UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
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 0-27646
GUM TECH INTERNATIONAL, INC.
(Exact name of small business issuer as specified in it charter)
UTAH 87-0482806
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
246 EAST WATKINS STREET
PHOENIX, AZ 85004
(Address of principal executive offices)
(602) 252-1617
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No[ ]
There are 6,852,999 shares of the registrant's common stock, no par value
outstanding as of November 9, 1998.
<PAGE>
GUM TECH INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Part I Financial Information Page
Item 1. Condensed Balance Sheet as of September 30, 1998 1
Condensed Statements of Operations for the three
months ended September 30, 1998 and 1997 3
Condensed Statements of Operations for the nine
months ended September 30, 1998 and 1997. 4
Condensed Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II Other Information and Signatures 13
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
September 30, 1998
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,781,213
Restricted cash 163,007
Accounts receivable, net of allowance
for doubtful accounts of $25,758 1,221,965
Inventories 1,505,702
Prepaid expenses and other 107,048
-----------
Total Current Assets 4,778,935
-----------
Property and Equipment, at cost:
Machinery and production equipment 3,993,845
Office furniture and equipment 175,013
Leasehold improvements 295,169
-----------
Total Property and Equipment 4,464,027
Less accumulated depreciation (1,204,014)
-----------
Net Property and Equipment 3,260,013
-----------
Other Assets:
Intangible assets, net of accumulated
amortization of $139,539 131,843
Deposits and other 287,770
-----------
Total Other Assets 419,613
-----------
Total Assets $ 8,458,561
===========
The accompanying notes are an integral part of
these condensed financial statements
1
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
September 30, 1998
(Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 649,545
Accrued interest 45,794
Customer deposits 138,852
Current portion of long-term debt 372,161
------------
Total Current Liabilities 1,206,352
------------
Long Term Debt, net of current portion above:
Financial institutions and other 2,923,823
Obligations under capital leases 26,649
Less current portion above (372,161)
------------
Total Long Term Debt 2,578,311
------------
Stockholders' Equity:
Preferred stock: no par value, 1,000,000
shares authorized, none issued or
outstanding --
Common stock: no par value, 20,000,000 shares authorized,
6,831,947 shares issued and outstanding 15,016,915
Additional paid in capital 2,174,356
Accumulated deficit (12,517,373)
------------
Total Stockholders' Equity 4,673,898
------------
Total Liabilities and Stockholders' Equity $ 8,458,561
============
The accompanying notes are an integral part of
these condensed financial statements
2
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30,
--------------------------------
1998 1997
---- ----
Net sales $ 1,286,176 $ 1,284,746
Cost of sales 1,000,323 820,149
----------- -----------
Gross Profit 285,853 464,597
Operating expenses 545,237 825,981
Research and development 273,237 21,754
----------- -----------
Income (Loss) From Operations (532,621) (383,138)
----------- -----------
Other Income (Expense):
Interest and other income 34,045 67,083
Interest expense (122,056) (120,006)
----------- -----------
Total Other Income (Expense) (88,011) (52,923)
----------- -----------
Income (Loss) Before Provision For
Income Taxes (620,632) (436,061)
Provision for income taxes -- --
----------- -----------
Net Income (Loss) $ (620,632) $ (436,061)
=========== ===========
Net Income (Loss) Per Share of Common Stock:
Basic:
Weighted Average Number of Common
Shares Outstanding 6,808,776 5,464,435
=========== ===========
Net Income (Loss) Per Share of Common Stock $ (0.09) $ (0.08)
=========== ===========
Diluted:
Weighted Average Number of Common
Shares Outstanding 6,808,776 5,464,435
=========== ===========
Net Income (Loss) Per Share of Common Stock $ (0.09) $ (0.08)
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements
3
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended September 30,
-------------------------------
1998 1997
---- ----
Net sales $ 3,603,693 $ 2,592,434
Cost of sales 2,815,423 2,948,498
----------- -----------
Gross Profit 788,270 (356,064)
Operating expenses 4,534,909 2,211,162
Research and development 415,109 92,971
----------- -----------
Income (Loss) From Operations (4,161,748) (2,660,197)
----------- -----------
Other Income (Expense):
Interest and other income 109,173 148,786
Interest expense (383,680) (979,956)
----------- -----------
Total Other Income (Expense) (274,507) (831,170)
----------- -----------
Income (Loss) Before Provision For
Income Taxes (4,436,255) (3,491,367)
Provision for income taxes 150 --
----------- -----------
Net Income (Loss) $(4,436,405) $(3,491,367)
=========== ===========
Net Income (Loss) Per Share of Common Stock:
Basic:
Weighted Average Number of Common
Shares Outstanding 6,372,842 5,122,527
=========== ===========
Net Income (Loss) Per Share of
Common Stock $ (0.70) $ (0.68)
=========== ===========
Diluted:
Weighted Average Number of Common
Shares Outstanding 6,372,842 5,122,527
=========== ===========
Net Income (Loss) Per Share of
Common Stock $ (0.70) $ (0.68)
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements
4
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
-------------------------------
1998 1997
---- ----
Cash Flows From Operating Activities:
Net income (loss) $(4,436,405) $(3,491,367)
Adjustments to reconcile net income (loss)
to net cash (used) by operating activities:
Depreciation 201,260 431,171
Amortization 91,828 34,504
Compensation from forgiveness of note receivable 114,012 --
Compensation from extension and issuance
of stock options 1,508,566 --
Interest expense from beneficial conversion
feature of notes payable -- 665,790
Accrued interest on notes receivable 60,164 (59,763)
Changes in assets and liabilities:
(Increase) in accounts receivable (139,731) (233,924)
Decrease in employee receivable 61,054 --
Decrease in income tax receivable -- 234,440
(Increase) Decrease in inventories (472,320) 269,661
(Increase) Decrease in prepaid expenses
and other 9,157 (94,073)
(Increase) Decrease in deposits and other (246,664) 166,623
(Decrease) in accounts payable and accrued
expenses (105,119) (8,850)
Increase (Decrease) in customer deposits 123,852 (64,684)
----------- -----------
Net Cash (Used) By Operating Activities (3,230,346) (2,150,472)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (585,903) (165,800)
Receipt of principal on notes receivable 250,000 --
Increase in notes receivable -- (61,585)
----------- -----------
Net Cash (Used) By Investing Activities (335,903) (227,385)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing -- 2,530,000
Principal payments on notes payable (253,483) (165,728)
Issuance of common stock upon exercise of
options and warrants 2,004,765 4,121,768
Costs for issuance of common stock -- (188,678)
Debt issuance costs incurred (11,733) (259,648)
----------- -----------
Net Cash Provided By Financing Activities 1,739,549 6,037,714
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents (1,826,700) 3,659,857
Cash and Cash Equivalents at Beginning of Period 3,607,913 1,116,751
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,781,213 $ 4,776,608
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 316,204 $ 209,515
Income taxes -- --
Supplemental Disclosure of Non Cash Investing
and Financing Activities:
Conversion of notes payable into common stock $ 924,000 $ --
The accompanying notes are an integral part of
these condensed financial statements
5
<PAGE>
GUM TECH INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying financial information of the Company is prepared in
accordance with the rules prescribed for filing condensed interim financial
statements and, accordingly, does not include all disclosures that may be
necessary for complete financial statements prepared in accordance with
generally accepted accounting principles. The disclosures presented are
sufficient, in management's opinion, to make the interim information
presented not misleading. All adjustments, consisting of normal recurring
adjustments, which are necessary so as to make the interim information not
misleading, have been made. Results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of results of operations
that may be expected for the year ending December 31, 1998. It is
recommended that this financial information be read with the complete
financial statements included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997 previously filed with the Securities
and Exchange Commission.
2. As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share", which specifies
the method of computation, presentation and disclosure of earnings per
share. SFAS No. 128 requires the presentation of two earnings per share
amounts, basic and diluted. Basic earnings per share is calculated using
the average number of common shares outstanding. Diluted earnings per share
is computed on the basis of the average number of common shares outstanding
plus the dilutive effect of outstanding stock options using the "treasury
stock" method. The basic and diluted earnings per share are the same since
the Company had a net loss in 1998 and 1997 and the inclusion of stock
options and other incremental shares would be antidilutive. Consequently,
options, warrants and other incremental shares to purchase 1,085,968 and
2,597,680 shares of common stock at September 30, 1998 and 1997, were
excluded from the computation of diluted earnings per share.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was organized in 1991 to develop, market and distribute
specialty chewing gum products. The Company's first chewing gum product included
a natural caffeine substance marketed to runners and other exercise enthusiasts
as a source of energy and carbohydrates. In 1994 and 1995, the Company raised
funds through debt and equity financings which were used to establish a new
management team, develop additional chewing gum products, build inventories and
purchase manufacturing equipment for the Company's 28,000 square foot
manufacturing facility, which commenced operations in March 1996. All of the
Company's chewing gum products are researched, developed, and manufactured at
the facility. The Company's packaging and warehousing operations, previously
conducted at the manufacturing facility, were relocated in September 1998 to a
nearby 31,000 square foot leased building. The Company's corporate offices are
located at the manufacturing facility.
