. 2.1. Employee's Entitlement. Within five (5) days after the occurrence of a Covered Termination, the Company will: 2.1.1. pay Employee all of his or her accrued and unpaid Annual Salary, including payment for any accrued but unused vacation days, through the date of the Covered Termination; 2.1.2. pay Employee any annual bonus payable with respect to a fiscal year of the Company ending prior to the Covered Termination; and 2.1.3. pay Employee a lump sum payment of an amount equal to the Annual Salary of the Employee as of the date of the Covered Termination. 2.2. Waiver Of Insurance Premium. Company hereby waives, conditioned and effective upon the occurrence of a Covered Termination, any applicable premium otherwise due for any group health continuation coverage elected by the Employee or his or her spouse or dependents under COBRA (29 U.S.C.ss.ss.1161-1169) for coverage through the first anniversary of the date of the Covered Termination. 2.3. Release. Notwithstanding the foregoing, no amount will be paid or benefit or right provided under Sections 2.1.3 or 2.2 unless, following any Covered Termination, Employee executes and delivers to the Company a release substantially identical to that attached hereto as Exhibit A in a manner consistent with the requirements of the Older Workers Benefit Protection Act. SECTION 3. Covered Termination Following a Change in Control. 3.1. Employee's Additional Entitlement. If a Covered Termination occurs within the eighteen (18) month period beginning upon any Change in Control, then subject to the execution of the release described above in Section 2.3, in addition to the payments and benefits described above in Section 2 and notwithstanding anything to the contrary contained in any other agreement between Employee and the Company and any equity incentive plan of the Company, Employee will be deemed to continue to be employed by the Company through the first anniversary of the Covered Termination for purposes of any vesting, forfeiture, survival, exercise or similar term or condition applicable to any stock option, restricted stock, phantom stock, stock appreciation right or other equity-based incentive held by Employee immediately prior to his or her termination. -3- 3.2. Maximum Payment Limit. 3.2.1. If any payment or benefit due under this Agreement, together with all other payments and benefits that Employee receives, or is entitled to receive, from the Company or any of its subsidiaries, affiliates or related entities, would (if paid or provided) constitute an Excess Parachute Payment, the amounts otherwise payable and benefits otherwise due under this Agreement will be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Company by reason of Section 280G of the Code. The determination of whether any payment or benefit would (if paid or provided) constitute an Excess Parachute Payment will be made by the Board, in its sole discretion, based on the advice of the Company's auditors. 3.2.2. If, notwithstanding the initial application of Section 3.2.1, the Internal Revenue Service determines that any amount paid or benefit provided to Employee would constitute an Excess Parachute Payment, Section 3.2.1 will be reapplied based on the Internal Revenue Service's determination and any Overpayment will be deemed to be a loan from the Company to Employee. Employee will be required to repay that loan immediately upon receipt of written notice of the applicability of this section, together with interest from the date the Overpayment was paid to Employee (determined at the applicable federal rate in effect under Section 1274(d) of the Code as of the date of the Overpayment). SECTION 4. No Further Liabilities. Except as otherwise provided in Sections 2 and/or 3, all Annual Salary and benefits will cease at the time of the Covered Termination and the Company shall have no further liability or obligation to Employee following the Covered Termination. The payments, benefits and rights described in Sections 2 and/or 3 will be paid and provided in lieu of and not in addition to any other severance arrangement maintained by the Company. The foregoing will not be construed to limit Employee's right to payment or reimbursement for claims incurred prior to the date of such termination under any insurance contract funding an employee benefit plan, policy or arrangement of the Company in accordance with the terms of such insurance contract. SECTION 5. Miscellaneous. 5.1. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors, administrators and heirs. Employee may make any assignment of this Agreement or any interest herein, by operation of law or otherwise. The Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise. -4- 5.2. Notice. Any notice or communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested or (c) sent by telecopier, addressed as follows: If to Employee: A. Brian Davis 504 School House Lane Willow Grove, PA 19090 Fax: If to Company: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attn: General Counsel Fax: 215-441-5896 with a copy to: Pepper Hamilton LLP 3000 Two Logan Square 18th & Arch Streets Philadelphia, PA 19103 Attn: Barry M. Abelson, Esquire Fax: 215-981-4750 or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above. 5.3. Entire Agreement; Amendments. This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the subject matter. This Agreement may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto. 5.4. Waiver. Any waiver by either party of any breach of any term or condition in this Agreement shall not operate as a waiver of any other breach of such term or condition or of any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof or constitute or be deemed a waiver or release of any other rights, in law or in equity. 5.5. Governing Law. This Agreement shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without regard to the application of the principles of conflicts of laws. 5.6. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained. -5- 5.7. Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 5.8. No Duty to Mitigate. Employee shall not be required to mitigate damages or the amount of any payments provided for under this Agreement by seeking other employment or otherwise, nor will any payment or benefit hereunder be subject to offset or reduction in the event Employee does mitigate. 5.9. Costs of Enforcement. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief, reasonable attorneys' fees, costs and disbursements. 5.10. Counterparts and Facsimiles. This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Employee has executed this Agreement, in each case as of the date first above written. NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff -------------------------------------- P. Sherrill Neff President and Chief Operating Officer /s/ A. Brian Davis --------------------------- A. Brian Davis -6- EXHIBIT A RELEASE AND NON-DISPARAGEMENT AGREEMENT THIS RELEASE AND NON-DISPARAGEMENT AGREEMENT (this "Release") is made as of the ___ day of _______, _____ by and between [Employee] ("Employee") and NEOSE TECHNOLOGIES, INC. (the "Company"). WHEREAS, Employee's employment as an executive of the Company has terminated; and WHEREAS, pursuant to Sections 2 [and 3] of the Retention Agreement by and between the Company and Employee dated as of __________, 2002 (the "Retention Agreement"), the Company has agreed to pay Employee certain amounts and to provide him or her with certain rights and benefits, subject to the execution of this Release. NOW THEREFORE, in consideration of these premises and the mutual promises contained herein, and intending to be legally bound hereby, the parties agree as follows: SECTION 1. Consideration. Employee acknowledges that: (i) the payments, rights and benefits set forth in Sections 2 [and 3] of the Retention Agreement constitute full settlement of all his or her rights under the Retention Agreement, (ii) he or she has no entitlement under any other severance or similar arrangement maintained by the Company, and (iii) except as otherwise provided specifically in this Release, the Company does not and will not have any other liability or obligation to Employee. Employee further acknowledges that, in the absence of his or her execution of this Release, the severance benefits specified in Sections 2.1.3[,][and] 2.1.4 [and 3] of the Retention Agreement would not otherwise be due to Employee. SECTION 2. Release and Covenant Not to Sue. Employee hereby fully and forever releases and discharges Company and its parents, affiliates and subsidiaries, including all predecessors and successors, assigns, officers, directors, trustees, employees, agents and attorneys, past and present, from any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities, of whatever kind or nature, direct or indirect, in law, equity or otherwise, whether known or unknown, arising through the date of this Release, out of his or her employment by the Company or the termination thereof, including, but not limited to, any claims for relief or causes of action under the Age Discrimination in Employment Act, 29 U.S.C. ss. 621 et seq., or any other federal, state or local statute, ordinance or regulation regarding discrimination in employment and any claims, demands or actions based upon alleged wrongful or retaliatory discharge or breach of contract under any state or federal law, except for any claims arising out of the Tuition Reimbursement Agreement dated May 24, 2001 between Employee and the Company. Employee expressly represents that he or she has not filed a lawsuit or initiated any other administrative proceeding against the Company or any Affiliate, and that he or she has not assigned any claim against the Company or any Affiliate to any other person or entity. Employee further promises not to initiate a lawsuit or to bring any other claim against the Company or any Affiliate arising out of or in any way related to his or her employment by the Company or the termination of that employment. The forgoing will not be deemed to release the Company from (a) claims solely to enforce this Release, (b) claims solely to enforce Sections 2 [and 3] of the Retention Agreement, or (c) claims for indemnification under the Company's By-Laws, under any indemnification agreement between the Company and Employee or under any similar agreement. SECTION 3. Restrictive Covenants. Employee acknowledges that the terms of the [Confidentiality and Non-Compete Agreement] by and between the Employee and the Company dated _____ (the "Non-Compete Agreement") will survive the termination of his or her employment. Employee affirms that the restrictions contained in the Non-Compete Agreement are reasonable and necessary to protect the legitimate interests of the Company, that he or she received adequate consideration in exchange for agreeing to those restrictions and that he or she will abide by those restrictions. SECTION 4. Non-Disparagement. The Company (meaning, solely for this purpose, Company's directors and executive officers and other individuals authorized to make official communications on Company's behalf) will not disparage Employee or Employee's performance or otherwise take any action which could reasonably be expected to adversely affect Employee's personal or professional reputation. Similarly, Employee will not disparage Company or any of its directors, officers, agents or employees or otherwise take any action which could reasonably be expected to adversely affect the reputation of the Company or the personal or professional reputation of any of the Company's directors, officers, agents or employees. SECTION 5. Cooperation. Employee further agrees that, subject to reimbursement of his or her reasonable expenses, he or she will cooperate fully with the Company and its counsel with respect to any matter (including litigation, investigations, or governmental proceedings) which relates to matters with which Employee was involved during his or her employment with Company. Employee shall render such cooperation in a timely manner on reasonable notice from the Company. SECTION 6. Rescission Right. Employee expressly acknowledges and recites that (a) he or she has read and understands this Release in its entirety, (b) he or she understands the terms of this Release has entered into this Release knowingly and voluntarily, without any duress or coercion; (c) he or she has been advised orally and is hereby advised in writing to consult with an attorney with respect to this Release before signing it; (d) he or she was provided twenty-one (21) calendar days after receipt of the Release to consider its terms before signing it; and (e) he or she is provided seven (7) calendar days from the date of signing to terminate and revoke this Release, in which case this Release shall be unenforceable, null and void. Employee may revoke this Release during those seven (7) days by providing written notice of revocation to the Company. A-2 SECTION 7. Challenge. If Employee violates or challenges the enforceability of any provisions of the [Non-Compete Agreement] or this Release, no further payments, rights or benefits under Sections 2 [and 3] of the Retention Agreement will be due to Employee. SECTION 8. Miscellaneous. 8.1. No Admission of Liability. This Release is not to be construed as an admission of any violation of any federal, state or local statute, ordinance or regulation or of any duty owed by the Company to Employee. There have been no such violations, and the Company specifically denies any such violations. 8.2. No Reinstatement. Employee agrees that he or she will not apply for reinstatement with the Company or seek in any way to be reinstated, re-employed or hired by the Company in the future. 8.3. Successors and Assigns. This Release shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors, administrators and heirs. Employee may make any assignment of this Release or any interest herein, by operation of law or otherwise. The Company may assign this Release to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise. 8.4. Severability. Whenever possible, each provision of this Release will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Release is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Release will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained. 8.5. Entire Agreement; Amendments. Except as otherwise provided herein, this Release contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating subject matter hereof. This Release may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto. 8.6. Governing Law. This Release shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania without regard to the application of the principles of conflicts of laws. A-3 8.7. Counterparts and Facsimiles. This Release may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Release to be executed by its duly authorized officer, and Employee has executed this Release, in each case as of the date first above written. NEOSE TECHNOLOGIES, INC. By:_____________________________________ Name & Title:___________________________ ________________________________________ A. Brian Davis A-4 EX-10 10 ex10-46.txt EXHIBIT 10.46 EXHIBIT 10.46 RETENTION AGREEMENT THIS RETENTION AGREEMENT (this "Agreement") is made as of the 21st day of January, 2002 (the "Effective Date") by and between Neose Technologies, Inc. (the "Company") and Debra J. Poul ("Employee"). WHEREAS, the Employee serves as a senior executive of the Company; and WHEREAS, the Company and Employee desire to establish certain protections for Employee in the event of his or her termination of employment without Cause or resignation for Good Reason; and NOW THEREFORE, in consideration of these premises and intending to be legally bound hereby, the parties agree as follows: SECTION 1. Definitions. To the extent not defined in the preamble of this Agreement, capitalized terms used herein will have the meanings provided below: 1.1. "Annual Salary" means, as of any given date, the annual base rate of salary payable to Employee by the Company, as then in effect; provided, however, that in the case of a resignation by Employee for the Good Reason described in Section 1.8.3, "Annual Salary" will mean the annual base rate of salary payable to Employee by the Company, as in effect immediately prior to the reduction giving rise to the Good Reason. 1.2. "Board" means the Board of Directors of the Company. 1.3. "Cause" means any of the following: 1.3.1. Employee's engagement in dishonesty, willful misconduct or fraud in the performance of his or her duties to the Company; 1.3.2. Employee's conviction of, or plea of guilty or nolo contendere to, any felony or of any lesser crime or offense involving moral turpitude; 1.3.3. Employee's refusal to carry out the reasonable instructions of the Board, which instructions are consistent with Employee's responsibilities; or 1.3.4. any willful violation by Employee of any statute, regulation or ordinance the compliance with which is necessary for the operation of the business of the Company. 1.4. "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: 1.4.1. the direct or indirect acquisition by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13(d)(3) of the Securities Exchange Act of 1934, as amended) of securities possessing more than 50% of the total combined voting power of the Company's outstanding securities; 1.4.2. a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time such election or nomination was approved by the Board; 1.4.3. a merger or consolidation in which the Company's shareholders, as determined immediately prior to the transaction, do not hold more than 50% of the total combined voting power of the combined company upon completion of the transaction; 1.4.4. the sale, transfer or other disposition of all or substantially all of the Company's assets; or 1.4.5. a complete liquidation or dissolution of the Company; provided, however, for purposes of determining the precise date of any Change in Control, an event described above will be deemed to have occurred on the date on which the last condition required for the consummation of that event is fulfilled or otherwise completed. 1.5. "Code" means the Internal Revenue Code of 1986, as amended. 1.6. "Covered Termination" means a resignation by Employee with Good Reason or a termination of Employee's employment by the Company without Cause (but not including a termination by reason of the Employee's death or Disability). 1.7. "Disability" means a condition that would give rise to an entitlement to benefits under the terms of the Company's long term disability plan or, if no such plan is then in effect, a condition that would prevent Employee from performing the essential functions of his or her job, as determined by the Board in its discretion. 1.8. "Excess Parachute Payment" has the same meaning as used in Section 280G(b)(1) of the Code. 1.9. "Good Reason" means, without Employee's prior written consent, any of the following: 1.9.1. the reduction of Employee's title, authority, duties or responsibilities, or the assignment to Employee of duties that are inconsistent, in a material respect, with Employee's position; 1.9.2. the relocation of the Company's headquarters more than fifteen (15) miles from Horsham, Pennsylvania, unless such move reduces Employee's commuting time; or 1.9.3. a reduction in Employee's Annual Salary; -2- provided, however, the foregoing events or conditions will constitute Good Reason only if Employee provides the Company with written objection to the event or condition within sixty (60) days following the occurrence thereof, the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving that written objection and Employee resigns his or her employment within ninety (90) days following the expiration of that cure period. 1.10. "Overpayment" means any amount paid to Employee in excess of the maximum payment limit of Section 3.2.1 of this Agreement. SECTION 2. Benefits Upon Covered Termination. 2.1. Employee's Entitlement. Within five (5) days after the occurrence of a Covered Termination, the Company will: 2.1.1. pay Employee all of his or her accrued and unpaid Annual Salary, including payment for any accrued but unused vacation days, through the date of the Covered Termination; 2.1.2. pay Employee any annual bonus payable with respect to a fiscal year of the Company ending prior to the Covered Termination; and 2.1.3. pay Employee a lump sum payment of an amount equal to the Annual Salary of the Employee as of the date of the Covered Termination. 2.2. Waiver Of Insurance Premium. Company hereby waives, conditioned and effective upon the occurrence of a Covered Termination, any applicable premium otherwise due for any group health continuation coverage elected by the Employee or his or her spouse or dependents under COBRA (29 U.S.C.ss.ss.1161-1169) for coverage through the first anniversary of the date of the Covered Termination. 2.3. Release. Notwithstanding the foregoing, no amount will be paid or benefit or right provided under Sections 2.1.3 or 2.2 unless, following any Covered Termination, Employee executes and delivers to the Company a release substantially identical to that attached hereto as Exhibit A in a manner consistent with the requirements of the Older Workers Benefit Protection Act. SECTION 3. Covered Termination Following a Change in Control. 3.1. Employee's Additional Entitlement. If a Covered Termination occurs within the eighteen (18) month period beginning upon any Change in Control, then subject to the execution of the release described above in Section 2.3, in addition to the payments and benefits described above in Section 2 and notwithstanding anything to the contrary contained in any other agreement between Employee and the Company and any equity incentive plan of the Company, Employee will be deemed to continue to be employed by the Company through the first anniversary of the Covered Termination for purposes of any vesting, forfeiture, survival, exercise or similar term or condition applicable to any stock option, restricted stock, phantom stock, stock appreciation right or other equity-based incentive held by Employee immediately prior to his or her termination. -3- 3.2. Maximum Payment Limit. 