<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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 000-22909
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STERIGENICS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3323502
(STATE OF OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER
4020 CLIPPER COURT FREMONT, CA 94538-6540
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(510) 770-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------
Indicate by check whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate number of shares outstanding of each of the issuer's classes of
common stock, at the latest practicable date:
CLASS OUTSTANDING AS OF: JULY 23, 1998
------------ --------------------------------
Common Stock 7,720,633
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STERIGENICS INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 30, 1998 and
June 30, 1998............................................................ 3
Condensed Consolidated Statements of Operations for the Three Months
Ended June 30, 1997 and 1998............................................. 4
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1997 and 1998............................................. 5
Notes to Condensed Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 21
Item 2. Changes in Securities.................................................... 21
Item 3. Defaults Upon Senior Securities.......................................... 21
Item 4. Submission of Matters to a Vote of Security Holders...................... 21
Item 5. Other Information........................................................ 21
Item 6. Exhibits and Reports on Form 8-K......................................... 21
Signatures.......................................................................... 22
</TABLE>
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STERIGENICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, JUNE 30,
1998(1) 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents:
Unrestricted ............................................... $ 11,691 $ 21,180
Restricted ................................................. 969 980
Short-term investments ....................................... 19,257 12,354
Accounts receivable, net of allowance of $218 and $214 at
March 31, 1998 and June 30, 1998 .......................... 6,165 6,061
Prepaid expenses and other current assets .................... 1,158 1,274
Deferred income taxes ........................................ 1,676 1,676
---------- ----------
Total current assets ........................................... 40,916 43,525
Property, plant and equipment, net ............................. 81,705 81,059
Other assets ................................................... 8,054 8,055
---------- ----------
Total assets .......................................... $ 130,675 $ 132,639
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 1,035 $ 232
Accrued liabilities .......................................... 5,039 5,376
Income taxes payable ......................................... 1,684 2,841
Current portion of capital lease obligations ................. 2,873 3,138
Current portion of long-term debt ............................ 500 500
---------- ----------
Total current liabilities ...................................... 11,131 12,087
Capital lease obligations, less current portion ................ 3,266 2,227
Long-term debt, less current portion ........................... 36,000 36,000
Deferred income taxes .......................................... 10,587 10,587
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value:
Authorized shares -- 1,000,000
Issued and outstanding shares -- none ...................... -- --
Common Stock, $0.001 par value:
Authorized shares -- 15,000,000
Issued and outstanding shares -- 7,681,323 at
March 31, 1998 and 7,720,633 at June 30, 1998 ............ 7 8
Additional paid-in capital ................................... 48,090 48,293
Notes receivable from sale of Common Stock to employees ...... (49) --
Retained earnings ............................................ 21,643 23,437
---------- ----------
Total stockholders' equity ..................................... 69,691 71,738
---------- ----------
Total liabilities and stockholders' equity ............ $ 130,675 $ 132,639
========== ==========
</TABLE>
- ----------
(1) The balance sheet at March 31, 1998, has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial information.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
STERIGENICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
1997 1998
-------- --------
<S> <C> <C>
Revenues ................................................... $ 10,751 $ 13,317
Cost of revenues ........................................... 5,801 6,905
-------- --------
4,950 6,412
Costs and expenses:
General and administrative ............................... 1,637 2,098
Marketing and selling .................................... 823 951
Research, development and engineering .................... 312 318
-------- --------
2,772 3,367
-------- --------
Income from operations ..................................... 2,178 3,045
Other income (expense):
Interest income .......................................... 22 485
Interest expense ......................................... (603) (599)
Other income ............................................. 15 34
-------- --------
Income before provision for income taxes ................... 1,612 2,965
Provision for income taxes ................................. 637 (1,171)
-------- --------
Net income ................................................. $ 975 $ 1,794
======== ========
Pro forma basic net income per share ....................... $ 0.20 $ 0.23
======== ========
Shares used in computing pro forma basic net income
per share ................................................ 4,861 7,695
======== ========
Diluted net income per share ............................... $ 0.19 $ 0.22
======== ========
Shares used in computing diluted net income per
share .................................................... 5,165 8,300
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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STERIGENICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------
1997 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash flows from operating activities:
Income from continuing operations .......................... $ 975 $ 1,794
Reconciliation to net cash provided by operating
activities:
Depreciation ............................................ 2,287 2,508
Amortization ............................................ 24 74