The Company develops and manufactures specialty chewing gum products
for branded and private label customers, as well as products marketed under the
Gum Tech brand. The products contain vitamins, herbals and/or active drug
ingredients. Gum Tech currently targets four market segments: oral care, smoking
cessation, dietary supplement, and over-the-counter (OTC) drug. The Company's
current strategy is to offer its research and the use of its formulations in
exchange for co-manufacturing agreements with major branded and private label
customers that possess the capital resources to promote functional chewing gum
on a large national and international scale. The Company currently employs
approximately 60 people, but also utilizes additional contract workers to meet
regular and peak production requirements.
7
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1997
The following table sets forth certain Statement of Operations
information expressed both in dollars and as a percentage of net sales for the
periods indicated:
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
---- ----
Net sales $1,286,176 100% $1,284,746 100%
Cost of sales 1,000,323 78 820,149 64
---------- ---- ---------- ----
Gross profit 285,853 22 464,597 36
Operating expenses 545,237 42 825,981 64
Research and development 273,237 21 21,754 2
---------- ---- ---------- ----
Income (Loss) from operations (532,621) (41) (383,138) (30)
Interest and other income 34,045 3 67,083 5
Interest expense 122,056 9 120,006 9
Provision (benefit) for income taxes -- -- -- --
---------- ---- ---------- ----
Net income (loss) $ (620,632) (48)% $ (436,061) (34)%
NET SALES. Net sales for the three months ended September 30, 1998 were
$1,286,176, virtually unchanged from the year earlier period. Contract
manufacturing sales increased to more than 90% of the total compared to less
than 45% in 1997, reflecting a change in Company strategy in early 1998 from
direct marketing of its own products to a greater emphasis on contract
manufacturing for others. A major protion of this increase was attributable to
sales of dental gum under the Company's agreement with BreathAsure entered into
June 1998. Other significant sales during this period resulted from contracts to
provide a diet gum to Herbalife and an analgesic gum (Aspergum(R))and an
antacid/calcium replacement gum (Chooz(R)) to Heritage Consumer Products. Sales
in the 1997 period were significantly impacted by initial orders of Cigarest(R),
a homeopathic smoking cessation product, which was marketed directly by the
Company at that time.
COST OF SALES. Cost of sales increased to $1,000,323 for the three
months ended September 30, 1998, or $180,174 above the prior year period.
GROSS PROFIT. Gross profit for the 1998 quarter was $285,853, down from
$464,597 in 1997, principally reflecting a change in sales mix.
OPERATING EXPENSES. Operating expenses decreased to $545,237 for the
quarter compared to $825,981 the prior year. Advertising and marketing expenses
decreased $408,000 due to the Company's shift in strategy. Depreciation expense
decreased $72,000 due to the refinancing/restructuring of a capital lease debt
obligation into a term loan facility, which allowed for depreciating the
equipment over its estimated useful life instead of the term of the lease. These
decreases were offset in part by a reclassification from earlier periods in 1998
8
<PAGE>
of Operating expenses to Research & Development to conform with 1997 year-end
presentation ($67,000) and a decrease in the amount of Operating expenses
allocated to Cost of Goods ($290,732 in 1998 vs. $440,340 in 1997).
RESEARCH & DEVELOPMENT EXPENSE. Research & development expense
increased due to the reclassification noted above and due to increases in the
Company's research and development activities, including formulation, process
and ingredient validation and production scale-up of several new products in
1998.
INTEREST EXPENSE. Interest expense for the third quarter of 1998 was
$122,056, approximately the same as the year earlier period. Interest expense in
1998 was impacted by the conversion of approximately $ 525,000 of the Company's
convertible debt into equity during the third quarter of 1998 which resulted in
an accelerated expensing of debt issuance costs.
NET INCOME (LOSS). Net loss for the third quarter of 1998 was $620,632,
or an increase of $184,571 over the year earlier period.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1997.
The following table sets forth certain Statement of Operations
information expressed both in dollars and as a percentage of net sales for the
periods indicated:
NINE MONTHS ENDED JUNE 30,
---- ------------ --------
1998 1997
---- ----
Net sales $ 3,603,693 100% $ 2,592,434 100%
Cost of sales 2,815,423 78 2,948,498 114
----------- ---- ----------- ----
Gross profit 788,270 22 (356,064) (14)
Operating expenses 4,534,909 126 2,211,162 85
Research and development 415,109 11 92,971 4
----------- ---- ----------- ----
Income (Loss) from operations (4,161,748) (115) (2,660,197) (103)
Interest and other income 109,173 3 148,786 6
Interest expense 383,680 11 979,956 38
Provision (benefit) for income taxes 150 -- -- _-_
----------- ---- ----------- ----
Net income (loss) $(4,436,405) (123)% $(3,491,367) (135)%
NET SALES. Net sales for the nine months ended June 30,1998 were
$3,603,693, an increase of $1,011,259, or 39%, above the year earlier period. A
significant portion of this increase in sales was attributable to product
deliveries of Cigarest's smoking cessation gum, Herbalife's diet and energy
gums, Heritage Consumer Product's Aspergum(R) and Chooz (R), and Breath Asure
dental gum.
COST OF SALES. Cost of Sales for the nine month period in 1998
decreased $133,075 to $2,815,423 from $2,948,498 in 1997. The cost of sales for
9
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the nine months ended September 30, 1997 included costs of approximately
$700,000 associated with sales under the Company's barter agreements for which
corresponding revenues are not reflected.
GROSS PROFIT. Gross Profit for the nine months ended September 30, 1998
was $788,270, or 22% of Net Sales. This represents an increase of more than
$1,144,334 from the year earlier period.
OPERATING EXPENSES. Operating expenses for the nine months ended
September 30, 1998 were $4,534,909 compared to $2,211,162 for the same period
1997. The increase in expenses was principally attributable to an extension of
the term of certain stock options to a former officer of the Company
($1,478,750) and severance compensation expenses ( $618,230).
RESEARCH AND DEVELOPMENT. Research and Development expenses increased
by $322,138 to $415,109 for the nine months ended September 30, 1998,
principally due to an increase in the Company's research and development
activities related to the development and production scale-up of several new
products in 1998.
INTEREST EXPENSE. Interest expense was $383,680 for the nine months
ended September 30, 1998, a decrease of $596,276 from the year earlier period.
Interest expense in the 1997 period was impacted by a non-cash charge of
$665,790 related to a beneficial conversion feature received by investors in the
Company's convertible debentures issued in March, 1997.
NET INCOME (LOSS). Net loss for the nine months ended September 30,
1998 was $4,436,405 compared to a net loss of $3,491,367 for the same period in
1997. After adjusting for the stock option extension and severance compensation
expense noted above, the Net loss for the nine months ended September 30, 1998
would be $2,339,425 or an improvement of approximately $1.15 million versus the
1997 period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's working capital was $3.57
million compared to $5.09 million at December 31, 1997. For the nine month
period ended September 30, 1998, the Company experienced a decrease in cash used
by operating activities of $3.2 million primarily as a result of the net loss
incurred .
Investing activities consumed $335,903 of cash for the nine months
ended September 30, 1998 compared to $227,385 of cash used in the same period in
1997. The amount for 1998 reflects the repayment of two outstanding notes from
former officers of the Company. In addition to the acquisition of additional
manufacturing equipment in 1997, investing activities in 1997 also reflect an
increase in a note receivable from a former officer.
10
<PAGE>
Financing activities provided $1.7 million in cash for the nine months
ended September 30, 1998 compared to $6.0 million for the same period in 1997.
The 1998 amount reflects cash received from the exercise of common stock options
and warrants. The 1997 amount reflects cash received from the exercise of
warrants issued in conjunction with the Company's Initial Public Offering and
the issuance of the Company's convertible notes in March 1997.