3.2.1. If any payment or benefit due under this Agreement, together with all other payments and benefits that Employee receives, or is entitled to receive, from the Company or any of its subsidiaries, affiliates or related entities, would (if paid or provided) constitute an Excess Parachute Payment, the amounts otherwise payable and benefits otherwise due under this Agreement will be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Company by reason of Section 280G of the Code. The determination of whether any payment or benefit would (if paid or provided) constitute an Excess Parachute Payment will be made by the Board, in its sole discretion, based on the advice of the Company's auditors. 3.2.2. If, notwithstanding the initial application of Section 3.2.1, the Internal Revenue Service determines that any amount paid or benefit provided to Employee would constitute an Excess Parachute Payment, Section 3.2.1 will be reapplied based on the Internal Revenue Service's determination and any Overpayment will be deemed to be a loan from the Company to Employee. Employee will be required to repay that loan immediately upon receipt of written notice of the applicability of this section, together with interest from the date the Overpayment was paid to Employee (determined at the applicable federal rate in effect under Section 1274(d) of the Code as of the date of the Overpayment). SECTION 4. No Further Liabilities. Except as otherwise provided in Sections 2 and/or 3, all Annual Salary and benefits will cease at the time of the Covered Termination and the Company shall have no further liability or obligation to Employee following the Covered Termination. The payments, benefits and rights described in Sections 2 and/or 3 will be paid and provided in lieu of and not in addition to any other severance arrangement maintained by the Company. The foregoing will not be construed to limit Employee's right to payment or reimbursement for claims incurred prior to the date of such termination under any insurance contract funding an employee benefit plan, policy or arrangement of the Company in accordance with the terms of such insurance contract. SECTION 5. Miscellaneous. 5.1. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors, administrators and heirs. Employee may make any assignment of this Agreement or any interest herein, by operation of law or otherwise. The Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise. -4- 5.2. Notice. Any notice or communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested or (c) sent by telecopier, addressed as follows: If to Employee: Debra J. Poul 1320 Beaumont Drive Gladwyne, PA 19035 Fax: 610-896-3808 If to Company: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attn: General Counsel Fax: 215-441-5896 with a copy to: Pepper Hamilton LLP 3000 Two Logan Square 18th & Arch Streets Philadelphia, PA 19103 Attn: Barry M. Abelson, Esquire Fax: 215-981-4750 or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above. 5.3. Entire Agreement; Amendments. This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the subject matter. This Agreement may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto. 5.4. Waiver. Any waiver by either party of any breach of any term or condition in this Agreement shall not operate as a waiver of any other breach of such term or condition or of any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof or constitute or be deemed a waiver or release of any other rights, in law or in equity. 5.5. Governing Law. This Agreement shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without regard to the application of the principles of conflicts of laws. 5.6. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained. -5- 5.7. Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 5.8. No Duty to Mitigate. Employee shall not be required to mitigate damages or the amount of any payments provided for under this Agreement by seeking other employment or otherwise, nor will any payment or benefit hereunder be subject to offset or reduction in the event Employee does mitigate. 5.9. Costs of Enforcement. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief, reasonable attorneys' fees, costs and disbursements. 5.10. Counterparts and Facsimiles. This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Employee has executed this Agreement, in each case as of the date first above written. NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff ------------------------------------- P. Sherrill Neff President and Chief Operating Officer /s/ Debra J. Poul ---------------------------------------- Debra J. Poul -6- EXHIBIT A RELEASE AND NON-DISPARAGEMENT AGREEMENT THIS RELEASE AND NON-DISPARAGEMENT AGREEMENT (this "Release") is made as of the ___ day of _______, _____ by and between [Employee] ("Employee") and NEOSE TECHNOLOGIES, INC. (the "Company"). WHEREAS, Employee's employment as an executive of the Company has terminated; and WHEREAS, pursuant to Sections 2 [and 3] of the Retention Agreement by and between the Company and Employee dated as of __________, 2002 (the "Retention Agreement"), the Company has agreed to pay Employee certain amounts and to provide him or her with certain rights and benefits, subject to the execution of this Release. NOW THEREFORE, in consideration of these premises and the mutual promises contained herein, and intending to be legally bound hereby, the parties agree as follows: SECTION 1. Consideration. Employee acknowledges that: (i) the payments, rights and benefits set forth in Sections 2 [and 3] of the Retention Agreement constitute full settlement of all his or her rights under the Retention Agreement, (ii) he or she has no entitlement under any other severance or similar arrangement maintained by the Company, and (iii) except as otherwise provided specifically in this Release, the Company does not and will not have any other liability or obligation to Employee. Employee further acknowledges that, in the absence of his or her execution of this Release, the severance benefits specified in Sections 2.1.3[,][and] 2.1.4 [and 3] of the Retention Agreement would not otherwise be due to Employee. SECTION 2. Release and Covenant Not to Sue. Employee hereby fully and forever releases and discharges Company and its parents, affiliates and subsidiaries, including all predecessors and successors, assigns, officers, directors, trustees, employees, agents and attorneys, past and present, from any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities, of whatever kind or nature, direct or indirect, in law, equity or otherwise, whether known or unknown, arising through the date of this Release, out of his or her employment by the Company or the termination thereof, including, but not limited to, any claims for relief or causes of action under the Age Discrimination in Employment Act, 29 U.S.C. ss. 621 et seq., or any other federal, state or local statute, ordinance or regulation regarding discrimination in employment and any claims, demands or actions based upon alleged wrongful or retaliatory discharge or breach of contract under any state or federal law. Employee expressly represents that he or she has not filed a lawsuit or initiated any other administrative proceeding against the Company or any Affiliate, and that he or she has not assigned any claim against the Company or any Affiliate to any other person or entity. Employee further promises not to initiate a lawsuit or to bring any other claim against the Company or any Affiliate arising out of or in any way related to his or her employment by the Company or the termination of that employment. The forgoing will not be deemed to release the Company from (a) claims solely to enforce this Release, (b) claims solely to enforce Sections 2 [and 3] of the Retention Agreement, or (c) claims for indemnification under the Company's By-Laws, under any indemnification agreement between the Company and Employee or under any similar agreement. SECTION 3. Restrictive Covenants. Employee acknowledges that the terms of the [Confidentiality and Non-Compete Agreement] by and between the Employee and the Company dated _____ (the "Non-Compete Agreement") will survive the termination of his or her employment. Employee affirms that the restrictions contained in the Non-Compete Agreement are reasonable and necessary to protect the legitimate interests of the Company, that he or she received adequate consideration in exchange for agreeing to those restrictions and that he or she will abide by those restrictions. SECTION 4. Non-Disparagement. The Company (meaning, solely for this purpose, Company's directors and executive officers and other individuals authorized to make official communications on Company's behalf) will not disparage Employee or Employee's performance or otherwise take any action which could reasonably be expected to adversely affect Employee's personal or professional reputation. Similarly, Employee will not disparage Company or any of its directors, officers, agents or employees or otherwise take any action which could reasonably be expected to adversely affect the reputation of the Company or the personal or professional reputation of any of the Company's directors, officers, agents or employees. SECTION 5. Cooperation. Employee further agrees that, subject to reimbursement of his or her reasonable expenses, he or she will cooperate fully with the Company and its counsel with respect to any matter (including litigation, investigations, or governmental proceedings) which relates to matters with which Employee was involved during his or her employment with Company. Employee shall render such cooperation in a timely manner on reasonable notice from the Company. SECTION 6. Rescission Right. Employee expressly acknowledges and recites that (a) he or she has read and understands this Release in its entirety, (b) he or she understands the terms of this Release has entered into this Release knowingly and voluntarily, without any duress or coercion; (c) he or she has been advised orally and is hereby advised in writing to consult with an attorney with respect to this Release before signing it; (d) he or she was provided twenty-one (21) calendar days after receipt of the Release to consider its terms before signing it; and (e) he or she is provided seven (7) calendar days from the date of signing to terminate and revoke this Release, in which case this Release shall be unenforceable, null and void. Employee may revoke this Release during those seven (7) days by providing written notice of revocation to the Company. A-2 SECTION 7. Challenge. If Employee violates or challenges the enforceability of any provisions of the [Non-Compete Agreement] or this Release, no further payments, rights or benefits under Sections 2 [and 3] of the Retention Agreement will be due to Employee. SECTION 8. Miscellaneous. 8.1. No Admission of Liability. This Release is not to be construed as an admission of any violation of any federal, state or local statute, ordinance or regulation or of any duty owed by the Company to Employee. There have been no such violations, and the Company specifically denies any such violations. 8.2. No Reinstatement. Employee agrees that he or she will not apply for reinstatement with the Company or seek in any way to be reinstated, re-employed or hired by the Company in the future. 8.3. Successors and Assigns. This Release shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors, administrators and heirs. Employee may make any assignment of this Release or any interest herein, by operation of law or otherwise. The Company may assign this Release to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise. 8.4. Severability. Whenever possible, each provision of this Release will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Release is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Release will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained. 8.5. Entire Agreement; Amendments. Except as otherwise provided herein, this Release contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating subject matter hereof. This Release may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto. 8.6. Governing Law. This Release shall be governed by, and enforced in accordance with, the laws of the Commonwealth of Pennsylvania without regard to the application of the principles of conflicts of laws. 8.7. Counterparts and Facsimiles. This Release may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. A-3 IN WITNESS WHEREOF, the Company has caused this Release to be executed by its duly authorized officer, and Employee has executed this Release, in each case as of the date first above written. NEOSE TECHNOLOGIES, INC. By:____________________________________ Name & Title:__________________________ [EMPLOYEE] _______________________________________ A-4 EX-10 11 ex10-47.txt EXHIBIT 10.47
EXHIBIT 10.47 [LOGO] STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Basic Provisions ("Basic Provisions"). 1.1 Parties: This Lease ("Lease"), dated for reference purposes only February 2 , 2001. ------------------------------------------------- ----- is made by and between Nancy Ridge Technology Center, LLC. a California Limited Liability Company ------------------------------------------------------------------------------------------------------------- ("Lessor") - ------------------------------------------------------------------------------------------------------------------------- and Neose Technologies, Inc., a Delaware Corporation - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ("Lessee"), (collectively the "Parties", or individually a "Party"). - ----------------------------------------------------------- 1.2(a) Premises: That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 6330 Nancy Ridge Drive, Suites 102-103 , ----------------------------------------------------- located in the City of San Diego , County of San Diego , State of -------------------------------------- ----------------------------------------------- California , with zip code 92121 , as outlined on Exhibit B & C attached hereto ("Premises") - ---------------------------------------------- ----------- ----- and generally described as (describe briefly the nature of the Premises): Approximately 10,029 square feet of office, ---------------------------------------------------------- biotech lab and vivarium space - ------------------------------------------------------------------------------------------------------------------------------------ - -----------------------------------------------------------------------------------------------------------------------------------. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the building containing the Premises ("Building") or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Project." (See also Paragraph 2) 1.2(b) Parking: Twenty-Five (25) unreserved vehicle parking spaces ("Unreserved Parking Spaces"); and No ---------------------- reserved vehicle parking spaces ("Reserved Parking Spaces"). (See also Paragraph 2.6) 1.3 Term: Five (5) years and -0- months ("Original Term") -------------------------------------- --------------------------------------------- commencing April 1, 2001 ("Commencement Date") and ending March 31, 2006 -------------------------------------------- ------------------------------------------- ("Expiration Date"). (See also Paragraph 3) 1.4 Early Possession: None ("Early Possession Date"). ------------------------------------------- (See also Paragraphs 3.2 and 3.3) 1.5 Base Rent: $23,568.15 per month ("Base Rent"), payable on the First -------------------------- ------------------------------------------- day of each month commencing May 1, 2001 . (For April 2001 -------------------------------------------------------------------------------------- only, the base rent shall be reduced to $15,000.00). The base rent shall increase four percent (4%) on each twelve (12) month anniversary of the lease commencement. (See also Paragraph 4) /x/ If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 Lessee's Share of Common Area Operating Expenses: Approx. 5.7 percent (5.7%) ("Lessee's Share"). ------------------------------ ------------- 1.7 Base Rent and Other Monies Paid Upon Execution: (a) Base Rent: $15,000.00 for the period April, 2001 . ------------------ ----------------------------------------------------------------------- (b) Common Area Operating Expenses: $2,200.00 for the period April, 2001 . ---------------------- ----------------------------------------------- (c) Security Deposit: $70,704.45 ("Security Deposit"). (See also Paragraph 5) At no time shall the ---------------------------------- security deposit be less than an amount equal to three (3) months of then current Base Rent. The security deposit shall be increased to an amount equal to six (6) months of the then current Base Rent if Lessee's net worth dips below $20,000,000.00 at any time during the term of the lease. (d) Other: $None for ----------------------------------- ---------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- (e) Total Due Upon Execution of this Lease: $87,904.45 . ------------------------------ 1.8 Agreed Use: General office, biotech research and development. Lessee shall not create any health or safety risks, odors, ------------------------------------------------------------------------------------------------------------- or nuisance to any other tenants in the project, nor preclude, nor limit, any other present or future tenant's use of space in the - --------------------------------------------------------------------------------------------------------------- project. (See also Paragraph 6) 1.9 Insuring Party. Lessor is the "Insuring Party". (See also Paragraph 8) 1.10 Real Estate Brokers: (See also Paragraph 15) (a) Representation: The following real estate brokers (the "Brokers") and brokerage relationships exist in this transaction (check applicable boxes): /x/ None represents Lessor exclusively ("Lessor's Broker"); -------------------------------------------------------------------- /x/ Neil Fox represents Lessee exclusively ("Lessee's Broker"); or ----------------------------------------------------------------- /x/ represents both Lessor and Lessee ("Dual Agency"). -------------------------------------------------------------------- (b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers the sum of 1.25 percent or 1.25% of the total Base Rent for the brokerage services rendered by the Brokers. The remaining 1.25% will be paid upon issuance of a Certificate of Occupancy. 1.11 [INTENTIONALLY OMITTED]. 1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 53 ; ----------- ----------- Addendum No. 1 consisting of Paragraphs 1 through 3; and Exhibits A through C , all of which constitute a part of this Lease. ------ ----- CL SN - -------- -------- - -------- -------- Initials Initials Page 1 of 13 (C) 1999 - American Industrial Real Estate Association REVISED FORM MTN-2-2/99E
2. Premises 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. 2.2 Condition. Lessor shall deliver that portion of the Premises contained within the Building ("Unit") to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("Start Date"), and, so long as the required service contracts described in Paragraph 71.(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HAVC"), loading doors, if any, and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the AVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7). 2.3 Compliance. Lessor warrants that the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed. All applicable laws, covenants or restrictions of record, regulations, and ordinances in effect from time to time throughout the term of this lease shall be referred to in this lease as ("Applicable Requirements"). Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ("Capital Expenditure"), Lessor and Lessee shall allocate the cost of such work as follows: (a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure. (b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor. (c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease. 2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee's intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants. 2.5 [INTENTIONALLY OMITTED] 2.6 Vehicle Parking. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invites to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) Lessee shall not service or store any vehicles in the Common Areas. (c) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.7 Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas. 2.8 Common Areas - Lessee's Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ("Rules and Regulations") for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project. 2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time; (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) [INTENTIONALLY OMITTED]. (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Lessee's Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the commencement date or the Expiration Date. 3.3 Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lease shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises, unless such default is caused by: (a) Lessee's modifications (including but not limited to those described in Paragraph 52), or (b) the actions or inactions of Lessee, oF Lessee's vendors or agents. 3.4 Lease Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and ater the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied. 4. Rent. 4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("Rent"). 4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition the Base Rent, Lessee's Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following; (i) The operation, repair and maintenance, in neat, clean, good order and condition of the following: (aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage systems. (bb) Exterior signs and any tenant directories. (cc) Any fire detection and/or sprinkler systems. (ii) The cost af water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered. (iii) Trash disposal, pest control services, property management, security services, and the costs of any environmental inspections: (iv) Reserves set aside for maintenance and repair of Common Areas. (v) Real Property Taxes (as defined in Paragraph 10). (vi) The cost of the premiums for the Insurance maintained by Lessor pursuant to Paragraph 8. (vii) Any deductible portion of an insured loss concerning the Building or the Common Areas. (viii) The cost of any Capital Expendlture to the Building or the Project not covered under the provisions of Paragraph 2.3 provided: however, that Lessor shall allocate the cost of any such Capital Expenditure over a 12 year period and Lessee shall not be required to pay more than Lessee's Share of 1/144th of the cost of such Capital Expenditure in any given month. (ix) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense. (b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project. (c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Projects already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some or them. (d) Share of Common Area Operating Expenses shall be payable by Lessee within 10 days after a reasonably detailed statement of actual presented to Lessee. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Common Area Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12 month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days after the expiration of each calendar year a reasonable detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(d) during the preceding year exceed Lessee's Share as indicated on such statement, Lessor shall credit the amount of such over-payment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d) during the preceding year were less than Lessee's Share as indicated on such statement, Lessee shall pay to Lessor the amount of the deficiency with 10 days after delivery by Lessor to Lessee of the statement. 4.3 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less then due shall not be a waiver of Lessor's rights to the balance of such Rent regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any late changes which may be due. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accomodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. 6. Use 6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request to give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use. 6.2 Hazardous Substances. (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance. (c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party. (d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. (e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. (f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities. (g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent on $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination. 6.3 Lessee's Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently, and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessors engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. 6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of inspection is reasonably related to the violation or contamination. 7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations 7.1 Lessee's Obligations. (a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation). Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (b) Service Contracts. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers, and (4) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof. (c) Failure to Perform. If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly reimburse Lessor for the cost thereof. (d) Replacement. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor's accountants. Lessee may, however, prepay its obligation at any time. 7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph) 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. 7.3 Utility Installations; Trade Fixtures; Alterations. (a) Definitions. The term "Utility Installations" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). (b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent, Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's; (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with a11 conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialman's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs. 7.4 Ownership; Removal; Surrender; and Restoration. (a) Ownership. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination for this Lease, become the property of Lessor and be surrendered by Lessee with the Premises. (b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent. (c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear expected. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. 8. Insurance Indemnity. 8.1 Payment of Premiums. The cost of the premiums for the insurance policies required to be carried by Lessor, pursuant to Paragraphs 8.2()b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coinside with the corresponding Start Date or Expiration Date. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an "Additional Insured-Managers or Lessors of Premises Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 Property Insurance - Building, Improvements and Rental Value. (a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commerically appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $25,000 per occurrence. (b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("Rental Value insurance"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. 8.4 Lessee's Property; Business Interruption Insurance. (a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $25,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force. (b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils. (c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease. 8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification that impacts the coverage required under this lease, except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 Indemnity. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified. 8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (b) "Premises Total Destruction" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $5,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the Improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice. 9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provied in Paragraph 8.6. 9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) execising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished. 9.6 Abatement of Rent; Lessee's Remedies. (a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value Insurance. All other obligaions of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein. (b) Remedies. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginnning of the actual work on the Premises, whichever first occurs. 9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor. 9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. Real Property Taxes. 10.1 Definition. As used herein, the term "Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term this Lease, including but not limited to, a change in the ownership of the Project or any portion thereof or a change in the improvements thereon. In calculating Real Proerty Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common. 10.2 Payment of Taxes. Lessor shall pay the Real Property Taxes applicable to the Project, and except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 10.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request. 10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determinaton thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other pesonal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the dumpster and/or an increase in the number of times per month that the dumpster is emptied, then Lessor may increase Lessee's Base Rent by an amount equal to such increased costs. 12. Assignment and Subletting. 12.1 Lessor's Consent Required. (a) Lessee shall not voluntarily or by operating of law assign, transfer, mortgage or encumber (collectively, "assign or assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent. (b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 51% or more of the voting conrol of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles. (d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent. (e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief. 12.2 Terms and Conditions Applicable to Assignment and Subletting. (a) Regardless of Lessor's consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee. (b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach. (c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting. (d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 or 10% of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing. (g) Lessor's consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2) 12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary. (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor. (c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. Default; Breach; Remedies. 13.1 Default; Breach. A "Default" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A "Breach" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period: (a) The abandonment of the Premises; or the vacating of the Premises without providing, a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism. (b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee. (c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b) or (c) , above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee's Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "debtor" as defined in 11 U.S.C. ss. 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantors becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease. 13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment approximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 Inducement Recapture. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions", shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ("Interest") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus 4%, but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4. 13.6 Breach by Lessor. (a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of the Lessor's has not been performed; provided, however, that if the nature of Lessors obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion. (b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of such notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than 25% of Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leaseholder, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. A11 Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation. 15. Brokerage Fees. 15.1 [INTENTIONALLY OMITTED]. 15.2 [INTENTIONALLY OMITTED]. 15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 16. Estoppel Certificates. (a) Each Party (as "Responding Party") shall within 10 days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Estoppel Certificate" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. (b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrances may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate. (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Definition of Lessor. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessors interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6.2 above. 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Days. Unless otherwise specifically indicated to the contrary, the word "days"' as used in this Lease shall mean and refer to calendar days. 20. Limitation on Liability. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction. 21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker. 23. Notices. 23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing. 23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. Disclosures Regarding The Nature of a Real Estate Agency Relationship. (a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows: (i) Lessor's Agent. A Lessors agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. (ii) Lessee's Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor's agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agent's duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. (iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional. (b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker. (c) Buyer and Seller agree to identify to Brokers as "Confidential" any communication or information given Brokers that is considered by such Party to be confidential. 26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. 30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor's obligations hereunder, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership: (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor. 30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement. 30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein. 31. Attorneys' Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation). 32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lendeers, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "For Sale" signs and Lessor may during the last 6 months of the term hereof place on the Premises any ordinary "For Lease" signs. Lessee may at any time place on the Premises any ordinary "For Sublease" sign. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction. 34. Signs. Except for ordinary "For Sublease" signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor's prior written consent. All signs must comply with all Applicable Requirements. 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request. 37. [INTENTIONALLY OMITTED]. 38. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof. 39. Options. If Lessee is granted an option, as defined below, then the following provisions shall apply. 39.1 Definition. "Option" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor. 39.2 Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting. 39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee 3 or more notices of separate Default during any 12 month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 41. Reservations. Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights. 42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. 43. Authority. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority. 44. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 45. Offer. Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 46. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises. 47. Multiple Parties. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease. 48. Waiver of Jury Trial. The Parties hereby waive their respective rights to trial by jury in any action or proceeding involving the Property or arising out of this Agreement. 49. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease /_/ is /X/ is not attached to this Lease. 50. Assignment/Subleasing Overage: In the event Lessee assigns this lease, or subleases any portion of the premises for more consideration than that paid by Lessee, seventy-five percent (75%) of any such overage shall be paid to Lessor as additional rent. If excess rent is being determined for a subtenant(s) which occupy(ies) less than all of the premises, then excess rent shall be the difference between; (1) the amount of the rent and other amounts paid by the subtenant, and (2) the amount of base rent and other charges due under the lease multiplied by a fraction, the numerator of which is the usable floor area of the premises occupied by the subtenant(s) and the denominator of which is the total usable floor area of the premises. 51. Monthly Common Area Operating Expenses Estimate: In addition to the base rent, Lessee shall initially pay a monthly charge of $2,200.00 which is an estimate of the monthly common area operating expenses due under Paragraph 4. 52. Tenant Improvements: Lessor has hired a contractor to complete interior improvements to the suites in accordance with the attached Exhibit "C-1", entitled "Lessor's Original Floor Plan". The cost of the originally contemplated improvements shall be borne solely by the Lessor. Lessee shall coordinate, and pay for all costs relating to any modifications to the originally contemplated improvements, including but not limited to, those identified In Exhibit "C-2", entitled "Lessee's Modified Floor Plan" and described as follows: A. Elimination of Rooms #314, #315, #316, #201 and #305. B. Extension of both benches in Rooms #208 and #211. C. Elimination of the wall between Rooms #209 and #210, Rooms #203 and #204, Rooms #306 and #307, Rooms #301 and #302. D. Installation of two (2) half benches in Rooms #209 and #210, and Room #204. E. Fire wall between Suites #102 and #103, wall penetrations, and the installation of doors. F. For Room #312, elimination of the benches, the installation of a new floor drain, one half bench, and a utility room. G. For Room #309, elimination of one of the benches, the installation of one half bench, the relocation of the sink, and the extension of the remaining bench. H. Installation of a shower. I. Elimination of the hallway from Room #200 to the rear of Suite #102. J. Installation of a fume hood in Room #211. K. Relocation of the wall separating Rooms #310 and #311 so that each room is of equal size. L. Installation of a wall in Room #306. Subsequent to the execution of this lease, Lessee may, at its sole discretion, elect not to construct any or all of the tenant improvements listed above. In the event Lessee elects not to proceed with any or all of these modifications, the rent for April 2001 will be increased to $23,568.15. Any modifications beyond those described above must be approved in writing by the Lessor before they are made. These modifications may significantly delay Lessee's ability to move into the space. Regardless, there shall be no change in the commencement date. 53. Option to Extend: If the property is sold during the lease term, and Christopher Lee Loughridge no longer has ownership interest and management control of the property, then Lessee shall have the option to extend the term of this lease for one (1) additional five (5) year period commencing when the prior term expires upon each and all of the following terms and conditions: a) In order to exercise an Option to Extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least six (6), but not more than eight (8), months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option ehall automatically expire. Options (if there are more than one) may only be exercised consecutively. b) The provisions of Paragraph 39, including those relating to Lessee's default set forth in Paragraph 39.4 of this lease, are conditions of this option. c) Except for the provisions of this lease granting an option or options to extend the term, all of the terms and conditions of this lease, except where specifically modified by this option, shall apply. d) This option is personal to the original Lessee and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the premises and without the intention of thereafter assigning or subletting. e) The base rent for the first year of the option shall be at ninety-five percent (95%) of then current fair market rent. Thereafter, the base rent shall increase four percent (4%) on each twelve (12) month anniversary of the commencement of the option term. f) This option shall be of no force or effect so long as Christopher Lee Loughridge retains an ownership interest and management control of the property. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO: 1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE. WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED. The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.
Executed at: San Diego Executed at: Horsham ------------------------------------------ ------------------------------------------ on: 2/8/01 on: February 7, 2001 ----------------------------------------------------- ---------------------------------------------------- By LESSOR: By LESSEE: Nancy Ridge Technology Center, LLC Neose Technologies, Inc., a Delaware Corporation - -------------------------------------------------------- ------------------------------------------------------- By: /s/ Christopher Lee Loughridge By: /s/ P. Sherrill Neff ----------------------------------------------------- ---------------------------------------------------- Name Printed: Christopher Lee Loughridge Name Printed: P. Sherrill Neff ------------------------------------------ ----------------------------------------- Title: Manager Title: President and COO ------------------------------------------------- ------------------------------------------------ By: By: ----------------------------------------------------- ---------------------------------------------------- Name Printed: Name Printed: ------------------------------------------ ----------------------------------------- Title: Title: ------------------------------------------------- ------------------------------------------------ Address: c/o Voit Commercial Brokerage Address: ----------------------------------------------- ----------------------------------------------- 4370 La Jolla Village Dr., #990 - -------------------------------------------------------- ----------------------------------------------- San Diego, CA 92122-1233 - -------------------------------------------------------- ----------------------------------------------- Telephone: (858) 453-0505 Telephone: (215) 441-5890 --------------------------------------------- -------------------------------------------- Facsimile: (858) 597-6793 Facsimile: (215) 441-5896 --------------------------------------------- -------------------------------------------- Federal ID No. Federal ID No. 13-3549286 ------------------------------------------ ----------------------------------------
These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 700 South Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777. (c)Copyright 1999 By American Industrial Real Estate Association. All rights reserved. No part of these works may be reproduced in any form without permission in writing. ADDENDUM NO. 1 TO LEASE (San Diego, California) This ADDENDUM NO. 1 TO LEASE ("Addendum") is made to the Standard Industrial/Commercial Multi-Tenant Lease - Net dated as of February 2, 2001 ("Lease") between NANCY RIDGE TECHNOLOGY CENTER, LLC, a California limited liability company ("Lessor") and NEOSE TECHNOLOGIES, INC., A DELAWARE CORPORATION ("Lessee"). Lessor and Lessee hereby agree that notwithstanding anything contained in the Lease to the contrary, the provisions set forth below shall be deemed to be a part of the Lease and shall supersede, to the extent appropriate, any contrary provision of the Lease. All references to the Lease in this Addendum shall be construed to mean the Lease and all addenda and exhibits thereto, as amended and supplemented by this Addendum. All defined terms used in this Addendum, unless specifically defined in this Addendum, shall have the same meaning as such terms have in the Lease. 1. Common Area Operating Expenses. Notwithstanding Lease Section 4.2 to the contrary, all Common Area Operating Expenses shall be allocated as if the Building and/or Project, as applicable, are 100% occupied at all times, and "Common Area Operating Expenses" shall exclude the following: (a) depreciation, interest and/or amortization on mortgages or ground lease payments; (b) legal fees incurred in negotiating and enforcing other tenant leases affecting the Project; (c) real estate broker commissions; (d) initial improvements or alterations to tenant spaces; (e) the cost of providing any service directly to and paid directly by any other tenant; (f) costs of any items for which Lessor receives reimbursement from insurance proceeds or from any third party (other than reimbursement from the other tenants of the Building based upon such tenants' pro rata shares of Common Area Operating Expenses); (g) costs and expenses incurred with respect to the removal of Hazardous Substances not attributable to the acts of Lessee; (h) any management fee in excess of three and one-half percent (3.5%) of the Base Rent; and (i) any federal and state income taxes, and other taxes applied or measured by Lessor's general or net income (as opposed to rents, receipts, or income directly attributable to operation of the Project and excluding real property taxes and assessments which are Lessee's responsibility under the Lease). 2. Hazardous Substances. (a) Lessor represents and warrants that no Hazardous Substances have been used, stored or released on, under, about or within the Premises or the Common Areas in violation of any Applicable Requirements. Notwithstanding Lease Section 6.2 to the contrary, Lessor shall be fully responsible for any and all costs and expenses relative to the cleanup and/or remediation of any Hazardous Substances from the Premises and/or the Common Areas existing as of the Commencement Date. Lessor agrees that Lessor shall not use, store or release, or permit any third party to use, store or release, any Hazardous Substances on, under, about or within the Building, the Premises or the Common Areas in violation of Applicable Requirements. (b) Notwithstanding anything contained in the Lease or this Addendum to the contrary, Lessee may use amounts and types of Hazardous Substances which are reasonable and customary for purposes of conducting its business operations in accordance with its Permitted Use of the Premises in accordance with Applicable Requirements. Notwithstanding Lease sections 6.2(b), (c) and (d) to the contrary, Lessee shall only have the obligation to inform Lessor, conduct remediation and/or indemnify Lessor thereunder to the extent Lessee's use of Hazardous Substances is in violation of Applicable Requirements. 3. Assignment and Subletting. Notwithstanding the provisions of Lease Section 12 to the contrary, Lessee may assign the Lease at any time without Lessor's consent to (a) any Affiliate (as defined below) or any entity which owns or is owned by an Affiliate; (b) any entity acquiring substantially all of the assets or stock of Lessee; or (c) another entity in connection with the merger of Lessee with such entity; provided; however, in each such case the assignee shall have financial wherewithal equal to or greater than Lessee's as of the Lease commencement date. For purposes of this Section, "Affiliate" shall mean any entity which is controlled by (directly or indirectly) Lessee, or which controls (directly or indirectly) Lessee, or which is under common control with Lessee. IN WITNESS WHEREOF, Lessor and Lessee have executed this Addendum No. 1 to Lease as of the date of the Lease. LESSOR: NANCY RIDGE TECHNOLOGY CENTER, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY By: /s/ Chris Loughridge ------------------------------ Name: Chris Loughridge ------------------------------ Title: Manager ------------------------------ Date: February 8, 2001 ------------------------------ LESSEE: NEOSE TECHNOLOGIES, INC., A DELAWARE CORPORATION By: /s/ P. Sherrill Neff ------------------------------ Name: P. Sherrill Neff ------------------------------ Title: President and COO ------------------------------ Date: February 7, 2001 ------------------------------ By: ------------------------------ Name: ------------------------------ Title: ------------------------------ Date: ------------------------------ EX-10 12 ex10-48.txt EXHIBIT 10.48 EXHIBIT 10.48 First Amendment to Lease ------------------------ This Amendment, dated May 18, 2001, is executed by and between (1) Nancy Ridge Technology Center, LLC, a California limited liability company ("Lessor"), and (2) Neose Technologies, Inc., a Delaware corporation ("Lessee"). This Amendment is entered into with reference to the following facts: Recitals: --------- A. Lessor and Lessee have previously executed and delivered that certain Standard Industrial/Commercial Multi-Tenant Lease-Net dated February 2, 2001 ("the Lease") pertaining to certain space in a building commonly known as 6330 Nancy Ridge Drive, Suites 102 and 103, San Diego, California 92121 ("the Premises"). B. Under Paragraph 52 of the Lease, Lessor and Lessee were each responsible for payment of certain costs pertaining to improvements to be installed in the Premises. C. Following execution of the Lease, Lessor and Lessee have been able substantially to determine the scope of the improvements to be installed in the Premises and, as a consequence thereof, desire to modify the Lease as provided herein. Covenants: ---------- In consideration of the above recitals and the mutual agreements stated below, the parties agree: 1. Depletion of Prior Provision. Paragraph 52 of the Lease is deleted in its entirety and the following substituted therefor: 52. Tenant Improvements. Lessor shall enter into a contract with Pacific Interior Systems ("Contractor") substantially in form and of content as Exhibit A attached hereto ("the Construction Contract"). The work of improvement to be performed by Contractor in accordance with the terms of the Construction Contract, as such work may be modified pursuant to change orders as provided below, is herein referred to as the "Tenant Improvement Work" and such improvements are herein referred to as the "Tenant Improvements." As used herein, the term "the Plans" shall mean the plans and specifications as identified in the exhibits to the Construction Contract. Notwithstanding that Lessee shall contribute to the cost of the Tenant Improvements as provided below, all of the Tenant Improvements shall remain Lessor's property and shall be surrendered by Lessee to Lessor upon expiration or termination of this Lease. 52.1. Payment of Tenant Improvement Work. Under the Construction Contract, the cost of the Tenant Improvement Work is $544,882.00 ("Original Contract Price"). Lessor and Lessee shall be responsible for payment of $415,708.00 and $129,174.00 of the Original Contract Price, respectively. If the Original Contract Price is increased during the course of the completion of the Tenant Improvement Work, then such increase shall be borne as follows: 1 52.1.1. If the increase to the Original Contract Price is the result of a Lessee directed change in the scope of the work to be performed by Contractor (a "Lessee Change Order"), then Lessee shall pay the full amount of any such increase to the Original Contract Price. 52.1.2. If the increase to the Original Contract Price is the result of a Lessor directed change in the scope of the work to be performed by Contractor (a "Lessor Change Order"), then Lessor shall pay the full amount of any such increase to the Original Contract Price. 52.1.3. If the increase to the Original Contract Price is the result of an unexpected change in the scope of the Tenant Improvement Work which entitles Contractor to additional compensation (e.g., change in building codes, unforeseen site condition, unforeseen unavailability of materials, etc.) (an "Unforeseen Change Order"), then Lessor and Lessee shall each pay one-half of any such increase in the Original Contract Price. 52.2 Timing of Payment of Construction Costs. Upon the later of (1) two business days prior to the date on which Contractor is entitled to payment under the terms of the Construction Contract or (2) 10 days following Lessee's receipt of a billing request under the Construction Contract, Lessee shall deliver to Lessor immediately available funds in an amount equal to Lessee's Proportionate Share of the payment then due. As used herein, "Lessee's Proportionate Share" shall mean the sum of (1) 23.7 percent of the portion of the payment due attributable to the Original Contract Price, (2) the full amount of any portion of the payment due attributable to a Lessee Change Order and (3) 50 percent of any portion of the payment due attributable to an Unforeseen Change Order. Provided that Lessee has timely paid to Lessor Lessee's Proportionate Share of a payment owed to Contractor, then Lessor shall pay to Contractor the full amount of the payment then owed prior to delinquency. If a party fails timely to make payment required under this paragraph, the non-defaulting party may advance payment and the defaulting party shall be obligated to reimburse the non-defaulting party for (1) the amount so advanced, (2) interest at the rate specified in this Lease from the date of the advance and (3) a late charge equal to 10 percent of the amount advanced. 52.3 Reconciliation. Upon completion of the Tenant Improvement Work and determination of the final cost of the Tenant Improvement Work ("Adjusted Contract Price"), Lessor and Lessee shall meet to confirm that each has paid their respective shares of the Adjusted Contract Price as required under Paragraph 52.1 above. To the extent a party has underpaid, then the party that has underpaid shall promptly pay the other party or Contractor, as the case may be, the amount owing. 2 52.4 Design and Permitting Costs. Lessor shall be responsible for payment of (1) fees and cost for architectural, engineering and other design services (collectively "Design Costs") pertaining to the design of "Lessor's Original Floor Plan" [as such term is defined in Paragraph 52 of the Lease prior to this Amendment by reference to Exhibit C-1 attached to the Lease] (the amount of which is $32,133.62 and has already been paid by Lessor) and (2) $3,240.00 of the cost to obtain the building permit for the Tenant Improvements (the actual amount of which is expected to be $2,708.93, which amount has already been paid by Lessor). Subject to possible adjustment as provided below, Lessee shall pay for (1) Design Costs for the Tenant Improvements in excess of the amount paid, or to be paid by Lessor, under the preceding sentence and (2) the cost to obtain the building permit for the Tenant Improvements in excess of $3,240.00. Notwithstanding the preceding sentence, Lessor shall be responsible for additional Design Costs and/or building permit costs as follows: 52.4.1. If the additional costs are the result of a Lessor Change Order, then Lessor shall pay the full amount of any such additional costs. 52.4.2. If the additional costs are the result of an Unforeseen Change Order, then Lessor and Lessee shall each pay one-half of any such additional costs. 52.5. Timing of Payment of Design/Permit Costs. Upon the later of (1) two business days prior to the date on which any payment for Design Costs or permit costs is due or (2) 10 days following Lessee's receipt of a billing request for Design Costs and/or building permit costs, Lessee shall pay to Lessor the portion of the amount then due which is owed by Lessee as determined in Paragraph 52.4 above. If Lessee has timely paid Lessor, then Lessor shall pay the full amount of the Design Costs and/or permit costs prior to delinquency. If a party fails timely to make payment required under this paragraph, the non-defaulting party may advance payment and the defaulting party shall be obligated to reimburse the non-defaulting party for (1) the amount so advanced, (2) interest at the rate specified in this Lease from the date of the advance and (3) a late charge equal to 10 percent of the amount advanced. 52.6. Change Orders. Subject to the other party's consent which shall not be unreasonably withheld, either party may direct Contractor to make changes to the scope of the Tenant Improvement Work which do not materially vary from the scope of work described in the Plans. 52.7. Restoration Cost. Lessee acknowledges (1) Lessor originally intended that the two suites that comprise the Premises (i.e., Suite 102 and 103) be improved and built out as separate suites, (2) the Plans provide that the Tenant Improvements will be installed such that the Premises will constitute a single suite and (3) the estimated cost to restore the Premises to two separate suites is approximately $38,000.00. Based upon the foregoing, Lessee agrees that, if within one year following the expiration or termination of this Lease, Lessor incurs expenses to divide the Premises into two separate suites, then Lessee shall pay to Lessor the lesser of the actual costs incurred by Lessor to complete such work or $38,000.00. 3 2. Confirmation. Except as amended hereby, the Lease is ratified and confirmed. Nancy Ridge Technology Center, Neose Technologies, Inc., LLC, a California limited a Delaware corporation liability company By: /s/ Christopher L. Loughridge By: /s/ P. Sherrill Neff ----------------------------- ------------------------ Christopher L. Loughridge P. Sherrill Neff Manager President and COO Schedule of exhibits Exhibit A - Construction Contract 4 EX-10 13 ex10-49.txt EXHIBIT 10.49 EXHIBIT 10.49 - -------------------------------------------------------------------------------- AIA Document A191 - Electronic Format Standard Form of Agreements Between Owner and Design/Builder THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS USE, COMPLETION OR MODIFICATION. AUTHENTICATION OF THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D40l 1996 EDITION - -------------------------------------------------------------------------------- TABLE OF ARTICLES PART 1 AGREEMENT 1. Design/Builder 2. Owner 3. Ownership and Use of Documents and Electronic Data 4. Time 5. Payments 6. Dispute Resolution -- Mediation and Arbitration 7. Miscellaneous Provisions 8. Termination of the Agreement 9. Basis of Compensation 10. Other Conditions and Services PART 2 AGREEMENT 1. General Provisions 2. Owner 3. Design/Builder 4. Time 5. Payments 6. Protection of Persons and Property 7. Insurance and Bonds 8. Changes in the Work 9. Correction of Work 10. Dispute Resolution -- Mediation and Arbitration 11. Miscellaneous Provisions 12. Termination of the Agreement 13. Basis of Compensation 14. Other Conditions and Services 1 - -------------------------------------------------------------------------------- AIA Document A191 -- Electronic Format Standard Form of Agreements Between Owner and Design/Builder THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS USE, COMPLETION OR MODIFICATION. AUTHENTICATION OF THE ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401. This document comprises two separate Agreements: Part 1 Agreement and Part 2 Agreement. Before executing Part 1 Agreement, the parties should reach substantial agreement on the Part 2 Agreement. To the extent referenced in these Agreements, subordinate parallel agreements to A191 consist of AIA Document A491, Standard Form of Agreements Between Design/Builder and Contractor, and AIA Document B901, Standard Form of Agreements Between Design/Builder and Architect. Copyright 1985, (C)1996 The American Institute of Architects, 1735 New York Avenue, NW, Washington, DC 2006-5292. Reproduction of the material herein or substantial quotation of its provisions without the written permission of the AIA violates the copyright laws of the United States and will subject the violator to legal prosecution. PART 1 AGREEMENT 1996 EDITION - -------------------------------------------------------------------------------- AGREEMENT made as of the 24th day of August in the year of 2001 (In words, indicated day, month and year) BETWEEN the Owner: (Name and address) Neose Technologies, Inc., 102 Witmer Road, Horsham, PA 19044 and the Design/Builder (Name and address) IPS, 2001 Joshua Road, Lafayette Hill, PA 19444 For the following Project: Include Project name, location and a summary description.) GAF Plant Renovation, Horsham, PA. The architectural services described in Article 1 will be provided by the following person or entity who is lawfully licensed to practice architecture:
(Name and address) (Registration Number) (Relationship to Design/Builder) IPS, 2001 Joshua Road, Lafayette Hill, PA 19444 Self Performed - ----------------------------------------------------------------------------------------------------------------- Normal structural, mechanical and electrical engineering services will be provided contractually through the Architect except as indicated below: (Name, address and discipline) (Registration Number) (Relationship to Design/Builder) IPS, 2001 Joshua Road, Lafayette Hill, PA 19444 Self Performed - -----------------------------------------------------------------------------------------------------------------
The Owner and the Design/Builder agree as set forth below. 2 - -------------------------------------------------------------------------------- TERMS AND CONDITIONS --- PART 1 AGREEMENT - -------------------------------------------------------------------------------- ARTICLE 1 DESIGN/BUILDER 1.1 SERVICES 1.1.1 Preliminary design, budget, and schedule comprise the services required to accomplish the preparation and submission of the Design/Builder's Proposal as well as the preparation and submission of any modifications to the Proposal prior to execution of the Part 2 Agreement. 1.2 RESPONSIBILITIES 1.2.1 Design services required by this Part 1 Agreement shall be performed by qualified architects and other design professionals. The contractual obligations of such professional persons or entities are undertaken and performed in the interest of the Design/Builder and the Owner. 1.2.2 The agreements between the Design/Builder and the persons or entities identified in this Part 1 Agreement, and any subsequent modifications, shall be in writing. These agreements, including financial agreements with respect to this Project, shall be promptly and fully disclosed to the Owner upon request. 1.2.3 Construction budgets shall be prepared by qualified professionals, cost estimators or contractors retained by and acting in the interest of the Design/Builder. 1.2.4 The Design/Builder shall be responsible to the Owner for acts and omissions of the Design/Builder's employees, subcontractors and their agent and employees, and other persons, including the Architect and other design professionals, performing any portion of the Design/Builder's obligations under this Part 1 Agreement. 1.2.5 If the Design/Builder believes or is advised by the Architect or by another design professional retained to provide services on the Project that implementation of any instruction received from the Owner would cause a violation of any applicable law, the Design/Builder shall notify the Owner in writing. Neither the Design/Builder nor the Architect shall be obligated to perform any act which either believes will violate any applicable law. 1.2.6 Nothing contained in this Part 1 Agreement shall create a contractual relationship between the Owner and any person or entity other than the Design/Builder, however, it is understood and agreed that Owner is an intended third party beneficiary of all contracts for design or engineering services, all subcontracts, purchase orders and other agreements between the Design/Builder and third parties. 1.3 BASIC SERVICES 1.3.1 The Design/Builder shall provide a preliminary evaluation of the Owner's program and project budget requirements, each in terms of the other. 1.3.2 The Design/Builder shall visit the site, become familiar with the local conditions, and correlate observable conditions with the requirements of the Owner's program, schedule, and budget. 1.3.3 The Design/Builder shall review laws applicable to design and construction of the Project, correlate such laws with the Owner's program requirements, and advise the Owner if any program requirements may cause a violation of such laws. Necessary changes to the Owner's program shall be accomplished by appropriate written modification or disclosed as described in paragraph 1.3.5. 1.3.4 The Design/Builder shall review with the Owner alternative approaches to design and construction of the Project. 1.3.5 The Design/Builder shall submit to the Owner a Proposal including the completed Preliminary Design Documents, a statement of the proposed contract sum, and a proposed schedule for completion of the Project. Preliminary Design Documents shall consist of preliminary design drawings, outline specifications or other documents sufficient to establish the size, quality and character of the entire Project, its architectural, structural, mechanical and electrical systems, and the materials and such other elements of the Project as may be appropriate. Deviations from the Owner's program shall be disclosed in the Proposal. If the Proposal is accepted by the Owner, the parties shall then execute the Part 2 Agreement. A modification to the Proposal before execution of the Part 2 Agreement shall be recorded in writing as an addendum and shall be identified in the Contract Documents of the Part 2 Agreement. 1.4 ADDITIONAL SERVICES 1.4.1 The Additional Services described under this Paragraph 1.4 shall be provided by the Design/Builder and paid for by the Owner only if authorized in writing by the Owner before any such additional services are provided. 1.4.2 Making revisions in the Preliminary Design Documents, budget or other documents when such revisions are: 1. inconsistent with approvals or instructions previously given by the Owner, including revisions made necessary by adjustments in the Owner's program or Project budget; 2. required by the enactment or revision of codes, laws or regulations subsequent to the preparation of such documents; or 3 3. due to changes required as a result of the Owner's failure to render decisions in a timely manner. 