On August 21, 1998, the Company entered into a five-year lease of a
31,460 square foot building located in the same vicinity as the Company's
headquarters/gum manufacturing facility. The new building will be used
principally for the Company's packaging and warehouse operations. The monthly
base rent of the lease is $10,067, $11,955, $12,584, $13,257, and $14,157 in
each of the five years, respectively.
OUTLOOK
The results for the third quarter do not reflect any sales under the
Company's agreement with Ranir/DCP. Initial sales to some of Ranir's private
label clients will be made in the fourth quarter of 1997 and the Company expects
Ranir to expand these sales to most of its remaining clients in the first half
of 1999.
The Company is currently in discussions with several bank/finance
companies to establish a short term credit facility to finance its growing
inventory and accounts receivable. The Company anticipates that this line of
credit will be in place by year-end.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. Additional written or
oral forward-looking statements may be made by the Company from time to time in
filings with the Securities Exchange Commission or otherwise. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. Such statements may include, but may not be limited to,
projections of revenues, income or loss, estimates of capital expenditures,
plans for future operations, products or services, and financing needs or plans,
as well as assumptions relating to the foregoing. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
forward-looking statements, which speak only as of the date the statement was
made. Specifically, this report contains forward-looking statements concerning
plant efficiencies and capacities, capital spending, research and development,
and other projected expenses, among others. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be predicted
or quantified. Future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements. The statements included in this report, particularly those contained
in this Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and in the Notes to the Company's Financial Statements,
describe factors, among others, that could contribute to or cause such
differences, including business conditions and the general economy, competitive
factors, such as rival gum manufacturers' pricing and marketing efforts,
availability of third-party material products at reasonable prices, risk of
11
<PAGE>
non-payment of accounts receivable, risks of inventory obsolescence due to
shifts in market demand, timing of product introductions and litigation
involving product liabilities and consumer issues.
DATA PROCESSING AND TECHNOLOGY AND YEAR 2000
The Company recognizes the potential business impacts related to the
Year 2000 computer system issue and is implementing a plan to assess and improve
the Company's state of readiness with respect to such issues. The Year 2000
issue is one where computer systems may recognize the designation "00" as 1900
when it means 2000, resulting in system failure or miscalculations.
In recognition of the Year 2000 issue, the Company has started a
comprehensive review of all information technology and non-information
technology systems used by the Company. Such review includes testing and
analysis of Company products and inquiries of third parties supplying
information technology and non-information technology systems, computer hardware
and software products and components, and other equipment to the Company.
As a result of its review to date, the Company has determined that
certain of its internal software systems may be inadequate for the Company's
future business needs, and may need to be updated, because of various
considerations, including Year 2000 non-compliance. The Company expects to make
necessary modifications or changes to its computer information systems, related
to Year 2000 non-compliance, prior to the Year 2000. The Company believes the
costs of modification to the current information technology systems will not
have a material effect on its financial position or results of operations.
At this time, the Company has not developed Year 2000 contingency
plans, other than the review and remedial actions described above, and does not
intend to do so unless the Company believes such plans are merited by the
results of its continuing Year 2000 review.
If the Company or the third parties with which it has relationships
were to cease or not successfully complete their Year 2000 remediation efforts,
the Company could encounter disruptions to its business that could have a
material adverse effect on its business, financial position and results of
operations. The Company also could be materially and adversely impacted by
widespread economic or financial market disruption caused by Year 2000 computer
system failures.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 16, 1996, a lawsuit was filed against the Company and other
parties in the United States District Court for the Central District of
California, CV-95-9784. The action is entitled GCN Products, Inc. vs. Roy Kelly,
et al. The complaint, as it relates to the Company, principally alleged that the
Company engaged in unlawful rebates, appropriations and overcharges, commercial
bribery, fraud and unjust enrichment. On September 4, 1998, the Judge granted a
motion for summary judgment in favor of the Company, and dismissed the
plaintiff's claims against the Company and its current and former directors. The
ruling remains subject to appeal.
On August 27, 1997, a lawsuit was filed by Paul R. Janssens-Lens against
the Company, in the case of Janssens-Lens v. Gum Tech International, Inc.,
Kensington Securities, Inc., Kirtis Wyatt and Jane Doe Wyatt in the Superior
Court of Arizona, in and for the County of Maricopa, case number CV97-15896. The
Jansenns-Lens lawsuit alleged both breach of contract and tort actions,
including intentional interference with prospective economic advantage,
misrepresentation, securities fraud and consumer fraud and sought compensatory
damages in an amount of no less than $1,680,000, together with an award of
punitive damages in an amount to be determined at trial. The lawsuit settled in
the early stages between plaintiff Paul R. Janssens-Lens and defendants
Kensington Securities, Inc. and Kirtis Wyatt. The suit against the Company was
recently dismissed without prejudice for lack of prosecution.
On March 26, 1998, Roy Kaplan filed a charge of discrimination with the
California Department of Fair Employment and Housing and the Equal Employment
Opportunity Commission alleging discrimination based on age and religion.
Specifically, he alleges that he was terminated from his position as Executive
Vice President of Sales because of his age (63) and religion (Jewish). A
tentative settlement has been reached between the Company and Mr. Kaplan that
will not have a material impact on the Company.
On July 2, 1998, Kirk Gossett, a former employee of the Company, filed a
lawsuit against the Company and three officers and employees of the Company, and
their spouses, alleging violation of overtime requirements of the Fair Labor
Standards Act. Mr. Gossett is claiming damages of over $80,000, in addition to
seeking treble damages permitted under the Act. The Company denies all
allegations and intends to vigorously defend the suit.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
13
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10(a). Lease agreement between Gum Tech International and
Beardsley & I-17L.L.C., for the lease of packaging/
warehouse facility
10(b). Employment agreement of William J. Hemelt
27. Financial Data Schedule
B. Reports on Form 8-K
None
14
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Gum Tech International, Inc.
/s/ Gary S. Kehoe
- ------------------------------
Gary S. Kehoe
President and
Chief Operating Officer
/s/ William J. Hemelt
- ------------------------------
William J. Hemelt
Chief Financial Officer
November 13, 1998
15
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease") dated for reference purposes only
August 21, 1998 is made by and between Beardsley & I-17 L.L.C., an Arizona
limited liability company ("Lessor") and Gum Tech International, Inc., a Utah
corporation ("Lessee"), (collectively the "Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 510 East University Drive, Phoenix, Arizona 85004 located in the County
of Maricopa, State of Arizona, and generally described as (describe briefly the
nature of the property and, if applicable, the "Project", if the property is
located within a Project) a 31,460 square foot manufacturing facility
("Premises"). (See also Paragraph 2).
1.3 Term: 5 years and 0 months ("Original Term") commencing August 21,
1998 ("Commencement Date") and ending August 31, 2003 ("Expiration Date"). (See
also Paragraph 3).
1.4 Early Possession: N/A ("Early Possession Date"). (See also
Paragraphs 3.2 and 3.3).
1.5 Base Rent: $10,067.20 per month ("Base Rent"), payable on the 1st
day of each month commencing September 1, 1998. (See also Paragraph 4). |_| If
this box is checked, there are provisions in this Lease for the Base Rent to be
adjusted.
1.6 Base Rent Paid Upon Execution: $10,258.47 (inclusive of 1.9% rental
tax) as Base Rent for the period August 21, 1998 through September 30, 1998.
1.7 Security Deposit: $20,000.00 ("Security Deposit"). (See also
Paragraph 5).
1.8 Agreed Use: General office administration, manufacturing and
storage of gum products and for no other purpose. (See also Paragraph 6).
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise
stated herein. (See also Paragraph 8).
1.10 Real Estate Brokers: (See also Paragraph 15).
(a) Representation: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction (check applicable boxes):
transaction (check applicable boxes):
<TABLE>
<S> <C>
|X|CORE/Jackson - ONCOR International represents Lessor exclusively ("LESSOR'S BROKER");
|_|__________________________________ represents Lessee exclusively ("LESSEE'S BROKER");or
|_|__________________________________ represents both Lessor and Lessee ("Dual Agency").
</TABLE>
(b) Payment to Brokers: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of per
separate agreement% of the total Base Rent for the brokerage services rendered
by said Broker).
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by NA ("Guarantor"). (See also Paragraph 37).
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1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 3 and Exhibits A, all of which constitute a
part of this Lease.