1.4.3 Providing more extensive programmatic criteria than that furnished by the Owner as described in Paragraph 2.1. When authorized, the Design/Builder shall provide professional services to assist the Owner in the preparation of the program. Programming services may consist of: 1. consulting with the Owner and other persons or entities not designated in this Part 1 Agreement to define the program requirements of the Project and to review the understanding of such requirements with the Owner; 2. documentation of the applicable requirements necessary for the various Project functions or operations; 2. documentation of the applicable requirements necessary for the various Project functions or operations; 3. providing a review and analysis of the functional and organizational relationships, requirements, and objectives for the Project. 4. setting forth a written program of requirements for the Owner's approval which summarizes the Owner's objectives, schedule, constraints, and criteria. 1.4.4 Providing financial feasibility or other special studies. 1.4.5 Providing planning surveys, site evaluations or comparative studies of prospective sites. 1.4.6 Providing special surveys, environmental studies, and submissions required for approvals of governmental authorities or others having jurisdiction over the Project. 1.4.7 Providing services relative to future facilities, systems and equipment. 1.4.8 Providing services at the Owner's specific request to perform detailed investigations of existing conditions or facilities or to make measured drawings thereof. 1.4.9 Providing services at the Owner's specific request to verify the accuracy of drawings or other information furnished by the Owner. 1.4.10 Coordinating services in connection with the work of separate persons or entities retained by the Owner, subsequent to the execution of this Part 1 Agreement. 1.4.11 Providing analyses of owning and operating costs. 1.4.12 Providing interior design and other similar services required for or in connection with the selection, procurement or installation of furniture, furnishings and related equipment. 1.4.13 Providing services for planning tenant or rental spaces. 1.4.14 Making investigations, inventories of materials or equipment, or valuations and detailed appraisals of existing facilities. ARTICLE 2 OWNER 2.1 RESPONSIBILITIES 2.1.1 The Owner shall provide full information in a timely manner regarding requirements for the Project, including a written program which shall set forth the Owner's objectives, schedule, constraints and criteria. 2.1.2 The Owner shall establish and update an overall budget for the Project, including reasonable contingencies. This budget shall not constitute the contract sum. 2.1.3 The Owner shall designate a representative authorized to act on the Owner's behalf with respect to the Project. The Owner may obtain independent review of the documents by a separate architect, engineer, contractor, or cost estimator under contract to or employed by the Owner. Such independent review shall be undertaken at the Owner's expense in a timely manner and shall not delay the orderly progress of the Design/Builder's services. 2.1.4 The Owner shall furnish surveys describing physical characteristics, legal limitations and utility locations for the site of the Project, and a written legal description of the site. The surveys and legal information shall include, as applicable, grades and lines of streets, alleys pavements, and adjoining property and structures; adjacent drainage; right-of-way, restrictions, easements, encroachments, zoning, deed restrictions, boundaries and contours of the site; locations, dimensions and other available data pertaining to existing buildings, other improvements and trees; and information concerning available utility services and lines, both public and private, above and below grade, including inverts and depths. All the information on the survey shall be referenced to a Project benchmark. 2.1.5 The Owner shall furnish the services of geotechnical engineers when such services are stipulated in this Part 1 Agreement. 2.1.6 The Owner shall disclose, to the extent known to the Owner, the results and reports of prior tests, inspections or investigations conducted for the Project involving: structural or mechanical systems; chemical, air and water pollution; hazardous materials; or other environmental and subsurface 4 conditions. The Owner shall disclose all information known to the Owner regarding the presence of pollutants at the Project's site. The Owner's disclosure of information require by this subparagraph, or failure to do so, shall not limit or modify the Design/Builder's obligations under this Agreement. 2.1.7 The Owner shall furnish all legal, accounting and insurance counseling services as my be necessary at any time for the Project, including such auditing services as the Owner my require to verify the Design/Builder's Applications for Payment. 2.1.8 The Owner shall promptly obtain easements, zoning variances and legal authorizations except building permits necessary for sitework and construction regarding site utilization where essential to the execution of the Owner's program. 2.1.9 Those services, information, surveys, and reports required by Paragraphs 2.1.4 through 2.1.8 which are within the Owner's control shall be furnished at the Owner's expense, and the Design/Builder shall be entitled to rely upon the accuracy and completeness thereof, except to the extent the Owner advises the Design/Builder to the contrary in writing. 2.1.10 If the Owner requires the Design/Builder to maintain any special insurance coverage, policy, amendment, or rider, the Owner shall pay the additional cost thereof except as otherwise stipulated in this Part 1 Agreement. 2.1.11 The Owner shall communicate with persons or entities employed or retained by the Design/Builder through the Design/Builder, unless otherwise directed by the Design/Builder. ARTICLE 3 OWNERSHIP AND USE OF DOCUMENTS' AND ELECTRONIC DATA 3.1 Drawings, specifications, and other documents and electronic data furnished by the Design/Builder are instruments of service. The Design/Builder's Architect and other providers of professional services shall retain all common law, statutory and other reserved rights, including copyright in those instruments of service furnished by them. Drawings, specifications, and other documents and electronic data are furnished for use solely with respect to this Part 1 Agreement. The Owner shall be permitted to retain copies, including reproducible copies, of the drawings, specifications, and other documents and electronic data furnished by the Design/Builder for information and reference in connection with the Project except as provided in Paragraph 3.2 and 3.3. 3.2 If the Part 2 Agreement is not executed, the Owner shall not use the drawings, specifications, and other documents and electronic data furnished by the Design/Builder without the written permission of the Design/Builder. Drawings, specifications, and other documents and electronic data shall not be used by the Owner or others on other projects, for additions to this Project or for completion of this Project by others, except by agreement in writing and with appropriate compensation to the Design/Builder, unless the Design/Builder is adjudged to be in default under this Part 1 Agreement or under any other subsequently executed agreement, or by agreement in writing. 3.3 If the Design/Builder defaults in the Design/Builder's obligations to the Owner, the Architect shall grant a license to the Owner to use the drawings, specifications, and other documents and electronic data furnished by the Architect to the Design/Builder for the completion of the Project, conditioned upon the Owner's execution of an agreement to cure the Design/Builder's default in payment to the Architect for services previously performed and to indemnify the Architect with regard to claims arising from such reuse without the Architect's professional involvement. 3.4 Submission or distribution of the Design/Builder's documents to meet official regulatory requirements or for similar purposes in connection with the Project is not to be construed as publication in derogation of the rights reserved in Paragraph 3.1. ARTICLE 4 TIME 4.1 Upon the request of the Owner, the Design/Builder shall prepare a schedule for the performance of the Basic and Additional Services which shall not exceed the time limits contained in Paragraph 10.1 and shall include allowances for periods of time required for the Owner's review and for approval of submissions by authorities having jurisdiction over the Project. 4.2 If the Design/Builder is delayed in the performance of services under this Part 1 Agreement through no fault of the Design/Builder, any applicable schedule shall be equitably adjusted. ARTICLE 5 PAYMENTS 5.1 The initial payment provided in Article 9 shall be made upon execution of this Part 1 Agreement and credited to the Owner's account as provided in Subparagraph 9.1.2. 5.2 Subsequent payments for Basic Services, Additional Services, and Reimbursable Expenses provided for in this Part 1 Agreement shall be made monthly on the basis set forth in Article 9. 5.3 Within thirty (30) days of the Owner's receipt of a properly submitted and correct Application for Payment, the Owner shall make payment to the Design/Builder. 5.4 Payments due the Design/Builder under this Part 1 Agreement which are not paid when due shall bear interest from the date due at the rate specified in Paragraph 9.5, or in the absence of a specified rate, at the legal rate prevailing where the Project is located. 5 ARTICLE 6 DISPUTE RESOLUTION -- MEDIATION AND ARBITRATION 6.1 Claims, disputes or other matters in question between the parties to this Part 1 Agreement arising out of or relating to this Part 1 Agreement or breach thereof shall be subject to and decided by mediation or arbitration. Such mediation or arbitration shall be conducted in accordance with the Construction Industry Mediation or Arbitration Rules of the American Arbitration Associations currently in effect. 6.2 In addition to and prior to arbitration, the parties shall endeavor to settle disputes by mediation. Demand for mediation shall be filed in writing with the other party to this Part 1 Agreement and with the American Arbitration Association. A demand for mediation shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for mediation be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of repose or limitations. 6.3 Demand for arbitration shall be filed in writing with the other party to this Part 1 Agreement and with the American Arbitration Association. A demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statutes of repose or limitations. 6.4 An arbitration pursuant to this Paragraph may be joined with an arbitration involving common issues of law or fact between the Design/Builder or Owner and any person or entity with whom the Design/Builder or Owner has a contractual obligation to arbitrate disputes. Design/Builder and Owner agree that all parties necessary to resolve a claim shall be parties to the same arbitration proceeding. 6.5 The award rendered by the arbitrator or arbitrators shall be final, and judgement may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. 6.6 Unless otherwise agreed in writing, the Design/Builder shall continue to provide services and shall maintain progress during any mediation or arbitration proceedings, and the Owner shall continue to make payments to the Design/Builder in accordance with Articles 5 and 9, but the Owner shall be under no obligation to make payments on or against any claims or amounts in dispute during the pendency of any mediation or arbitration proceeding to resolve those claims or amounts in dispute. 6.7 As Article 6 shall survive completion or termination of Part 1. ARTICLE 7 MISCELLANEOUS PROVISIONS 7.1 Unless otherwise provided, this Part 1 Agreement shall be governed by the law of the place where the Project is located. 7.2 The Owner and the Design/Builder, respectively, bind themselves, their partners, successors, assigns and legal representatives to the other party to this Part 1 Agreement and to the partners, successors and assigns of such other party with respect to all covenants of this Part 1 Agreement. Neither the Owner nor the Design/Builder shall assign this Part 1 Agreement without the written consent of the other. 7.3 Unless otherwise provided, neither the design for nor the cost of remediation of hazardous materials shall be the responsibility of the Design/Builder. 7.4 This Part 1 Agreement represents the entire and integrated agreement between the Owner and the Design/Builder and supersedes all prior negotiations, representations or agreements, either written or oral. This Part 1 Agreement may be amended only by written instrument signed by both the Owner and the Design/Builder. 7.5 Prior to the termination of the services of the Architect or any other design professional designated in this Part 1 Agreement, the Design/Builder shall identify to the Owner in writing another architect or design professional with respect to whom the Owner has no reasonable objection, who will provide the services originally to have been provided by the Architect or other design professional whose services are being terminated. ARTICLE 8 TERMINATION OF THE AGREEMENT 8.1 This Part 1 Agreement may be terminated by either party upon seven (7) days' written notice should the other party fail to perform substantially in accordance with its terms through no fault of the party initiating the termination. 8.2 This Part 1 Agreement may be terminated by the Owner without cause upon at least seven (7) days' written notice to the Design/Builder. 8.3 In the event of termination not the fault of the 6 Design/Builder, the Design/Builder shall be compensated for services performed to the termination date, together with Reimbursable Expenses then due and Termination Expenses. Termination Expenses are expenses directly attributable to termination, including a reasonable amount for overhead and profit, for which the Design/Builder is not otherwise compensated under this Part 1 Agreement. 7 ARTICLE 9 BASIS OF COMPENSATION The Owner shall compensate the Design/Builder in accordance with Article 5, Payments, and the other provisions of this Part 1 Agreement as described below. 9.1 COMPENSATION FOR BASIC SERVICES 9.1.1 FOR BASIC SERVICES, compensation shall be as follows: Engineering Services, as proposed 02/26/01 $650,000.00 Total $650,000.00 9.1.2 AN INITIAL PAYMENT of Dollars ($) shall be made upon execution of this Part 1 Agreement and credited to the Owner's account as follows: 9.1.3 SUBSEQUENT PAYMENTS shall be as follows: Progress payments based on work performed. 9.2 COMPENSATION FOR ADDITIONAL SERVICES 9.2.1 FOR ADDITIONAL SERVICES, compensation shall be in agreement with the SAN Procedure. 9.3 REIMBURSABLE EXPENSES 9.3.1 Reimbursable Expenses are in addition to Compensation for Basic and Additional Services, and include actual verifiable expenditures made by the Design/Builder and the Design/Builder's employees and contractors in the interest of the Project, and at the Owner's request and are limited to the following: The present reimbursable rate. 9.3.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of one (1.0) times the amounts expended. 9.4 DIRECT PERSONNEL EXPENSE is defined as the direct salaries of personnel engaged on the Project, and the portion of the cost of their mandatory and customary contributions and benefits related thereto, such as employment taxes and other statutory employee benefits, insurance, sick leave, holidays, vacations, pensions and similar contributions and benefits. 9.5 INTEREST PAYMENTS 9.5.1 The rate of interest for past due payments shall be as follows: Prime plus 1% (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Design/Builder's principal places of business, at the location of the Project and elsewhere may affect the validity of this provision. Specific legal advice should be obtained with respect to deletion, modification or other requirements, such as written disclosures or waivers. 9.6 IF THE SCOPE of the Project is changed materially, the amounts of compensation shall be equitably adjusted. All changes shall be submitted in the form of an SAN and approved by the client before executing the work. 9.7 The compensation set forth in this Part 1 Agreement shall be equitably adjusted if through no fault of the Design/Builder the services have not been completed within (to be determined) months of the date of this Part 1 Agreement. 8 ARTICLE 10 OTHER CONDITIONS AND SERVICES 10.1 The Basic Services to be performed shall be commenced on and, subject to authorized adjustments and to delays not caused by the Design/Builder, shall be completed in (to be determined) calendar days. The Design/Builder's Basic Services consist of those described in Paragraph 1.3 as part of Basic Services, and include normal professional engineering and preliminary design services, unless otherwise indicated. 10.2 Services beyond those described in Paragraph 1.4 are as follows: (Insert descriptions of other services, identify Additional Services included within Basic Compensation and modifications to the payment and compensation terms included in this Agreement.) In accordance with attached IPS BOD Basis of Design dated 8/22/01, GMP Estimate dated July 24, 2001 Revision O Final. See Article 14.2. 10.3 The Owner's preliminary program, budget and other documents, if any, are enumerated as follows: Title Date 10-29-01 ------------------------------- ----------------------------- This Agreement entered into as of the day and year first written above. /s/ P. SHERRILL NEFF /s/ ANTHONY J. MACCHIA ------------------------------- ----------------------------- OWNER (Signature) DESIGN/BUILDER (Signature) P. SHERRILL NEFF ANTHONY J. MACCHIA ------------------------------- ----------------------------- PRESIDENT & CHIEF OPERATING OFFICER VICE PRESIDENT FINANCE 9 - -------------------------------------------------------------------------------- AIA Document A191 -- Electronic Format Standard Form of Agreement Between Owner and Design/Builder THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS USE, COMPLETION OR MODIFICATION. AUTHENTICATION OF THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401. This document comprises two separate Agreements: Part 1 Agreement and Part 2 Agreement. To the extent referenced in these Agreements, subordinate parallel agreements to A191 consist of AIA document A491, Standard Form of Agreements Between Design/Builder and Contractor, and AIA Document B901, Standard Form of Agreements Between Design/Builder and Architect. Copyright 1985, (C)1996 The American Institute of Architects, 1735 New York Avenue, NW, Washington, DC 20006-5292, Reproduction of the material herein or substantial quotation of its provisions without the written permission of the AIA violates the copyright laws of the United States and will subject the violator to legal prosecution. PART 2 AGREEMENT 1996 EDITION - -------------------------------------------------------------------------------- AGREEMENT made as of the 24th day of August in the year of 2001 (In words, indicate day, month and year.) BETWEEN the Owner: (Name and address) Neose Technologies, Inc., 102 Witmer Road, Horsham, PA. 19044 and the Design/Builder: (Name and address) IPS, 2001 Joshua Road, Lafayette Hill, PA. 19444 For the following Project: Include Project name, location and a summary description.) GAF Plant Renovation, Horsham, PA The architectural services described in Article 3 will be provided by the following person or entity who is lawfully licensed to practice architecture:
(Name and address) (Registration Number) (Relationship to Design/Builder) IPS, 2001 Joshua Road, Lafayette Hill, PA. 19444 Self Performed - ----------------------------------------------------------------------------------------------------------------- Normal structural, mechanical and electrical engineering services will be provided contractually through the Architect except as indicated below: (Name, address and discipline) (Registration Number) (Relationship to Design/Builder) IPS, 2001 Joshua Road, Lafayette Hill, PA. 19444 Self Performed - -----------------------------------------------------------------------------------------------------------------
The Owner and the Design/Builder agree as set forth below. 10 - -------------------------------------------------------------------------------- TERMS AND CONDITIONS -- PART 2 AGREEMENT - -------------------------------------------------------------------------------- ARTICLE 1 GENERAL PROVISIONS 1.1 BASIC DEFINITIONS 1.1.1 The contract Documents consist of the Part 1 Agreement to the extent not modified by this Part 2 Agreement, this Part 2 Agreement, the Design/Builder's Proposal and written addenda to the Proposal identified in Article 14, the Construction Documents approved by the Owner in accordance with Subparagraph 3.2.3 and Modifications issued after execution of this Part 2 Agreement. A modification is a Change Order or a written amendment to this Part 2 Agreement signed by both parties, or a Construction Change Directive issued by the Owner in accordance with Paragraph 8.3. 1.1.2 The term "Work" means the construction and services provided by the Design/Builder to fulfill the Design/Builder's obligations. 1.2 EXECUTION, CORRELATION AND INTENT 1.2.1 It is the intent of the Owner and Design/Builder that the Contract Documents include all items necessary for proper execution and completion of the Work. The Contract Documents are complementary, and what is required by one shall be as binding as if required by shall; performance by the Design/Builder shall be required only to the extent consistent with and reasonably inferable from the Contract Documents as being necessary to produce the intended results and to complete the Project in a satisfactory manner, ready for use, occupancy or operation by the Owner. Words that have well-known technical or construction industry meanings are used in the Contract Documents in accordance with such recognized meanings. 1.2.2 If the Design/Builder believes or is advised by the Architect or by another design professional retained to provide services on the Project that implementation of any instruction received from the Owner would cause a violation of any applicable law, the Design/Builder shall notify the Owner in writing. Neither the Design/Builder nor the Architect shall be obligated to perform any act which either believes will violate any applicable law. 1.2.3 Nothing contained in this Part 2 Agreement shall create a contractual relationship between the Owner and any person or entity other than the Design/Builder, except it is understood and agreed that the Owner's is an intended third-party beneficiary of all contracts with design professionals, subcontract, purchase orders and other agreements between the Design/Builder and third parties. The Design/Builder shall incorporate the obligations of this contract with the Owner in its respective contracts with design professional, subcontracts, change agreements, purchase orders, and other agreements. 1.2.4 The Contract Documents shall be interpreted on the basis of the following priorities in the event of any discrepancy, conflict or dispute. 1. Written amendments to the Owner-Design/Builder Agreement signed by both parties -- those of a later date shall take precedence over those of an earlier date; 2. Change Orders -- those of a later date shall take precedence over those of an earlier date; 3. The Owner-Design/Builder Agreement; 4. Supplementary Conditions; and 5. Drawings and Specifications. Among drawings, large scale details shall control over small scale details shall control over Drawings not dimensioned. 1.2.5 Any matters contained in the Specifications which may have been omitted from the Drawings or vice-versa, shall be construed as though contained in both. In the event of any duplication, conflict, inconsistency or discrepancy among or within the Drawings and the Specifications (or among or within other portions of the Contract Documents so far as the same pertain to the Drawings or the Specifications) the matter shall promptly be brought to the attention of the Owner for instructions. 1.3 OWNERSHIP AND USE OF DOCUMENTS 1.3.1 The Drawings, Specifications and other design documents prepared by the Design/Builder for the Project are instruments of the Design/Builder's service and unless otherwise provided, the Design/Builder shall be deemed the author of such documents, as applicable and shall retain all common law, statutory and other reserved rights, including the copyrights. However, the Design/Builder shall not use the drawings, specifications or other Project design documents for any purpose not relating to the Project without the Owner's prior written consent. 11 1.3.2 The owner shall have a fully-paid royalty-free right and license (the "License") to retain copies, including reproducible copies and copies of computer disks or other computer memory storage devices, of the Drawings, Specifications and other Project design documents, and to use all of the aforesaid for any purposes in connection with the construction, reconstruction, renovation, repair, maintenance, use and occupancy of the Project. Without limitation, the word "Drawings" as used herein includes graphic images of the Drawings contained in computer files, stored on computer disks, tapes or other computer memory storage media, and the License includes the right to receive in the form of such computer memory storage media and to retain and use, copies of the Design/Builder's CAD Drawings as maintained in the Design/Builder's computer files. The Design/Builder hereby consents to the transfer of the License to any assignee of the Owner. Upon completion of the design services in connection with the Project, the Design/Builder's assignment of any or all Subcontracts to the Owner, or earlier termination of this Agreement for any reason, the License shall be irrevocable and perpetual. 1.3.3. If the Design/Builder defaults in the Design/Builder's obligations to the Owner, the Architect shall grant a license to the Owner to use the drawings, specifications, and other documents and electronic data furnished by the Architect to the Design/Builder for the completion of the Project. The Design/Builder shall not be responsible for changes made in the Drawings, Specifications or other Project design documents prepared by the Design/Builder, by anyone other than the Design/Builder or for use of such documents by Owner for anything except this Project; and the Owner or its assignee as the case may be, shall indemnify and hold harmless the Design/Builder anyone acting on it's behalf from any claim, liability, or cost arising out of any such changes to or other use of the Drawings, Specifications or other Project design documents. The Design/Builder agrees that the rights and responsibilities of the Owner and the Design/Builder hereunder shall be set forth in all Subcontracts. 1.3.4 Submission or distribution of the Design/Builder's documents to meet official regulatory requirements or for similar purposes in connection with the Project is not to be construed as publication in derogation of the rights reserved in Subparagraph 1.3.1. 1.3.5. Except for the Drawings, Specifications and other Project design documents prepared by the Design/Builder described above, all reports and other materials furnished to the Owner pursuant to this Agreement shall become property of the Owner and may be used by the Owner or such parties as the Owner may designate thereafter, in such manner and for such purposes as the Owner or such parties may deem advisable without further employment of or additional compensation to the Design/Builder, provided however, to the extent any such materials are used for other purposes other than this Project. Owner or its assignee as the case may be, shall indemnify and hold harmless, the Design/Builder from any claim, liability, or cost arising out of any such use. The Design/Builder shall not release or disclose to any third party any report or other material produced for the Owner without obtaining the Owner's prior written consent. ARTICLE 2 OWNER 2.1 The Owner shall designate a representative authorized to act on the Owner's behalf with respect to the Project. The Owner may obtain independent review of the Contract Documents by a separate architect, engineer, contractor or cost estimator under contract to or employed by the Owner. Such independent review shall be undertaken at the Owner's option and expense and if the Owner elects to do so, then in a timely manner and shall not delay the orderly progress of the Work. 2.2 The Owner may appoint an on-site project representative to observe the Work and to have such other responsibilities as the Owner and Design/Builder agree in writing. 2.3 The Design/Builder shall secure all building and other permits, licenses and inspections and shall pay the fees for such permits, licenses and inspections as part of its contract price. 2.4 INTENTIONALLY OMITTED. 2.5 The Owner shall disclose, to the extent known to the Owner, the results and reports of prior tests, inspections or investigations conducted for the Project involving: structural or mechanical systems; chemical, air and water pollution; hazardous materials; or other environmental and subsurface conditions. The Owner shall disclose all information known to the Owner regarding the presence of pollutants at the Project's site. The Owner's disclosure of information required by this subparagraph, or failure to do so shall not limit or modify the Design/Builder's obligations under this Agreement. 2.6 The Owner shall furnish all legal, accounting and 12 insurance counseling services as may be necessary at any time for the Project, including such auditing services as the Owner may require to verify the Design/Builder's Applications for payment. 2.7 Those services, information, surveys and reports required by Paragraphs 2.4 through 2.6 which are within the Owner's control shall be furnished at the Owner's expense, and the Design/Builder shall be entitled to rely upon the accuracy and completeness thereof, except to the extent the Owner advises the Design/Builder to the contrary in writing. 2.8 If the Owner requires the Design/Builder to maintain any special insurance coverage, policy, amendment, or rider, the Owner shall pay the additional cost thereof, except as otherwise stipulated in this Part 2 Agreement. 2.9 INTENTIONALLY OMITTED. 2.10 The Owner shall, at the request of the Design/Builder, prior to execution of this Part 2 Agreement and promptly upon request thereafter, furnish to the Design/Builder reasonable evidence that financial arrangements have been made to fulfill the Owner's obligations under the Contract. 2.11 The Owner shall communicate with persons or entities employed or retained by the Design/Builder through the Designer/Builder, unless otherwise directed by the Design/Builder. ARTICLE 3 DESIGN/BUILDER 3.1 SERVICES AND RESPONSIBILITIES 3.1.1 Design services required by this Part 2 Agreement shall be performed by qualified architects and other design professionals. The contractual obligations of such professional persons or entities are undertaken and performed in the interest of the Design/Builder, except it is understood and agreed that the Owner is an intended third party beneficiary of all contracts with design professionals, subcontracts, purchase orders, and other agreements between the Design/Builder and third parties. The Design/Builder shall incorporate the obligations of this contract with the Owner in its receptive contracts with design professionals, subcontracts, supply agreements, purchase orders, and other agreements. 3.1.2 The agreements between the Design/Builder and the persons or entities identified in this Part 2 Agreement, and any subsequent modifications, shall be in writing. These agreements, including financial arrangements with respect to this project, shall be promptly and fully disclosed to the Owner upon request. 3.1.3 The Design/Builder shall be responsible to the Owner for acts and omissions of the Design/Builder's employees, subcontractors and their agents and employees, and other persons, including the Architect and other design professionals, performing and portion of the Design/Builder's obligations under this Part 2 Agreement including the Scope of Work as described in each Bid Package for the project. 3.2 BASIC SERVICES 3.2.1 The Design/Builder's Basic Services are described below and in Article 14. 3.2.2. The Design/Builder shall designate a representative authorized to act on the Design/Builder's behalf with respect to the Project. 3.2.3 The Design/Builder shall submit Construction Documents for review and approval by the Owner. Construction Documents may include drawings, specifications, and other documents and electronic data setting forth in detail the requirements for construction of the Work, and shall: 1. be consistent with the intent of the Design/Builder's Proposal; 2. provide information for the use of those in the building trades; and 3. include documents required for regulatory agency approvals. 3.2.4. The Design/Builder, with the assistance of the Owner, shall file documents required to obtain necessary approvals of governmental authorities having jurisdiction over the Project. 3.2.5 The Design/Builder shall provide or cause to be provided and shall pay for all design services, labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation and other facilities and services necessary for proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work. 3.2.6 The Design/Builder shall be responsible for all construction means, methods, techniques, sequences and procedures, and for coordinating all portions of the Work under this Part 2 Agreement. 3.2.7 The Design/Builder shall keep the Owner informed of the progress and quality of the Work. 3.2.8 The Design/Builder shall be responsible for correcting Work which does not conform to the Contract Documents. 3.2.9 The Design/Builder warrants to the Owner that materials and equipment furnished under the Contract will be of good quality and new unless otherwise required or permitted by the Contract Documents, that the construction will be free form faults and defects, and that the construction will conform with the requirements of the Contract Documents and be in accordance with all applicable laws, ordinances, rules, orders and regulations, including without 13 limitation, the Americans With Disabilities Act. Construction not conforming to these requirements, including substitutions not properly approved by the Owner, shall be corrected in accordance with Article 9. 3.2.10 The Design/Builder shall pay all sales, consumer, use and similar taxes which had been legally enacted at the time the Design/Builder's Proposal was first submitted to the Owner, and shall secure and pay for building and other permits and governmental fees, licenses and inspections necessary for the proper execution and completion of the Work which are either customarily secured after execution of a contract for construction or are legally required at the time the Design/Builder's Proposal was first submitted to the Owner. 3.2.11 The Design/Builder shall comply with and give notices required by laws, ordinances, rules, regulations and lawful orders of public authorities relating to the Project. 3.2.12 The Design/Builder shall pay royalties and license fees for patented designs, processes or products. The Design/Builder shall defend suits or claims for infringement of patent rights and shall hold the Owner harmless from loss on account thereof, but shall not be responsible for such defense or loss when a particular design, process or product of a particular manufacturer is required by the Owner. However, if the Design/Builder has reason to believe the use of a required design, process or product is an infringement of a patent, the Design/Builder shall be responsible for such loss unless such information is promptly furnished to the Owner. 3.2.13 The Design/Builder shall keep the premises and surrounding area free from accumulation of waste materials or rubbish caused by operations under this Part 2 Agreement. At the completion of the Work, the Design/Builder shall remove from the site waste materials, rubbish, the Design/Builder's tools, construction equipment, machinery and surplus materials. 3.2.14 The Design/Builder shall notify the Owner when the Design/Builder believes that the Work or an agreed upon portion thereof is substantially completed. If the Owner concurs, the Design/Builder shall issue a Certificate of Substantial Completion which shall establish the Date of Substantial Completion, shall state the responsibility of each party for security, maintenance, heat, utilities, damage to the Work and insurance, shall include a list of items to be completed or corrected and shall fix the time within which the Design/Builder shall complete items listed therein. Disputes between the Owner and Design/Builder regarding the Certificate of Substantial Completion may, at the Owner's election, be resolved in accordance with provisions of Article 10. Warranties required by the Contract Documents shall commence upon Final Completion, except warranties for equipment shall commence upon the Owner's beneficial use of such equipment. 3.2.15 The Design/Builder shall maintain at this site for the Owner one record copy of the drawings, specifications, product data, samples, shop drawings, Change Orders and other modifications, in good order and regularly updated to record the completed construction. These shall be delivered to the Owner upon completion of construction and prior to final payment. 3.3 ADDITIONAL SERVICES 3.3.1 The services described in this Paragraph 3.3 are not included in Basic Services unless so identified in Article 14, and they shall be paid for by the Owner as provided in this Part 2 Agreement, in addition to the compensation for Basic Services. The services described in this Paragraph 3.3 shall be provided only if authorized before any such additional services are provided in writing by the Owner. 3.3.2 Making revisions in drawings, specifications, and other documents or electronic data when such revisions are required by the enactment or revision of codes, laws or regulations subsequent to the preparation of such documents or electronic data. 3.3.3 Providing consultation concerning replacement of Work damaged by fire or other cause during construction, and furnishing services required in connection with the replacement of such Work. 3.3.4 Providing services in connection with a public hearing, arbitration proceeding or legal proceeding, except where the Design/Builder is a party thereto. 3.3.5 Providing coordination of construction performed by the Owner's own forces or separate contractors employed by the Owner, and coordination of services required in connection with construction performed and equipment supplied by the Owner. 3.3.6 Preparing a set of reproducible record documents or electronic data showing significant changes in the Work made during construction. 3.3.7 Providing assistance in the utilization of equipment or systems such as preparation of operation and maintenance, manuals, training personnel for operation and maintenance, and construction during operation. ARTICLE 4 TIME 4.1 The Design/Builder shall perform it's obligations consistent with reasonable skill and care and the orderly progress of the Project. 4.2 Time limits stated in the Contract Documents are of the essence. The Work to be performed under this Part 2 Agreement shall commence upon receipt of a notice to proceed unless otherwise agreed and, subject to authorized Modifications, Substantial Completion shall be achieved on or before the date established in Article 14. 4.3 Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract 14 Documents so the Owner can occupy or utilize the Work for its intended use and only minor punchlist items remain to be completed. 4.4 Not more than seven (7) days the execution of the Part 2 Agreement, Design/Builder shall submit a progress schedule indicating each major category or unit of Work to be performed at the site, properly sequenced and coordinated, and showing completion of the Work within the time period established in Article 14. The Design/Builder shall provide the Owner with monthly, or more frequently if required by the Owner, updates of the progress schedule indicating completed activities and any changes in sequencing or activity durations. 4.5 If the Design/Builder is delayed in the performance of the Project by any act or neglect of the Owner or an employee, agent, or representative of the Owner, or by changes in the work ordered by the Owner that were not caused or required by design problems or discrepancies, or by the combined action of the Owner and any of its employees, agents, or representatives that in no way is caused by or results from default on the part of the Design/Builder, or by any other cause that the Design/Builder could not reasonably control or circumvent, then the Scheduled Completion Date shall be extended for a period equal to the length of such delay, if within ten (10) days after the beginning of any such delay, the Design/Builder delivers to the Owner a request for extension for such delay and such request is approved by the Owner. The Owner's exercise of any of its remedies of suspension of the Work or requirement of correction of re-execution of any defective Work shall not under any circumstances be construed as intentional interference with the Design/Builder's performance of the Work. ARTICLE 5 PAYMENTS 5.1 PROGRESS PAYMENTS 5.1.1 The Design/Builder shall deliver to the Owner itemized Applications for Payment in such detail as indicated in Article 14. Prior to submitting the First Pay Application, the Design/Builder shall submit a Schedule of Values containing such detail as required by the Owner. The Schedule of Values shall proportionately allocate the contract price throughout the various work activities necessary to construct the Project. The Design/Builder's submittal of a Schedule of Values acceptable to the Owner is a condition precedent to the Owner's obligation to make payments to the Design/Builder. 5.1.2 The Owner will, within Thirty (30) days after receipt of the Design/Builder's Application for Payment, either pay for such amount as the Owner determines is properly due, or notify the Design/Builder in writing of the Owner's reasons for withholding payment in whole or in part as provided in this Subparagraph 5.1.2. 5.1.3 The Application for Payment shall constitute a representation by the Design/Builder to the Owner that the design and construction have progressed to the point indicated, the quality of the Work covered by the application is in accordance with the Contract Documents, and the Design/Builder is entitled to payment in the amount requested. 5.1.4 Upon receipt of payment from the Owner, the Design/Builder shall promptly pay the Architect, other design professionals and each contractor the amount to which each is entitled in accordance with the terms of their respective contracts. The Design/Builder shall, by appropriate agreement with each Contractor, require each Contractor to make payments to subcontractors in a similar manner. 5.1.5 The Owner shall have no obligation under this Part 2 Agreement to pay or to be responsible in any way for payment to the Architect, another design professional or a contractor performing portions of the Work. 5.1.6 Neither progress payment nor partial or entire use or occupancy of the Project by the Owner shall constitute an acceptance of Work not in accordance with the Contract Documents. 5.1.7 The Design/Builder warrants that title to all construction covered by an Application for Payment will pass to the Owner no later than the time of payment. The Design/Builder further warrants that upon submittal of an Application for Payment all construction for which payments have been received from the Owner shall be free and clear of liens, claims, security interests or encumbrances in favor of the Design/Builder or any other person or entity performing construction at the site or furnishing materials or equipment relating to the construction. 5.1.8 At the time of Substantial Completion, the Owner shall pay the Design/Builder the retainage, if any, less the reasonable cost to correct or complete incorrect or incomplete Work. Final payment of such withheld sum shall be made upon correction or completion of such Work. 15 5.2 FINAL PAYMENT 5.2.1 Upon receipt of written notice that the work is ready for final inspection and acceptance, and upon receipt of a final Application for Payment, the Owner will promptly make such inspection and when the Owner finds the Work acceptable under the Contract Documents and the Contract fully performed, the Owner will within (30) days pay the Design/Builder in accordance with this Paragraph 5.2. The Owner's final payment hereunder, will constitute the Owner's Reliance on the Design/Builder's representation that the conditions listed in Subparagraph 5.2.2 as precedent to the Design/Builder's being entitled to final payment have been fulfilled. 