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 rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 Condition. Lessor shall deliver the Premises 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 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, 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 any buildings on the Premises (the
"Building") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, 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, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within: (i) one year as to the
surface of the roof and the structural portions of the roof, foundations and
bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30)
days as to the remaining systems and other elements of the Building, correction
of such non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense.
2.3 Compliance. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations, and ordinances ("Applicable Requirements") in effect on the
Start Date. 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 zoning is 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 six (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 (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require (during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the 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 two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has will pay for the Capital
Expenditure. 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 ninety (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.
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(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 shall make the modifications at its
cost and expense; provided, however, that if such Capital Expenditure is
required during the last two years of this Lease or exceeds six months Rental,
Lessor shall have the option to terminate this Lease upon ninety (90) days prior
written notice to Lessee unless Lessee notifies Lessor, in writing, within ten
(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 thirty (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 Acknowledgments. 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 their suitability for Lessees 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 agent, nor any Broker has 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: (a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises, and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
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 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 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, Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premise. If possession is not delivered within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing
within ten (10) days after the end of such sixty (60) day period, cancel this
Lease, in which event the Parties shall be discharged from all obligations,
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what
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Lessee would otherwise have enjoyed under the terms hereof, but minus any days
of delay caused by the acts or omissions of Lessee. If possession of the
Premises is not delivered within four (4) months after the Commencement Date,
this Lease shall terminate unless other agreements are reached between Lessor
and Lessee, in writing.
3.4 Lessee 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 after 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 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 (1)
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 than the amount 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.
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 said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit additional 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 moneys 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 accommodate 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 chance 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 said change in
financial condition. Lessor shall not be required to keep the Security Deposit
separate from its general accounts. Within fourteen (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 thirty (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
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permit the use of the Premises in a manner that is unlawful, creates damage,
waste or a nuisance, or that disturbs owners and/or occupant of, or causes
damage to neighboring 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, is not
significantly more burdensome to the Premises. If Lessor elects to withhold
consent, Lessor shall within five (5) business days after such request give
written notification of same, which notice shall include an explanation of
Lessor's objections to the change in 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) a 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 unreasonable 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) except in
compliance with applicable laws 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 indemnity, 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
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Lease with respect to underground migration of any Hazardous Substance under the
Premises from adjacent properties). 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 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 twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee, within thirty (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
sixty (60) days following the date of such notice. In the event Lessor elects to
give a termination notice, Lessee may, within ten (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 twelve (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 thirty (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 reasonable recommendations of Lessor's 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 ten (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,
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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 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times with
reasonable advance notice to Lessee, 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 because of
suspected environmental contamination or other violations of applicable laws
caused by Lessee. In such case, Lessee shall upon request reimburse Lessor for
the reasonable cost of such inspections, so long as such 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, 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, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises. 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. Lessee shall, during the term of this
Lease, keep the exterior appearance of the Building in a first-class condition
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building, damage from normal wear and tear and casualty
excepted.
(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 ("Basic Elements"), if
any, if and when installed on the Premises: (i) HVAC equipment, (ii) fire
extinguishing systems, including fire alarm and/or smoke detection, (iii)
landscaping and irrigation systems, (iv) roof covering and drains, (v) driveways
and parking lots, (vi) clarifiers (vii) basic utility feed to the perimeter of
the Building, and (viii) any other equipment, if reasonably required by Lessor.
(c) 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 the Basic Elements 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 Basic Elements, then such Basic Elements 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 the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation
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thereof (including interest on the unamortized balance as is then commercially
reasonable in the judgment of Lessor's accountants), with Lessee reserving the
right to prepay its obligation at any time.
7.2 Lessor's Obligations. Subject to the provisions of 2.2 (Condition),
2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is
intended by the Parties hereto that Lessor have no obligation, in any manner
whatsoever, to repair and maintain the Premises, or the equipment therein, all
of which obligations are intended to be that of the Lessee. It is the intention
of the Parties that the terms of this Lease govern the respective obligations of
the Parties as to maintenance and repair of the Premises, and they expressly
waive 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; Consent Required. 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). 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 $50,000 in
the aggregate or $10,000 in any one year.
(b) Consent. 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 all
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 equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times 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 materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days notice prior to the
commencement of any work in, on 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 one and one-half times 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.
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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 of 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 ninety (90) and not later than thirty (30) days prior to
the end of the term of this Lease. Lessor may require that any or all Lessee
Owned Alterations and Utility Installations be removed by the expiration or
termination of this Lease provided that Lessor may not require Lessee to remove
any Alterations or Utility Installations consented to by Lessor unless Lessor
notified Lessee in writing at the time it gave its consent that Lessor reserved
the right to require Lessee to remove such Alterations or Utility Installations.
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 and
damage from casualty excepted. "Ordinary wear and tear" shall not include any
damage or deterioration that would have been prevented by good maintenance
practice. 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, and the removal, replacement, or
remediation of any soil, material or groundwater contaminated by Lessee. 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 For Insurance. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per
occurrence. Premiums for policy periods commencing prior to or extending beyond
the Lease term shall be prorated to correspond to the Lease term. Payment shall
be made by Lessee to Lessor within ten (10) days following receipt of an
invoice.
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
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 $2,000,000 per
occurrence with 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
not contain any intra-insured exclusions as between insured persons or
organizations, but 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.
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(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. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) 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 Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's
personal property shall be insured by Lessee under Paragraph 8.4 rather than by
Lessor. If the coverage is available and commercially 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 $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss.
(b) Rental Value. The Insuring Party shall 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 (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. 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 twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
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 $1,000 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.
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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 except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (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 wilful
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. Except from Lessor's gross
negligence or willful misconduct, 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 of which the Premises are a part, 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. 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 six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (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 Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which
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cannot reasonably be repaired in six (6) months or less from the date of the
damage or destruction. Lessor shall notify Lessee in writing within thirty (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 $10,000 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 (except as to
the deductible which is Lessee's responsibility) 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 ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (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 ten (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 thirty (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
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (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 thirty (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
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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 sixty (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 provided in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (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) exercising 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 ten 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 obligations 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 ninety (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 sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (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
beginning 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.
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10. Real Property Taxes.
10.1 Definition of "Real Property Taxes." 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 Premises, 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 Building 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 Premises are 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 of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) Payment of Taxes. Lessee shall pay the Real Property taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
Real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.
(b) Advance Payment. In the event Lessee incurs a late charge
on any three rent payments in any 12 month period, Lessor may at Lessor's
option, estimate the current Real Property Taxes, and require that such taxes be
paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to
the installment due, at least twenty (20) days prior to the applicable
delinquency date, or (ii) monthly in advance with the payment of the Base Rent.
If Lessor elects to require payment monthly in advance, the monthly payment
shall be an amount equal to the amount of the estimated installment of taxes
divided by the number of months remaining before the month in which said
installment becomes delinquent. When the actual amount of the applicable tax
bill is known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable taxes. If
the amount collected by Lessor is insufficient to pay such Real Property Taxes
when due, Lessee shall pay Lessor, upon demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of its
obligations under this Lease, then any balance of funds paid to Lessor under the
provisions of this Paragraph may at the option of Lessor, be treated as an
additional Security Deposit.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability 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 conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations. Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible. Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
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. If any such
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services are not separately metered to Lessee. Lessee shall pay a reasonable
proportion, to be determined by Lessor, of all charges jointly metered.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation 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
twenty-five percent (25%) or more of the voting control 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 twenty-five percent (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 thirty (30)
days written notice, increase the monthly Base Rent to one hundred ten percent
(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 one hundred ten percent
(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 One Hundred Ten Percent (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, any assignment or
subletting shall not: (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.
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(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 ten percent (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.
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 receipt by Lessee of written notice from Lessor 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.
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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 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 five
(5) 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) a
Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning
any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42
(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 ten (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 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (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 thirty (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 sixty (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 thirty (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 thirty (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 Guarantor's 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 sixty (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.
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13.2 Remedies. If Lessee fails to perform any of its affirmative duties
or obligations, within ten (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 proximately 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 (1%). 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
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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 five (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 five percent (5%) of each such overdue
amount provided that Lessor shall give Lessee notice of non-payment and five (5)
days from receipt of such notice to cure such non-payment once in any twelve
month period before assessing such late fees/interest. 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 three (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 thirty (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 thirty-first (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 four percent (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 thirty (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 Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (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 thirty (30) days after
receipt of said 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 ten percent (10%) of any building portion
of the premises, or more than twenty-five percent (25%) of the land area portion
of the premises not occupied by any building, is taken by Condemnation, Lessee
may, at Lessee's option, to be exercised
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in writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (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 leasehold, 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. All 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. Brokers' Fee.