5.2.2 Prior to, and as a condition precedent to Final Completion, all of the following matters shall have been resolved and documents and items shall have been delivered to the Owner, subject to the additional requirements of the Owner, if any: 1. Final documents of similar nature to those required by the Contract Documents in connection with any Application for Payment hereunder. 2. All final permits, approvals (including without limitation, the approval of the Owner's insurance company, if required), certificates and affidavit (including without limitation, certificates in respect of elevator, plumbing, sprinklers electrical systems and life safety systems, required by governmental authorities) and authorizations for use and occupancy of the Project required by any authority having jurisdiction, including an unconditional permanent and full Certificate of Occupancy and any other necessary occupancy and use permits. 3. All operating and maintenance manuals as required by the Contract Documents, parts lists, the final version of the Project Directory, and repair source lists. 4. All guarantees and warranties to which the Owner is entitled hereunder. 5. Satisfactory proof that all claims arising out of the Work and any liens arising out of the same which shall have been filed or recorded, have been released or bonded. 6. The Design/Builder's certificate certifying that the Work is complete, and that all payrolls, bills for materials and equipment and other indebtedness connects with the work has been paid. 7. A satisfactory report by the Design/Builder which is approved by the Owner that all mechanical systems have been and are, properly balanced. 8. Delivery of all spare parts required to be submitted pursuant to the Contract Documents. 5.2.3 If the final documentation submitted by the Design/Builder is not deemed complete by the Owner, or if the Owner deems the Work incomplete in any respect, the Design/Builder shall promptly resubmit the final documentation. The making of final payment shall constitute a waiver of claims by the Owner except those arising from: 1. liens, claims, security interests or encumbrances arising out of the Contract and unsettled; 2. failure of the Work to comply with the requirements of the Contract Documents; or 3. terms of special warranties required by the Contract Documents. 5.2.4 Acceptance of final payment shall constitute a waiver of all claims by the Design/Builder except those previously made in writing and identified by the Design/Builder as unsettled at the time of final Application for Payment. 5.3 INTEREST PAYMENTS 5.3.1 Payments due the Design/Builder under this Part 2 Agreement which are not paid when due shall bear interest from the date due at the rate specified in Article 13. ARTICLE 6 PROTECTION OF PERSONS AND PROPERTY 6.1 The Design/Builder shall be solely responsible for initiating, maintaining and providing supervision of all safety precautions and programs in connection with the performance of this Part 2 Agreement. 16 6.2 The Design/Builder shall take reasonable precautions for the safety of, all shall provide reasonable protection to prevent damage, injury or loss to; (1) employees on the Work and other persons who may be affected thereby; (2) the Work and materials and equipment to be incorporated therein, whether in storage on or off the site, under care, custody, or control of the Design/Builder or the Design/Builder's contractors; and (3) other property at or adjacent thereto, such as trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal relocation or replacement in the course of construction. 6.3 The Design/Builder shall give notices and comply with applicable laws, ordinances, rules, regulations and lawful orders of public authorities bearing on the safety of persons or property or their protection from damage, injury or loss. 6.4 The Design/Builder shall promptly remedy damage and loss (other than damage or loss insured under property insurance provided or required by the Contract Documents) to property at the site caused in whole or in part by the Design/Builder, a contractor of the Design/Builder or anyone directly or indirectly employed by any of them, or by anyone for whose acts they may be liable. ARTICLE 7 INSURANCE AND BONDS 7.1 DESIGN/BUILDER'S LIABILITY INSURANCE 7.1.1 The Design/Builder shall purchase from and maintain, in a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located, such insurance as will protect the Design/Builder from claims set forth below which may arise out of or result from operations under this Part 2 Agreement by the Design/Builder or by a contractor of the Design/Builder, or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable: 1. claims under workers' compensation, disability benefit and other similar employee benefit laws that are applicable to the Work to be performed; 2. claims for damages because of bodily injury, occupational sickness or disease, or death of the Design/Builder's employees; 3. claims for damages because of bodily injury, sickness or disease, or death of persons other than the Design/Builder's employees; 4. claims for damages covered by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirectly related to employment of such person by the Design/Builder or (2) by another person; 5. claims for damages, other than to the Work itself, because of injury to or destruction of tangible property, including loss of use resulting therefrom; 6. claims for damages because of bodily injury, death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle; and 7. claims involving contractual liability insurance applicable to the Design/Builder's obligations under Paragraph 11.5 7.1.2 The insurance required by Subparagraph 7.1.1 shall be written for not less than limits of liability specified in this Part 2 Agreement or required by law, whichever coverage is greater. Coverages, whether written on an occurrence or claims-made basis, shall be maintained without interruption from date of commencement of the Work until date of final payment and termination of any coverage required to be maintained after final payment. Owner shall be named as an additional insured on the policy or policies. Professional liability shall not be an exclusion to coverage. 7.1.3 Certificates of Insurance acceptable to the Owner shall be delivered to the Owner immediately after execution of this Part 2 Agreement. These Certificates and the insurance policies required by this Paragraph 7.1 shall contain a provision that coverages afforded under the policies will not be cancelled or allowed to expire or amended until at least 30 days' prior written notice has been given to the Owner. If any of the foregoing insurance coverages are required to remain in force after final payment, an additional certificate evidencing continuation of such coverage shall be submitted with the application for final payment. Information concerning reduction of coverage shall be furnished by the Design/Builder with reasonable promptness in accordance with the Design/Builder's information and belief. 7.2 OWNER'S LIABILITY INSURANCE 7.2.1 The Owner shall be responsible for purchasing and maintaining liability insurance to protect the Owner against claims which may arise from operations under this Project. 7.3 PROPERTY INSURANCE 7.3.1 Unless otherwise provided under this Part 2 Agreement, the Owner shall purchase and maintain, in a company or companies authorized to do business in the jurisdiction in which the principal improvements are to be located, property insurance upon the Work to the full insurable value thereof on a replacement cost basis without optional deductibles. Such property insurance shall be maintained, unless otherwise provided in the Contract Documents or otherwise agreed in writing by all persons and entities who are beneficiaries of such insurance, until final payment has been made or until no person or entity other than the Owner has an insurable interest in the property 17 required by this Paragraph 7.3 to be insured, whichever is earlier. This insurance shall include interests of the Owner, the Design/Builder, and their respective contractors and subcontractors in the Work. 7.3.2 Property insurance shall be on an all-risk policy form and shall insure against the perils of fire and extended coverage and physical loss or damage including, without duplication of coverage, theft, vandalism, malicious mischief, collapse, falsework, temporary buildings and debris removal including demolition occasioned by enforcement of any applicable legal requirements, and shall cover reasonable compensation for the services and expenses of the Design/Builder's Architect and other professionals required as a result of such insured loss. Coverage for other perils shall not be required unless otherwise provided in the Contract Document. 7.3.3 If the Owner does not intend to purchase such property insurance required by this Part 2 Agreement and with all of the coverages in the amount described above, the Owner shall so inform the Design/Builder prior to commencement of the construction. The Design/Builder may then effect insurance which will protect the interests of the Design/Builder and the Design/Builder's contractors in the construction, and by appropriate Change Order the cost thereof shall be charged to the Owner. If the Design/Builder is damaged by the failure or neglect of the Owner to purchase or maintain insurance as described above, then the Owner shall bear all reasonable costs properly attributable thereto. 7.3.4 Unless otherwise provided, the Owner shall purchase and maintain such boiler and machinery insurance required by this Part 2 Agreement or by law, which shall specifically cover such insured objects during installation and until final acceptance by the Owner. This insurance shall, include interests of the Owner, lenders, mortgages, the Design/Builder, the Design/Builder's contractors and subcontractors in the Work, and the Design/Builder's Architect and other design professionals. The Owner and the Design/Builder shall be named insureds. 7.3.5 A loss insured under the Owner's property insurance shall be adjusted by the Owner as fiduciary and made payable to the Owner as fiduciary for the insureds, as their interests may appear, subject to requirements of any applicable mortgagee clause and of Subparagraph 7.3.10. The Design/Builder shall pay contractors their shares of insurance proceeds received by the Design/Builder, and by appropriate agreement, written where legally required for validity, shall require contractors to make payments to their subcontractors in similar manner. 7.3.6 INTENTIONALLY OMITTED. 7.3.7 INTENTIONALLY OMITTED. 7.3.8 The Owner and the Design/Builder waive all rights against each other and the Architect and other design professionals, contracts, subcontractors, agents and employees, each of the other, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 7.3 or other property insurance applicable to the Work, except such rights as they may have to proceeds of such insurance held by the Owner as trustee. The Owner or Design/Builder, as appropriate, shall require from contractors and subcontractors by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated in this Paragraph 7.3. The policies shall provide such waivers of subrogation by endorsement or otherwise. A waiver of subrogation shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnification, contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged. 7.3.9 If required in writing by a party in interest, the Owner as trustee shall, upon occurrence of an insured loss, give bond for proper performance of the Owner's duties. The cost of required bonds shall be charged against proceeds received as fiduciary. The Owner shall deposit in a separate account proceeds so received, which the Owner shall distribute in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Article 10. If after such loss no other special agreement is made, replacement of damaged Work shall be covered by appropriate Change Order. 7.3.10 The Owner as trustee shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object in writing, within five (5) days after occurrence of loss to the Owner's exercise of this power; if such objection be made, the parties shall enter into dispute resolution under procedures provided in Article 10. If distribution of insurance proceeds by arbitration is required, the arbitrators will direct such distribution. 7.3.11 Partial occupancy or use prior to Substantial Completion shall not commence until the insurance company or companies providing property insurance have consented to such partial occupancy or use by endorsement or otherwise. The Owner and the Design/Builder shall take reasonable steps to obtain consent of the insurance company or companies and shall not, without mutual written consent, take any action with respect to partial occupancy or use that would cause cancellation, lapse or reduction of coverage. 7.4 LOSS OF USE INSURANCE 18 7.4.1 The Owner, at the Owner's option, may purchase and maintain such insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards, however caused. The Owner waives all rights of action against the Design/Builder for loss of use of the Owner's property, including consequential losses due to fire or other hazards, however caused. ARTICLE 8 CHANGES IN THE WORK 8.1 CHANGES 8.1.1 Changes in the Work may be accomplished after execution of this Part 2 Agreement, without invalidating this Part 2 Agreement, by Change Order, or Construction Change Directive, subject to the limitations stated in the Contract Documents. No action, conduct, omission, prior failure, or course of dealing by the Owner shall act to waive, modify, change, or alter the requirement that Change Orders and Construction Change Directives must be in writing and signed as provided herein. Such written change orders or directives are the exclusive method for effecting any change to the Contract Sum or Contract Time. The Design/Builder understands and agrees that the contract Sum and Contract Time cannot be changed by implication, oral agreements, actions, inactions, course of conduct, or constructive change order. 8.1.2 A Change Order shall be based upon agreement between the Owner and the Design/Builder; a Construction Change Directive may be issued by the Owner without the agreement of the Design/Builder. 8.1.3 Changes in the Work shall be performed under applicable provisions of the Contract Documents, and the Design/Builder shall proceed promptly, unless otherwise provided in the Change Order, or Construction Change Directive. 8.1.4 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are so changed in a proposed Change Order or Construction Change Directive that application of such unit prices to quantities of Work proposed will cause substantial inequity to the Owner or the Design/Builder, the applicable unit prices shall be equitably adjusted. 8.2 CHANGE ORDERS 8.2.1. A Change Order is a written instrument prepared by the Design/Builder and signed by the Owner and the Design/Builder, stating their agreement upon all of the following: 1. a change in the Work; 2. the amount of the adjustment, if any, in the Contract sum; and 3. the extent of the adjustment, if any, in the Contract Time. 8.2.2 If the Owner requests a proposal for a change in the Work from the Design/Builder and subsequently elects not to proceed with the change, a Change Order shall be issued to reimburse the Design/Builder for any costs incurred for estimating services, design services or preparation of proposed revisions to the Contract Documents. 8.3 CONSTRUCTION CHANGE DIRECTIVES 8.3.1 A Construction Change Directive is a written order prepared and signed by the Owner, directing a change in the Work prior to agreement on adjustment, if any, in the Contract Sum or Contract Time, or both. 8.3.2. Except as otherwise agreed by the Owner and the Design/Builder, the adjustment to the Contract Sum shall be determined on the basis of reasonable but not to exceed actual expenditures and savings of those performing the Work attributable to the change, including the expenditures for design services and revisions to the Contract Documents. In case of an increase in the Contract Sum, the cost shall include an allowance for overhead not to exceed ten percent (10%) and an allowance for profit not to exceed ten percent (10%). In such case, the Design/Builder shall keep and present an itemized accounting together with appropriate supporting data for inclusion in a Change Order. Unless otherwise provided in the Contract Documents, costs for these purposes shall be limited to the following: 1. costs of labor, including social security, old age and unemployment insurance, fringe benefits required by agreement or custom, and workers' compensation insurance; 2. costs of materials, supplies and equipment, including cost of transportation, whether incorporated or consumed; 3. rental costs of machinery and equipment exclusive of hand tools, whether rented from the Design/Builder or others; 4. costs of premiums for all bonds and insurance permit fees, and sales, use or similar taxes; 5. additional costs of supervision and field office personnel directly attributable to the change; and fees paid to the Architect, engineers and other professionals. 8.3.3 Pending final determination of cost to the Owner, amounts not in dispute may be included in Applications for Payment. The amount of credit to be allowed by the Design/Builder to the Owner for deletion or change which results in a net decrease in the Contract Sum will be actual net cost. When both additions and credits covering related Work or substitutions are involved in a change, the allowance for 19 overhead and profit shall be figured on the basis of the net increase, if any, with respect to that change. 8.3.4 When the Owner and the Design/Builder agree upon the adjustments in the Contract Sum and Contract Time, such agreement shall be effective immediately and shall be recorded by preparation and execution of an appropriate Change Order. 8.4 INTENTIONALLY OMITTED. 8.5 CONCEALED CONDITIONS 8.5.1 If conditions are encountered at the site which are (1) subsurface or otherwise concealed physical conditions which differ materially from those indicated in the Contract Documents, or (2) unknown physical conditions of an unusual nature which differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, then notice by the observing party shall be given to the other party promptly before conditions are disturbed and in no event later than 21 days after first observance of the conditions. The Contract Sum shall be suitably adjusted for such concealed or unknown conditions by Change Order upon claim by either party made within 21 days after the claimant becomes aware of the conditions. 8.6 REGULATORY CHANGES 8.6.1 The Design/Builder shall be compensated for changes in the construction necessitated by the enactment or revisions of codes, laws or regulations subsequent to the execution of this Part 2 Agreement. ARTICLE 9 CORRECTION OF WORK 9.1 The Design/Builder shall promptly correct Work rejected by the Owner or known by the Design/Builder to be defective or failing to conform to the requirements of the Contract Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed. The Design/Builder shall bear costs of correcting such rejected Work, including additional testing and inspections. 9.2 If, within one (1) year after the date of Substantial Completion of the Work or, after the date for commencement of warranties established in a written agreement between the Owner and the Design/Builder, or by terms of an applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Design/Builder shall correct it promptly after receipt of a written notice from the Owner to do so unless the Owner has previously given the Design/Builder a written acceptance of such condition. 9.3 Nothing contained in this Article 9 shall be construed to establish a period of limitation with respect to other obligations which the Design/Builder might have under the Contract Documents. Establishment of the time period of one (1) year as described in Subparagraph 9.2 relates only to the specific obligation of the Design/Builder to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings, may be commenced to establish the Design/Builder's liability with respect to the Design/Builder's obligations other than specifically to correct the Work. 9.4 If the Design/Builder fails to correct nonconforming Work as required or fails to carry out Work in accordance with the Contract Documents, the Owner, by written order signed personally or by an agent specifically so empowered by the Owner in writing, may order the Design/Builder to stop the Work, or any portion thereof, until the cause for such order has been eliminated; however, the Owner's right to stop the Work shall not give rise to a duty on the part of the Owner to exercise the right for benefit of the Design/Builder or other persons or entities. 9.5 If the Design/Builder defaults or neglects to carry out the Work in accordance with the Contract Documents and fails within seven (7) days after receipt of written notice from the Owner to commence and continue correction of such default or neglect with diligence and promptness, the Owner may without prejudice to other remedies the Owner may have, correct such deficiencies. In such case an appropriate Change Order shall be issued deducting from payments then or thereafter due the Design/Builder, the costs of correcting such deficiencies. If the payments then or thereafter due the Design/Builder are not sufficient to cover the amount of the deduction, the Design/Builder shall pay the difference to the Owner. Such action by the Owner shall be subject to dispute resolution procedures as provided in Article 10. ARTICLE 10 DISPUTE RESOLUTION -- MEDIATION AND ARBITRATION 10.1 Claims, disputes or other matters in question between the parties to this Part 2 Agreement arising out of or relating to this Part 2 Agreement or breach thereof shall be subject to and decided by mediation or arbitration. Such mediation or arbitration shall be conducted in accordance with the Construction Industry Mediation or Arbitration Rules of the American Arbitration Association currently in effect. 10.2 In addition to and prior to arbitration, the parties 20 shall endeavor to settle disputes by mediation. Demand for mediation shall be filed in writing with the other party to this Part 2 Agreement and with the American Arbitration Association. A demand for mediation shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for mediation be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statutes of repose or limitations. 