15.1 Additional Commission. In addition to the payments owed pursuant
to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of Lessor,
after the expiration of this Lease, or (d) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then, Lessor shall pay
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.2 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
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 ten (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 ten day period, the Requesting Party may
execute an Estoppel Certificate stating that:
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(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
encumbrancers 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 three (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 Lessor's 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 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 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.
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23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease 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 forty-eight (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 twenty-four (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, 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. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
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
one hundred fifty percent (150%) of the Base Rent applicable during the month
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
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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 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. Subject to the non-disturbance provisions of Paragraph
30.3. Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
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 sixty (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 sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's 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 to enforce the terms hereof 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.
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 upon at least one day advance
notice to Lessee for the purpose of showing the same to
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prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary
provided that Lessor shall take reasonable precaution to ensure that entry does
not interfere with operations. 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 six (6) months of the
term hereof place on the Premises any ordinary "For Lease" signs. Lessee may at
any time place on or about 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, Lessee shall not place
any sign upon the Premises 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 ten (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 ten (10) business days following such
request.
37. Guarantor.
37.1 Execution. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 Default. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Estoppel Certificate, or (d) written confirmation that the guaranty is still in
effect.
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.
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39. Options.
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. Each 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 three (3) or more notices of separate Default, whether or
not the Defaults are cured, during the twelve (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 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 thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. Security Measures. Lessee hereby acknowledges that the rental 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, is
agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. 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 have the right to make payment "under protest" and such
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<PAGE>
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.
44. 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 thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. 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.
46. 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.
47. 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.
48. 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.
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 |_| is not attached to this Lease.
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.
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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, AND THE SUITABILITY
OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS 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 IS LOCATED.
- --------------------------------------------------------------------------------
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The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at:__________________________ Executed at:___________________________
on:___________________________________ on:____________________________________
By LESSOR: By LESSEE:
Beardsley & I-17, L.L.C., an Arizona Gum Tech International, Inc.,
limited liability company a Utah corporation
By: /s/ R. Randy Stolworthy By: /s/ Gary Kehoe
Name Printed: R. Randy Stolworthy Name Printed: Gary Kehoe
Title:________________________________ Title: President
By:___________________________________ By: ___________________________________
Name Printed:_________________________ Name Printed:__________________________
Title:________________________________ Title:_________________________________
Address: 4131 North 24th Street, Address: 246 East Watkins Street
Suite C-207 Phoenix, Arizona 85004
Phoenix, Arizona 85016
Telephone (602) 553-0082 Telephone (602) 252-1617
Facsimile: (602) 553-0084 Facsimile (602) 252-6650
Federal ID No.________________________ Federal ID No._________________________
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777. Fax No. (213) 687-8616
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ADDENDUM TO LEASE
This ADDENDUM TO LEASE, made this 21st day of August, 1998 is hereby attached
and incorporated by reference of that Lease dated August 21, 1998, herewith (the
"Lease") by and between Beardsley I-17 L.L.C. ("Lessor") and GumTech
International, Inc., a Utah Corporation ("Lessee"). In the event of a conflict
between the terms and provisions of the Lease and this Addendum, this Addendum
shall control.
1. Base Rent: Months 1-12 $10,067.20 NNN*
Months 13-24 $11,954.80 NNN*
Months 25-36 $12,584.00 NNN*
Months 37-48 $13,527.80 NNN*
Months 49-60 $14,157.00 NNN*
*Plus applicable rental tax currently at 1.9% and
subject to change
2. Tenant Improvements: The parties agree that Lessor shall reimburse
Lessee for certain approved Tenant Improvements to
be placed by Tenant on the Premises. The amount of
such reimbursement shall not exceed Forty Thousand
Dollars ($40,000.00). As a condition to obtaining
such reimbursement, Lessee shall prior to
construction submit to Lessor a list of the
proposed Tenant Improvements to be placed upon the
Premises together with three (3) competitive bids
for any and all such Tenant Improvement. Landlord
shall reasonably approve the lowest of such bids.
Following completion of construction of all such
Improvements, Lessee shall submit to Lessor copies
of paid invoices, unconditional lien waivers from
all contractors, subcontractors and material
suppliers together with a Certificate of
Completion by Lessee's general contractor,
architect or such other individual or entity as
reasonably approved by Lessor. Lessor shall
reimburse Lessee for the amount of the approved
bid within forty-five (45) days of submittal of
such invoices together with appropriate supporting
documents.
3. Option to Renew: Provided Tenant is not then in default nor has
been in default more than twice during the prior
twelve (12) months, Lessee shall have the option
to extend the term of this lease for an additional
sixty (60) calendar months. Such option shall be
exercised by Lessee giving written notice to
Lessor no earlier than twelve (12) months nor less
than six (6) months prior to the expiration of the
initial five (5) year term.
The base year rate shall be 95% of the then market
rent for like properties.
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EXHIBIT "A"
This Exhibit depicts the Premises and is not to scale and should not be used for
measurements. Lessor shall patch, paint and repair the walls indicated on the
floor plan in addition to the Tenant Improvement Allowance outlined in Paragraph
2 of the Addendum.
[GRAPHIC OMITTED]
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective as of
June 1, 1998, is entered into by and between William J. Hemelt (the "Employee")
and Gum Tech International, Inc. (the "Company").
The Company desires to establish its right to the services of
the Employee, in the capacity described below, on the terms and conditions, and
subject to the rights of termination hereinafter set forth, and the Employee is
willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth,
the Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS CHIEF FINANCIAL OFFICER OF THE COMPANY. The
Company does hereby employ, engage and hire the Employee as Chief Financial
Officer of the Company and the Employee does hereby accept and agree to such
hiring, engagement and employment. Employee agrees to perform any and all other
duties and to assume any and all responsibilities that may be assigned to him
from time to time by the President of the Company. The Employee will devote his
full time, energy and skill to the performance of his duties for the Company and
for the benefit of the Company, vacations pursuant to Section 4 below, and
reasonable absences because of illness excepted. Furthermore, the Employee will
exercise due diligence and care in the performance of his duties of the Company
under this Agreement.
2. EMPLOYMENT PERIOD.
(a) INITIAL TERM. The Employee shall be employed by the Company
for the duties as set forth in Section 1 for the two-year period, commencing on
June 1, 1998 and ending on May 31, 2000 (the "Initial Term"), unless sooner
terminated in accordance with the provisions of this Employment Agreement.
(b) RENEWAL; EMPLOYMENT PERIOD DEFINED. This Employment
Agreement will be automatically renewed at the end of the Initial Term for
additional one-year periods commencing on each June 1 and ending on the next
following May 31(a "Renewal Term"), unless either party serves notice of desire
to terminate or modify this Employment Agreement ("Notice of Non-Renewal") on
the other. Employee must give Notice of Non-Renewal at least sixty (60) days
before the end of the Initial Term or the applicable Renewal Term. Unless this
Agreement is terminated by the Company for "cause" pursuant to Section 7(a), the
Company must give Notice of Non-Renewal at least six (6) months before the end
of the Initial Term or sixty (60) days before the end of any applicable Renewal
Term. If the Company fails to give timely a Notice of Non-Renewal prior to the
end of the Initial Term, the Company shall pay to Employee a penalty. The amount
of such penalty shall be determined in accordance with Section 2(c). The period
of time commencing as of June 1, 1998, and ending on the effective date of the
termination of employment
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of the Employee under this or any successor agreement shall be referred to as
the "Employment Period".
(c) PENALTY FOR COMPANY FAILURE TO PROVIDE TIMELY NOTICE OF
NON-RENEWAL. If the Company fails to give Employee Notice of Non-Renewal at
least six (6) months before the end of the Initial Term as required by Section
2(b), Company will pay a penalty to Employee in an amount equal to Employee's
base salary, as determined pursuant to Section 3, multiplied by one-twelfth
(1/12), and then multiplied by the difference between six (6) and the length of
the notice (measured in full and fractional months) actually given by the
Company. The penalty payable pursuant to this paragraph shall be payable
commencing after the Employment Period in equal semi-monthly installments (paid
at the same time as the Company's semi-monthly payroll) at the rate at which
Employee' base salary was being paid on the last day of the Employment Period
until such time as the penalty has been paid in full. To the extent necessary,
the last installment payment shall be prorated.
(d) NINETY (90) DAY FREE LOOK PERIOD. Notwithstanding any other
provision of this Agreement to the contrary, either party may, during the period
commencing on June 1, 1998 and ending on August 30, 1998 terminate this
Agreement for any reason whatsoever by providing ten (10) days advance written
notice of termination to the other party. If Employee's employment is terminated
during this ninety (90) day free look period, the provisions of Sections 7 and 8
shall not apply. The Company's obligation to pay base salary pursuant to Section
3 shall end as of the date Employee's employment is terminated.
3. COMPENSATION
(a) BASE SALARY. The Company shall pay the Employee, and the
Employee agrees to accept from the Company, in full payment for his services and
promises to the Company (specifically including the Covenant Not to Compete as
set forth in Section 10) a base salary at the rate of One Hundred Thousand
Dollars ($100,000.00) per year, payable in equal semi-monthly installments or at
such other time or times as the Employee and the Company shall agree. This base
salary may be renegotiated if this Employment Agreement is renewed pursuant to
Section 2, or from time to time by mutual agreement of the parties.
(b) BONUS. Employee also may receive an annual bonus in
accordance with the Company's Comprehensive Employee Bonus Plan (the "Bonus
Plan") the terms of which will be decided at a later date. The amount of the
bonus, if any, payable to Employee shall be calculated and paid in accordance
with the provisions of the Company's Bonus Plan.
(c) OPTIONS. A separate option agreement will be entered into by
the parties pursuant to which an option to purchase 50,000 shares of stock will
be granted to Employee as of June 1, 1998.
4. FRINGE BENEFITS AND VACATION. Employee shall be entitled to
participate in any benefit programs adopted from time to time by the Company for
the benefit of its
2
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employees and Employee shall receive such other fringe benefits as may be
granted to him from time to time by the Company's Board of Directors. Employee
is entitled to four (4) weeks of paid vacation per calendar year, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies.
5. BUSINESS EXPENSES. The Company will reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the Company.
6. TERMINATION OF EMPLOYMENT UPON DEATH OR DISABILITY.
(a) DEATH. If the Employee dies while employed by the Company,
the Employee's employment shall automatically cease and terminate. The Company's
obligation to pay the Employee's base salary pursuant to Section 3 shall end as
of the date of Employee's death.
(b) DISABILITY. If Employee is absent from work due to injury or
illness, the Employee will receive sick pay in accordance with the Company's
established policy concerning sick pay. Following the expiration of any period
of sick pay to which Employee may be entitled, Employee will be placed on unpaid
leave of absence in accordance with the Company's leave of absence policy. If
Employee is ultimately determined to be disabled (as defined below), Employee's
leave of absence shall cease on the date such determination is effective.
Otherwise, Employee's leave of absence may be terminated by the Company, in its
discretion, as long as such termination does not violate applicable federal law.
(c) DEFINITION OF DISABLED. The Employee shall be considered to
be "disabled" for purposes of this Section 6 if, in the judgment of a licensed
physician selected by the Board of Directors of the Company, the Employee is
unable to perform the material duties of his position under this Agreement
because of a physical or mental impairment. The determination by said physician
shall be binding and conclusive for all purposes.
7. TERMINATION BY THE COMPANY.
(a) TERMINATION FOR CAUSE. The Company may terminate this
Agreement at any time before the last day of the Initial Term (May 31, 2000) or
before the last day of any Renewal Term if this Agreement is renewed on the
mutual agreement of the parties, only for "cause." The term "cause" as used
herein shall mean:
(1) Conduct of a criminal nature which may have an
adverse impact on the Company's reputation and standing in the
community;
(2) Conduct which is in violation of Employee's common
law duty of loyalty to the Company;
(3) Fraudulent conduct in connection with the business
affairs of the
3
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Company, regardless of whether said conduct is designed to
defraud the Company or others; or
(4) The failure of the Employee to discharge or perform
his duties and obligations under this Agreement with due
diligence and care;
(5) The refusal of the Employee to implement or adhere
to specific and duly-adopted policies or directives of the Board
of Directors of the Company;
(6) Conduct which is in violation of any provision of
this Agreement.
The existence of cause shall be conclusively determined by the Board of
Directors of the Company or its duly appointed agent. If Employee's employment
is terminated for any of the reasons specified in subparagraphs (1), (2) or (3),
Employee's employment may be terminated immediately without any advance written
notice. If Employee's employment is terminated for any of the reasons stated in
subparagraphs (4), (5) or (6), Employee shall be entitled to receive thirty (30)
days advance written notice of the termination and the reasons for the
termination and shall be given a reasonable opportunity to respond thereto
(provided that this shall not require that his employment or pay be extended).
(b) NORMAL TERMINATION. This Employment Agreement shall
terminate as of May 31, 2000, or as of the last day of any Renewal Term, if
either party gives notice of intention to terminate or modify in accordance with
the provisions of Section 2.
(c) FINAL COMPENSATION PAYMENTS. The Company's obligation to pay
the Employee's base salary pursuant to Section 3 shall terminate as of the last
day of the Initial Term (May 31, 2000), or as of the last day of any Renewal
Term if this Employment Agreement is continued by the mutual agreement of the
parties, or on the day properly specified in any notice of termination issued
pursuant to any of the preceding paragraphs of this Section. Employee shall not
be entitled to receive any bonus pursuant to Section 3(b) for the year in which
his employment is terminated if his employment is terminated for "cause"
pursuant to Section 7(a). In all other cases in which Employee's employment is
terminated by the Company pursuant to this Section, any non-discretionary bonus
due to the Employee pursuant to the Company's Bonus Plan shall be prorated based
on the number of months or fractions thereof worked by Employee prior to the
termination. "Non-discretionary bonus" means a bonus that, under the Company's
Bonus Plan, is not determined or awarded at the discretion of management or the
board, but is granted pursuant to a structured schedule.
8. TERMINATION BY THE EMPLOYEE.
(a) CHANGE OF CONTROL. The Employee may terminate this
Employment agreement in the event of a "change in control of the Company" (as
defined below). If a change in control of the Company occurs, Employee may elect
within thirty (30) days of such change in control to terminate this Employment
Agreement and will have the right to receive a payment equal to the
4
<PAGE>
present value of the remaining base salary payments due through the end of the
Initial Term of this employment Agreement plus a prorated amount of any
non-discretionary bonus (as defined in Section 7(c) above) to which Employee
would otherwise entitled under the Company's Bonus Plan. If the change in
control occurs during a Renewal Term, Employee shall receive the present value
of remaining payments due through the end of such Renewal Term. Present value
shall be calculated using an interest rate equal to the "applicable Federal
rate," as such term is defined in Section 1274(d)(1) of the Internal Revenue
Code of 1986, determined as of the day on which the calculation is being made. A
"change in control of the Company," for the purposes of this Employment
Agreement, shall mean:
(1) a transfer of fifty-one percent (51%) or more of the capital
stock of the Company during any calendar year;
(2) a transfer of fifty-one percent (51%) or more of the capital
stock of the Company, in the aggregate, during any period of five (5) or more
consecutive calendar years; or
(3) a change in the composition of the Board of Directors such
that during any period of two (2) consecutive calendar years during the term of
this Agreement, fifty-one percent (51%) or more of the individuals who at the
beginning of such period constitute the Board cease for any reason to serve on
the Board of Directors.
9. EFFECT OF TERMINATION. Upon the proper termination of this
Employment Agreement by the Company for any reason whatsoever, or upon the
termination of this Employment Agreement by the Employee, this Employment
Agreement shall thereupon be and become void and of no further force or effect,
except that the Covenant Not to Compete set forth in Section 10 the Proprietary
Information provisions of Section 11 shall survive any said termination and
shall continue to bind the Employee for the period of time stated therein and
the Arbitration provisions of Section 17 shall continue to govern any disputes
arising hereunder. Any payments due pursuant to the provisions of this
Employment Agreement for services rendered prior to the termination shall be
made as provided in this Employment Agreement.