10.3 Demand for arbitration shall be filed in writing with the other party to this Part 2 Agreement and with the American Arbitration Association. A demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statutes of repose or limitations. 10.4 An arbitration pursuant to this Article may be joined with an arbitration involving common issues of law or fact between the Design/Builder and any person or entity with whom the Design/Builder or Owner has a contractual obligation to arbitrate disputes, and with whom the Design/Builder and Owner agree. 10.5 The award rendered by the arbitrator or arbitrators shall be final, and judgement may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. 10.6 Unless otherwise agreed in writing, the Design/Builder shall continue to provide services and shall maintain progress during any mediation or arbitration proceedings, and the Owner shall continue to make payments to the Design/Builder in accordance with Articles 5 and 13, but the Owner shall be under no obligation to make payments on or against any claims or amounts in dispute during the pendency of any mediation or arbitration proceeding to resolve those claims or amounts in dispute. 10.7 The Article 10 shall survive completion or termination of Part 2. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 Unless otherwise provided, this Part 2 Agreement shall be governed by the law of the place where the Project is located. 11.2 SUBCONTRACTS 11.2.1 The Design/Builder, as soon as practicable after execution of this Part 2 Agreement, shall furnish to the Owner in writing the names of the persons or entities the Design/Builder will engage as contractors for the Project. 11.3 WORK BY OWNER OR OWNER'S CONTRACTORS 11.3.1 The Owner reserves the right to perform construction or operations related to the Project with the Owner's own forces, and to award separate contracts in connection with other portions of the Project or other construction or operations on the site under conditions of insurance and waiver of subrogation identical to the provisions of this Part 2 Agreement. If the Design/Builder claims that delay or additional cost is involved because of such action by the Owner, the Design/Builder shall assert such claims as provided in Subparagraph 11.4. 11.3.2 The Design/Builder shall afford the Owner's separate contractors reasonable opportunity for introduction and storage of their materials and equipment and performance of their activities and shall connect and coordinate the Design/Builder's construction and operations with theirs as required by the Contract Documents. 11.3.3 Costs caused by delays or by improperly timed activities or defective construction shall be borne by the party responsible therefor. 11.4 CLAIMS FOR DAMAGES 11.4.1 If either party to this Part 2 Agreement suffers injury or damage to person or property because of an act or omission of the other party, of any of the other party's employees or agents, or of others for whose acts such party is legally liable, written notice of such injury or damage, whether or not insured, shall be given to the other party within a reasonable time not exceeding 21 days after first observance. The notice shall provide sufficient detail to enable the other party to investigate the matter. If a claim of additional cost or time related to this claim is to be asserted, it shall be filed in writing. 11.5 INDEMNIFICATION 11.5.1 To the fullest extent permitted by law, the Design/Builder shall indemnify and hold harmless the Owner, Owner's consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work, provided that such 21 claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by negligent acts or omissions of the Design/Builder, anyone directly or indirectly employed by the Design/Builder or anyone for whose acts the Design/Builder may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 11.5. 11.5.2 In claims against any person or entity indemnified under this Paragraph 11.5 by an employee of the Design/Builder, anyone directly or indirectly employed by the Design/Builder or anyone for whose acts the Design/Builder may be liable, the indemnification obligation under this Paragraph 11.5 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Design/Builder under workers' compensation acts, disability benefit acts or other employee benefit acts. 11.6 SUCCESSORS AND ASSIGNS 11.6.1 The Owner and Design/Builder, respectively, bind themselves, their partners, successors, assigns and legal representatives to the other party to this Part 2 Agreement and to the partners, successors and assigns of such other party with respect to all covenants of this Part 2 Agreement. Neither the Owner nor the Design/Builder shall assign this Part 2 Agreement without the written consent of the other. The Owner may assign this Part 2 Agreement to any institutional lender providing construction financing, and the Design/Builder agrees to execute all consents reasonably required to facilitate such an assignment. If either party makes such an assignment, that party shall nevertheless remain legally responsible for all obligations under this Part 2 Agreement, unless otherwise agreed by the other party. 11.7 TERMINATION OF PROFESSIONAL DESIGN SERVICES 11.7.1 Prior to termination of the services of the Architect or any other design professional designated in this Part 2 Agreement, the Design/Builder shall identify to the Owner in writing another architect or other design professional with respect to whom the Owner has no reasonable objection, who will provide the services originally to have been provided by the Architect or other design professional whose services are being terminated. 11.8 EXTENT OF AGREEMENT 11.8.1 This Part 2 Agreement represents the entire agreement between the Owner and the Design/Builder and supersedes prior negotiations, representations or agreements, either written or oral. This Part 2 Agreement may be amended only by written instrument and signed by both the Owner and the Design/Builder. 11.9 No action or failure to act by the Owner or Design/Builder shall constitute a waiver of a right or duty afforded them under the contract, nor shall such action or failure to act constitute approval of or acquiescence in a breach thereunder, except as may be specifically agreed in writing. 11.10 In no event will the Owner ever be liable to the Design/Builder or any other person or entity acting on its behalf under this Agreement, for lost profits or other indirect incidental or consequential damages. In no event will the Design/Builder ever be liable to the Owner or any other person or entity acting on its behalf under this Agreement, for lost profits or other indirect incidental or consequential damages. 11.11 The Owner shall have the right to use and occupy spaces, area, systems and other portions of the Work prior to completion and acceptance of all the Work, provided that in the reasonable opinion of the Design/Builder, such use or occupancy shall not unreasonably interfere with the Design/Builder's operations nor delay him in completing the entire Work. If the Owner desires to exercise its right of partial occupancy and use under this Paragraph, the Owner shall give reasonable notice thereof to the Design/Builder. If the Design/Builder determines that the proposed use or occupancy would not unreasonably interfere with its operations or delay him in completing the entire Work, the Design/Builder shall cooperate with the Owner in providing basic services and facilities reasonably required for the proposed use or the health, safety and comfort of the users or occupants and other parties lawfully present on or entering or leaving the site; such as heating, ventilating, cooling, water, lighting, power, elevator and telephone services for the space or spaces to be occupied. If the equipment required to furnish such services is not entirely completed at the time the Owner desires to use or occupy the aforesaid space or spaces, the Design/Builder shall make every reasonable effort to complete the same as soon as possible so that the necessary equipment can be put into operation and use. Mutually acceptable arrangements shall be made between the Owner and the Design/Builder with regard to procedures, terms and conditions governing the operation and maintenance of such services and facilities as may be utilized for the benefit of the Owner. The Owner will assume proportionate and reasonable responsibility for operation of systems, equipment and utilities required to provide such services in part or in total, including proportionate and reasonable expenses of operation incidentals thereto, and mutually acceptable arrangements shall be made as to guarantees and warranties affecting designated portions or elements of the Work associated therewith. 11.12 The Owner's use or occupancy of such designated areas or portions of the Work prior to completion and acceptance of all or portions of the Work pursuant to Paragraph 11.11 shall not constitute acceptance of systems, materials, or elements of the Work which are not in accordance with the requirements of the Contract Documents, nor relieve the Design/Builder from his obligation to complete the Work, or his responsibility for loss or damage due to or arising out of, defects in or malfunctioning of systems, 22 materials, equipment, or elements of the Work, nor from other unfulfilled obligations or responsibilities of the Design/Builder under this Contract. If however, damage results to such designated areas or portions of the Work, in whole or in part, from any act of the Owner, then the Owner will assume its proportionate responsibility from such damage, to the extent that such damage is not covered by insurance provided in accordance with the terms of the Contract Documents. 11.13 The Design/Builder on behalf of itself and all others performing the Work waives all rights to file a mechanic's or materialmen's lien under the laws of the Commonwealth of Pennsylvania. The Design/Builder has evidenced this agreement by delivery to the Owner of a general waiver of liens, a copy of which is attached hereto as Exhibit A and the terms of which are incorporated herein by reference. 11.14 All notices of default and termination and all other notices not in the ordinary course that are required to be given by the terms of the Contract Documents or by any law of governmental regulation either by the Owner or the Design/Builder shall be in writing and shall be sent by registered or by certified mail, return receipt requested and postage prepaid, hand delivered and receipted for, or by reputable overnight delivery service with tracking capabilities and addressed if to the Owner to the address on the first page of this Agreement with a copy to Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st Floor, Philadelphia, PA. 19103, attention Tina R. Makoulian, Esquire, and if to the Design/Builder, to the address on the first page of this Agreement. All other notices in connection with the Project shall be in writing and shall be hand delivered by first class mail or sent as described above to the addresses listed above, except that copies of such other notices need not be given to counsel for the Owner. The Owner may designate to the Design/Builder the address to which notices to any lender shall be sent and the Design/Builder shall provide such lender with copies of all notices required to be given to the Owner at such designated address and in the manner set forth above. 11.15 All indemnification, payment, insurance and other obligations of the Design/Builder under this Agreement or any of the other Contract Documents shall survive the expiration or sooner termination of the Agreement. 11.16 No approval, determination, inspection, test, review, comment, payment and/or other action or the failure to approve, determine, inspect, test, review, comment, make payment and/or take any action by the Owner shall affect or impair any of the Design/Builder's representations, warranties or covenants under this Agreement nor be construed to alter, amend, or waive any of the Design/Builder's obligations to comply with any of the provisions of the Contract Documents and the Owner shall not be deemed to have waived any of its rights arising from or in connection therewith nor to have assumed or created any liability on the part of the Owner. ARTICLE 12 TERMINATION OF THE AGREEMENT 12.1 TERMINATION BY THE OWNER 12.1.1 This Part 2 Agreement may be terminated by the Owner upon 5 days' written notice to the Design/Builder. If such termination occurs, and is not due to the fault of the Design/Builder, then the Owner shall pay the Design/Builder for Work completed to the termination date, together with reimbursable expenses then due. 12.1.2 If the Design/Builder defaults or persistently fails or neglects to carry out the Work in accordance with the Contract Documents or fails to perform the provisions of this Part 2 Agreement, the Owner may give written notice that the Owner intends to terminate this Part 2 Agreement. If the Design/Builder fails to correct the defaults, failure or neglect within seven (7) days after being given notice, the Owner may without prejudice to any other remedy make good such deficiencies and may deduct the cost thereof from the payment due the Design/Builder or, at the Owner's option, may terminate the employment of the Design/Builder and take possession of the site and of all materials, equipment, tools and construction equipment and machinery thereon owned by the Design/Builder and as well as all drawings, plans and specifications and finish the Work by whatever method the Owner may deem expedient. If the unpaid balance of the Contract sum exceeds the expense of finishing the Work and all damages incurred by the Owner, such excess shall be paid to the Design/Builder. If the expense of completing the Work and all damages incurred by the Owner exceeds the unpaid balance, the Design/Builder shall pay the difference to the Owner. This obligation for payment shall survive termination of this Part 2 Agreement. 12.1.3 INTENTIONALLY OMITTED. 12.2 TERMINATION BY THE DESIGN/BUILDER 12.2.1 If the Owner fails to make payment when due, the Design/Builder may give written notice of the Design/Builder intention to terminate this Part 2 Agreement. If the 23 Design/Builder fails to receive payment within seven (7) days after receipt of such notice by the Owner, the Design/Builder may give a second written notice and, seven (7) days after receipt of such second written notice by the Owner, may terminate this Part 2 Agreement and recover from the Owner payment for Work executed, and for proven losses sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit earned to date and applicable damages. ARTICLE 13 BASIS OF COMPENSATION The Owner shall compensate the Design/Builder in accordance with Article 5, Payments, and the other provisions of this Part 2 Agreement as described below. 13.1 COMPENSATION 13.1.1 For the Design/Builder's performance of the Work, as described in Paragraph 3.2 and including any other services listed in Article 14 as part of Basic Services, the Owner shall pay the Design/Builder in current funds the Contract Sum as follows: 13.1.1 The cost of the Work is guaranteed by the Design/Builder not to exceed $14,850,000.00, subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Design/Builder without reimbursement by the Owner. The Guaranteed Maximum Price is based on the following: This part II Agreement will be amended to include the GMP-Guaranteed Maximum Price once the estimate is completed and approved.
Procurement $ 4,455,650.00 Fixed Fee $ 226,578.00 Construction Management $ 9,344,672.00 Validation $ 823,100.00 Total Procurement, Construction Management, Fee & Validation $14,850,000.00
To the extent that the Drawings and Specifications are anticipated to require further development by the Architect, the Design/Builder has provided in the Guaranteed Maximum Price for such further development consistent with the Contract Documents and reasonable inferable therefrom. 13.1.2. For Additional Services, as described in Paragraph 3.3 and including any other services listed in Article 14 as Additional Services, compensation shall be as agreed to by approved SAN's (Scope Adjustment Notice): 13.2 REIMBURSABLE EXPENSES 13.2.1 Reimbursable Expenses are included in the compensation for Basic and Additional Services, and include actual expenditures made by the Design/Builder's employees and contractors in the interest of the Project. 13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of one (1) times the amounts expended. 13.3 INTEREST PAYMENTS 13.3.1 The rate of interest for past due payments shall be as follows: Prime plus 1% (Lusury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Design/Builder's principal places of business, at the location of the Project and elsewhere may affect the validity of this provision. Specific legal advice should be obtained with respect to deletion, modification or other requirements, such as written disclosures or waivers.) ARTICLE 14 OTHER CONDITIONS AND SERVICES 14.1 The Basic Services to be performed shall be commenced on May 20, 2001 and proceed as shown on the attached Project Schedule Rev. 4 08/29/01 and, subject to executed change orders granting extension of time, Substantial Completion shall be achieved in the Contract Time of 8/16/02 (454) calendar days. 24 14.2 The Basic Services beyond those described in Article 3 are as follows: Attachment# Description ----------- ------------------------------------------------------- 1 Executive Summary -- 2 Pages dated 8/16/01 2 Design (BOD) dated 8/22/01 3 Procurement Plan 4 Validation -- Proposal & Scope dated 6/5/01 13 -- Pages 5 GMP Estimate -- dated July 24, 2001 -- 13 Pages 6 Schedule -- Revision 4 dated 8/29/01 14.3 Additional Services beyond those described in Article 3 are as follows: 14.4 The Design/Builder shall submit an Application for Payment on the Tenth (10th) day of each month. 14.5 INTENTIONALLY OMITTED. ARTICLE 15 15.1 Progress Payments 15.1.1 Based upon Applications for Payment submitted by the Design/Builder, the Owner shall make progress payments on account of the Contract Sum to the Design/Builder as provided below and elsewhere in the Contract Documents. 15.1.2 The period covered by each Application for Payment shall be one (1) calendar month ending on the last day of the month Payments shall be made by the Owner not later then thirty (30) days after the Owner receives the Application for Payment. 15.2 Final Payment 15.2.1 Final payment constituting the entire balance of the Contract Sum shall be made by the Owner to the Design/Builder when the Design/Builder has fully performed the Contract and the Owner has approved the Design/Builder's final Application for Payment. The Owner's final payment to the Design/Builder [and release of retainage] shall be made no later than thirty (30) days after approval of the Application for Payment. 15.2.2 The Owner's accountants will review and report on the Design/Builder's final accounting within thirty (30) days after delivery of the final accounting by the Design/Builder. Approval of the final Application for Payment shall be based on such Cost of the Work as the Owner's accountants report to be substantiated by the Design/Builder's final accounting. If the Owner's accountants report the Cost of the Work as substantiated by the Design/Builder's final accounting to be less than claimed by the Design/Builder, the Design/Builder shall be entitled to demand resolution of the dispute pursuant to Article 10 of this Agreement. Such demand shall be made within thirty (30) days after receipt by the Design/Builder of notification of Owner's findings; failure to make such demand within this thirty (30) days period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Design/Builder. The time periods in this subparagraph relating to the final accounting supersede the general provisions in Article 10. Pending final resolution, the Owner shall pay the Design/Builder the undisputed amount. Title Date 10-29-01 ------------------------------- ------------------------------- This Agreement entered into as of the day and year first written above. /s/ P. SHERRILL NEFF /s/ ANTHONY J. MACCHIA ------------------------------- ----------------------------- OWNER (Signature) DESIGN/BUILDER (Signature) P. SHERRILL NEFF ANTHONY J. MACCHIA ------------------------------- ----------------------------- PRESIDENT & CHIEF OPERATING OFFICER VICE PRESIDENT FINANCE 25 EX-11 14 ex11.txt EX11.TXT EXHIBIT 11 Computation of Net Loss Per Common Share (in thousands, except per share data) Year Ended December 31, ------------------------------------- 1999 2000 2001 ------------------------------------- Net loss................... $(13,318) $ (8,500) $(13,329) ===================================== Basic and diluted weighted-average shares outstanding......... 10,678 13,428 14,032 ===================================== Basic and diluted net loss per share............. $ (1.25) $ (0.63) $ (0.95) ===================================== EX-23 15 ex23-1.txt EX23-1.TXT Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated January 25, 2002 included in this Form 10-K into the Company's previously filed Registration Statement File Nos. 333-01410, 333-35283, 333-83925, 333-88913, 333-47718 and 333-73340 /s/ ARTHUR ANDERSEN LLP Philadelphia, Pa. March 28, 2002 EX-99 16 exh99.txt EXHIBIT 99 EXHIBIT 99 Neose Technologies, Inc. 102 Witmer Road Horsham, Pennsylvania 19044 March 28, 2002 Securities and Exchange Commission 450 5th Street, NW Washington, DC 20549 Dear Sir or Madam: Pursuant to Securities and Exchange Commission Release No. 33-8070, 34-45590; 35-27503; 39-2395; IA-2018; IC-25464; FR-62; File No. S7-03-02, this letter is to confirm that Neose Technologies, Inc. has received assurance from its independent public accountants, Arthur Andersen LLP ("Arthur Andersen"), that Arthur Andersen's audit of our consolidated financial statements as of December 31, 2001 and for the year then ended (the "Audit") was subject to Arthur Andersen's quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, and that there was appropriate continuity of Arthur Andersen personnel working on the Audit and availability of national office consultation. Availability of personnel at foreign affiliates of Arthur Andersen is not relevant to the Audit. NEOSE TECHNOLOGIES, INC. /s/ A. Brian Davis A. Brian Davis Acting Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----