10. COVENANT NOT TO COMPETE. The Employee acknowledges that he
is the Chief Financial Officer of the Company and in such capacity the Employee
will be the Company's representative with the clients and potential clients of
the Company. The Employee also acknowledges that he will have access to
confidential information about the Company and its clients and that he will have
access to other "proprietary information" (as defined in Section 11) acquired by
the Company at the expense of the Company for use in its business. Employee has
substantial experience in financial matters, and possesses special, unique, and
extraordinary skills and knowledge in this field. The Employee's management and
operational services to the Company are special, unique, and extraordinary and
the success or failure of the Company in developing, manufacturing, marketing
and distributing functional chewing gum is dependent upon the Employee's
discharge of his duties and obligations. Accordingly, by execution of this
employment Agreement:
(a) DURATION OF COVENANT. Employee agrees that during the
Employment
5
<PAGE>
Period and for a period of one (1) year following the Employee's termination of
employment for any reason (whether such termination shall be voluntary or
involuntary), the Employee shall not violate the provisions of Paragraph (b),
below. Employee agrees that the one-year period referred to in the preceding
sentence shall be extended by the number of days included in any period of time
during which the Employee is or was engaged in activities constituting a breach
of Paragraph (b).
(b) PROHIBITED COMPETITIVE ACTIVITIES. During the time period
specified in Paragraph (a), Employee shall not:
(1) Directly or indirectly own, operate, manage,
consult with, control, participate in the management or control
of, be employed by, maintain, or control any interest whatsoever
in any entity engaged in the business of developing,
manufacturing, marketing or distributing functional chewing gum
to wholesalers or distributors or in retail or private label
markets in Maricopa County, State of Arizona; or
(2) Directly or indirectly solicit any business from
any individual or entity which obtained such services from the
Company at any time during the Employee's Employment Period; or
(3) Directly or indirectly solicit any business from
any individual or entity solicited by the Employee on behalf of
the Company; or
(4) Directly or indirectly seek to hire, and/or hire
any of Company's employees for the purpose of having such
employee engage in services that are the same, similar or
related to the services that such employee provided for Company.
(c) NEED FOR COVENANT, LEGAL REMEDIES. The Employee expresses,
agrees and acknowledges that this Covenant Not to Compete is necessary for the
Company's protection because of the nature and scope of the Company's business
and the Employee's position with and services for the Company. Further, the
Employee acknowledges that, in the event of his breach of this Covenant Not to
Compete, money damages will not sufficiently compensate the Company for its
injury caused thereby, and the Employee accordingly agrees that in addition to
such money damages the Employee may be restrained and enjoined from any
continuing breach of this Covenant Not to Compete without any bond or other
security being required by any court. The Employee acknowledges that any breach
of this Covenant Not to Compete would result in irreparable damage to the
Company.
(d) ACKNOWLEDGMENTS BY EMPLOYEE. The Employee expressly agrees
and acknowledges as follows:
(1) This Covenant Not to Compete is reasonable as to time
and geographical area and does not place any unreasonable burden
upon him.
(2) The general public will not be harmed as a result of
enforcement of this Covenant Not to Compete.
6
<PAGE>
(3) Employee has requested or has had the opportunity to
request that his personal legal counsel review this Covenant Not
to Compete.
(4) The Employee understands and hereby agrees to each
and every term and condition of this Covenant Not to Compete.
11. PROPRIETARY INFORMATION
(a) RETURN OF PROPRIETARY INFORMATION. Upon termination of this
Agreement for any reason, the Employee shall immediately turn over to the
Company any "Proprietary Information," as defined below. The Employee shall have
no right to retain any copies of any material qualifying as Proprietary
Information for any reason whatsoever after termination of his employment
hereunder without the express written consent of the Company.
(b) NON DISCLOSURE. It is understood and agreed that, in the
course of his employment hereunder and through his activities for and on behalf
of the Company, the Employee will receive, deal with and have access to the
Company's Proprietary Information and that the Employee holds the Company's
Proprietary Information in trust and confidence for the Company. The Employee
agrees that he shall not, during the term of this Agreement or thereafter, in
any fashion, form or manner, directly or indirectly, retain, make copies of,
divulge, disclose or communicate to any person, in any manner whatsoever (except
when necessary or required in the normal course of the Employee's employment
hereunder and for the benefit of the Company or with the express written consent
of the Company, or as required by law) any of the Company's Proprietary
Information or any information of any kind, nature or description whatsoever
concerning any matters affecting or relating to the Company's business.
(c) PROPRIETARY INFORMATION DEFINED. For purposes of this
Agreement, "Proprietary Information" means and includes the following: the
identity of clients or customers or potential clients or customers of the
Company; any written, typed or printed lists or other materials identifying the
clients or customers of the Company; any financial or other information supplied
by clients or customers of the Company; any and all data or information
involving the techniques, programs, methods or contacts employed by the Company
in the conduct of its business; any lists, documents, manuals, records, forms,
or other materials used by the Company in the conduct of its business; any
descriptive materials describing the methods and procedures employed by the
Company in the conduct of its business; and any other secret or confidential
information concerning the Company's business or affairs. The term "list",
"document", or their equivalent, as used in this Section, are not limited to a
physical writing or compilation but also include any and all information
whatsoever regarding the subject matter of the "list" or "document" whether or
not such compilation has been reduced to writing.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to
7
<PAGE>
employment or with respect to the compensation of the Employee by the Company.
13. ASSIGNMENT. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided that,
in the event of the merger, consolidation or transfer or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties and obligations of the
Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of Arizona.
15. ENTIRE AGREEMENT. This Employment Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in writing.
16. WAIVER. Failure to insist upon strict compliance with any of
the terms, covenants or conditions hereof shall not be deemed a waiver of such
term, covenant or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
17. ARBITRATION. In the event any dispute or controversy arising
out of this Agreement (other than claims arising pursuant to the Covenant Not to
Compete or Proprietary Information provisions of Sections 10 and 11) cannot be
settled by Company and Employee, such controversy or dispute, at the election of
either Company or Employee, by written notice to the other, may be submitted to
arbitration in Phoenix, Arizona, and for this purpose Company and Employee each
hereby expressly consent to such arbitration and such place. In the event
Company and Employee cannot, within fifteen (15) days following the election to
submit the dispute or controversy to arbitration, mutually agree upon an
arbitrator to settle their dispute or controversy, then Company and Employee
shall each select one (1) arbitrator and the two arbitrators shall select a
third arbitrator. The decision of the majority of said arbitrators shall be
binding upon Company and Employee for all purposes, and judgment to enforce any
such binding decision may be entered in the Superior Court, Maricopa Country,
Arizona (and for this purpose Company and Employee hereby irrevocably consent to
the jurisdiction of said court). If either Company or Employee fails to select
an arbitrator within fifteen (15) days after written demand from the other party
to do so, then the Chief Judge in the United States District Court of the
District of Arizona shall select such other arbitrator. At the election of
either Company or Employee, all arbitrators shall be selected pursuant to the
then existing rules and regulations of the American Arbitration Association
governing commercial transactions. At the request of either Company or Employee,
arbitration proceedings shall be conducted in the utmost secrecy. In such case,
all documents, testimony and records shall be available for inspection only for
purposes of the arbitration and only by either party and their respective
attorneys and experts who shall agree, in advance and in writing, to receive all
such information in secrecy. In all other
8
<PAGE>
respects, the arbitrators shall conduct all proceedings pursuant to the Uniform
Arbitration Act as adopted by the State of Arizona and the then existing rules
and regulations of the American Arbitration Association governing commercial
transactions. The costs of the arbitration and arbitrators shall be borne by the
non-prevailing party, as determined by the arbitrators, and each party shall
bear their own attorneys' fees.
18. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, then only the portions of this Agreement which
violate such statute or public policy shall be stricken. All portions of this
Agreement which do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms to give as much effect as possible to
the intentions of the parties under this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto signed
this Agreement, on this day of ______________, 1998.
GUM TECH INTERNATIONAL, INC.
By:_____________________________________
Its:__________________________________
WILLIAM J. HEMELT
________________________________________
9
<PAGE>
Gum Tech International, Inc. Stock Option Plan
Grant of Incentive Stock Option
Date of Grant: June 1, 1998
THIS GRANT, dated as of the date of grant first stated above (the "Date
of Grant"), is delivered by Gum Tech International, Inc., a Utah corporation
("Company") to William J. Hemelt (the "Grantee"), who is an employee, officer or
director of Company.
WHEREAS, the Board of Directors of Company (the "Board") effective
March 1, 1995, adopted the Gum Tech International, Inc., Stock Option Plan, as
amended (the "Plan");
WHEREAS, the Plan provides for the granting of stock options by a
committee to be appointed by the Board (the "Committee") to directors, officers
and key employees of Company to purchase, or to exercise certain rights with
respect to, shares of the Common Stock of Company, no par value per share (the
"Stock"), in accordance with the terms and provisions thereof; and
WHEREAS, the Committee considers the Grantee to be a person who is
eligible for a grant of stock options under the Plan, and has determined that it
would be in the best interest of Company to grant the stock options documented
herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
SECTION 1. GRANT OF OPTION
Subject to the terms and conditions hereinafter set forth, Company,
with the approval and at the direction of the Committee, hereby grants to the
Grantee, as of the Date of Grant, an option to purchase up to 50,000 shares of
Stock at a price equal to $5.50 per share, the fair market value of such shares
as of the Date of Grant. Such option is hereinafter referred to as the "Option"
and the shares of stock purchasable upon exercise of the Option are hereinafter
sometimes referred to as the "Option Shares."
SECTION 2. VESTING
Subject to the limitations set forth in Section 3, the Option shall
become exercisable in accordance with the vesting schedule set forth below, so
long as the Grantee is actively employed by the Company on such date:
1
<PAGE>
PERCENTAGE OF OPTION SHARES EXERCISABLE DATE OPTION SHARES VEST
--------------------------------------- -----------------------
First 50% June 1, 1999
Second 50% June 1, 2000
Notwithstanding the foregoing, in the event of a Change of Control, all
then unvested Options shall become fully vested and exercisable. For this
purpose, a "Change of Control" shall mean any of the following:
(1) a transfer of fifty-one percent (51%) or more of the capital stock
of the Company during any calendar year;
(2) a transfer of fifty-one percent (51%) or more of the capital stock
of the Company, in the aggregate, during any period of five (5) or more
consecutive calendar years; or
(3) a change in the composition of the Board of Directors such that
during any period of two (2) consecutive calendar years during the term of this
Agreement, fifty-one percent (51%) or more of the individuals who at the
beginning of such period constitute the Board cease for any reason to serve on
the Board of Directors.
SECTION 3. TERMINATION OF OPTION
3.1 The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised, shall terminate and become
null and void on June 1, 2001 (the "Option Term").
3.2 In the event of the death or disability of the Grantee, the Option
may be exercised by the Grantee or the Grantee's legal representative(s) at any
time within the one year anniversary date of the Grantee's death, but only to
the extent that the Option would otherwise have been exercisable by the Grantee.
3.3 In the event of that Grantee is no longer a key management
employee, officer or director of the Company, the Option may be exercised by the
Grantee or its legal representative(s) at any time within 90 days after the
Grantee is no longer a key management employee, officer or director if the
Option Shares are subject to an S-8 Registration Statement filed with the
Securities Exchange Commission and at any within one year after the Grantee is
no longer a key management employee, officer or director if the Option Shares
are not subject to an S-8 Registration Statement filed with the Securities
Exchange Commission.
3.4 Notwithstanding any other provisions set forth herein or in the
Plan, any unexercised portion of the option shall immediately terminate and be
void if the Grantee shall engage in any of the following:
2
<PAGE>
(1) Conduct of a criminal nature which may have an adverse
impact on the Company's reputation and standing in the community;
(2) Conduct which is in violation of Grantee's common law duty
of loyalty to the Company;
(3) Fraudulent conduct in connection with the business affairs
of the Company, regardless of whether said conduct is designed to
defraud the Company or others; or
(4) The failure of the Grantee to discharge or perform the
duties of his position with due diligence and care;
(5) The refusal of the Grantee to implement or adhere to
specific and duly-adopted policies or directives of the Board of
Directors of the Company;
(6) Conduct which is in violation of any provision of any
employment agreement, noncompete agreement, or any other agreement in
effect between the Grantee and the Company.
SECTION 4. EXERCISE OF OPTIONS
4.1 The grantee may exercise the Option with respect to all or any part
of the number of Option Shares then exercisable hereunder by giving the
President of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof, which date shall be at least five
days after the giving of such notice unless an earlier time shall have been
mutually agreed upon.
4.2 Full payment (in U.S. dollars) by the Grantee of the option price
for the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, certified funds or cashier's check,
or, with the prior written consent of the Committee, in whole or in part through
the surrender of previously acquired shares of Stock at their fair market value
on the exercise date.
No shares of Stock shall be delivered upon exercise of the
Option until (i) the purchase price is paid in full in the manner herein
provided or (ii) the Company receives any approval of any governmental authority
required in connection with the Option, or the issuance of Stock under this
Agreement. The Company is not required to deliver any shares of Stock pursuant
to the exercise of the Option if, in the opinion of counsel for the Company, the
issuance would violate the Securities Act of 1933 or any other applicable
federal or state securities laws or regulations.
4.3 If the Grantee fails to pay for any of the Option Shares specified
in such notice or fails to accept delivery thereof, the Grantee's right to
purchase such Option Shares may be terminated by Company. The date specified in
the Grantee's notice as the date of exercise shall be deemed the date of
exercise of the Option, provided that payment in full for the Option Shares to
be purchased upon such exercise shall have been received by such date.
3
<PAGE>
SECTION 5. ADJUSTMENT OF AND CHANGES IN STOCK OF COMPANY
In the event of a reorganization, recapitalization, change of shares,
stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation rights offering, or any other
change in the corporate structure or shares of capital stock of Company, the
Committee shall make such adjustment as it deems appropriate in the number and
kind of shares of Stock subject to the Option or in the option price: provided,
however, that no such adjustment shall give the Grantee any additional or
reduced benefits under the Option.
SECTION 6. FAIR MARKET VALUE
As used herein, the fair market value of a share of Stock shall be the
closing price of the Stock on the date of the granting of this option.
SECTION 7. NO RIGHTS OF STOCKHOLDERS
Neither the Grantee nor any personal representative shall be, or shall
have any of the rights and privileges or, a stockholder of Company with respect
to any shares of Stock purchasable or issuable upon the exercise of the Option,
in whole or in part, prior to the date of exercise of the Option.
SECTION 8. NON-TRANSFERABILITY OF OPTION
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any personal representative, guardian,
conservator or legal representative of the Grantee and the Option shall not be
transferable except, in case of the death of the Grantee, by will or the laws of
descent and distribution, nor shall the Option be subject to attachment,
execution or other similar process. In the event of (a) any attempt by the
Grantee to alienate, assign, pledge, hypothecate or otherwise dispose of the
Option, except as provided for herein, or (b) the levy of any attachment,
execution or similar process upon the rights or interest hereby conferred,
Company may terminate the Option by notice to the Grantee and it shall thereupon
become null and void.
SECTION 9. EMPLOYMENT NOT AFFECTED
The granting of the Option nor its exercise shall not be construed as
granting to the Grantee, if he is an employee of the Company, any right with
respect to continuance of employment of the Company. Except as may otherwise be
limited by a written agreement between the Company and the Grantee, the right of
the Company to terminate at will the Grantee's employment with it at any time
(whether by dismissal, discharge, retirement or otherwise) is specifically
reserved by Company, as the Company or on behalf of the Company (whichever the
case may be), and acknowledged by the Grantee.
4
<PAGE>
SECTION 10. AMENDMENT OF OPTION
The Option may be amended by the Board or the Committee at any time (i)
if the Board or the Committee determines, in its sole discretion, that amendment
is necessary or advisable in the light of any addition to or change in the
Internal Revenue Code of 1986 or in the regulations issued thereunder, or any
federal or state securities law or other law or regulation, which change occurs
after the Date of Grant and by its terms applies to the Option, or (ii) other
than in the circumstances described in clause (i), with the consent of the
Grantee.
SECTION 11. NOTICE
Any notice to Company provided for in this instrument shall be
addressed to it in care of its Secretary at the following address: Gum Tech
International, Inc., 246 East Watkins Street, Phoenix, Arizona 85004, and any
notice to the Grantee shall be addressed to the Grantee at the current address
shown on the payroll records of the Company. Any notice shall be deemed to be
duly given if and when properly addressed and posted by registered or certified
mail, postage prepaid.
SECTION 12. INCORPORATION OF PLAN BY REFERENCE
The Option is granted pursuant to the terms of the Plan, the terms of
which are incorporated herein by reference, and the Option shall in all respects
be interpreted in accordance with the Plan. The Committee shall interpret and
construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
SECTION 13. GOVERNING LAW
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by an determined in accordance with the
law of the State of Arizona.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute and attest this Grant of Incentive Stock Option, and to apply the
corporate seal hereto, and the Grantee has placed his or her signature hereon,
effective as of the Date of Grant.
GUM TECH INTERNATIONAL, INC., a Utah corporation
By:_____________________________________________
Gary Kehoe, President
5
<PAGE>
ACCEPTED AND AGREED TO:
________________________________________________
WILLIAM J HEMELT
6
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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