Deferred income tax liability ........................... -- --
Deferred income tax asset ............................... -- --
Changes in assets and liabilities:
Accounts receivable ................................... (98) 104
Prepaid expenses and other current assets ............. 107 (67)
Accounts payable and accrued liabilities .............. (74) 691
-------- --------
Net cash provided by operating activities .................... 3,221 5,104
INVESTING ACTIVITIES:
Purchases of property, plant and equipment ................... (2,952) (1,863)
Purchases of short term investments .......................... -- (2,272)
Maturities of short term investments ......................... -- 9,176
Other assets ................................................. (259) (75)
-------- --------
Net cash provided by (used in) investing activities .......... (3,211) 4,966
FINANCING ACTIVITIES:
Issuance of Common Stock ..................................... -- --
Redemption of Preferred Stock ................................ -- --
Exercise of stock options .................................... 1 203
Borrowings under industrial revenue bonds .................... -- --
Borrowings under term loan and line of credit ................ 1,100 --
Repayments on term loan, line of credit, industrial
revenue bonds and capital leases ........................... (1,567) (773)
Increase in restricted cash .................................. (5) (11)
-------- --------
Net cash provided by (used in) financing activities .......... (471) (581)
-------- --------
Net increase (decrease) in unrestricted cash and cash
equivalents ................................................ (461) 9,489
Unrestricted cash and cash equivalents at beginning of
period ..................................................... 1,072 11,691
-------- --------
Unrestricted cash and cash equivalents at end of
period ..................................................... $ 611 $ 21,180
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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STERIGENICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
I. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
SteriGenics International, Inc. ("SteriGenics" or "the Company") and its wholly
owned subsidiaries, SteriGenics East Corporation, SteriGenics International
Holding Corporation and RSI Leasing, Inc. All significant intercompany accounts
and transactions have been eliminated.
The accompanying interim unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosure normally included in the
financial statements prepared in accordance with generally accepted accounting
principles may have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes included as part
of the Company's annual report on Form 10-K.
II. Interim Financial Statements
In the opinion of management, the unaudited interim financial statements
at June 30, 1998, and for the quarters ended June 30, 1997 and 1998 include all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the Company's financial position at June 30, 1998, and results of
operations and cash flows for the quarters ended June 30, 1997 and 1998. Results
for the quarter ended June 30, 1998 are not necessarily indicative of the
results to be expected for the entire year.
III. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates, and such differences
may be material to the financial statements.
IV. Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"),
which was adopted on December 31, 1997. In accordance with the provisions of FAS
128, all prior period net income per share amounts have been restated to reflect
basic and diluted per share amounts.
Except as noted below, basic net income per share is computed using the
weighted average number of shares of Common Stock outstanding. Pro forma basic
net income per share is calculated as for basic net income per share, but
assumes conversion of all convertible Preferred Stock which converted
automatically in the initial public offering, even if antidilutive. Diluted net
income per share includes potential common shares, when dilutive, from stock
options (using the treasury stock method) and from convertible Preferred Stock
(using the if-converted method).
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<PAGE> 7
The following table sets forth the computation of basic, pro forma basic and
diluted net income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1997 1998
------ ------
(IN THOUSANDS, EXCEPT
EARNINGS PER SHARE)
<S> <C> <C>
Numerator for basic and diluted:
Net income ............................................... $ 975 $1,794
====== ======
Denominator:
Weighted average common shares outstanding ............... 3,056 7,695
Shares related to SEC Staff Accounting Bulletins ......... 32 --
------ ------
Denominator for basic net income per share ................. 3,088 7,695
Conversion of Preferred Stock (pro forma) .................. 1,773 --
------ ------
Denominator for pro forma basic net income per share ....... 4,861 --
Conversion of Preferred Stock .............................. -- --
Stock options .............................................. 304 605
------ ------
Denominator for diluted net income per share ............... 5,165 8,300
====== ======
Basic net income per share ................................. $ 0.23
======
Pro forma basic net income per share ....................... $ 0.20
======
Diluted net income per share ............................... $ 0.19 $ 0.22
====== ======
</TABLE>
Options to purchase 2,950 shares of Common Stock were outstanding in the
quarter ended June 30, 1998 but were not included in the computation of diluted
earnings per share because the exercise price was greater than the average
market price of the common shares and, therefore, the effect would be
antidilutive.
V. Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130
(SFAS No. 130), "Reporting Comprehensive Income". SFAS No. 130 establishes new
rules for reporting and display of comprehensive income and its components;
however, the adoption of this statement has no impact on the Company's net
income or shareholders equity. SFAS No. 130 requires unrealized gains or losses
on the Company's available-for-sale securities, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. During the first quarter 1999, unrealized gain or losses
from available for sale securities were immaterial.
VI. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information" ("FAS
131"). FAS 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during fiscal 1999. The Company believes that the adoption of FAS 131 will not
have a material impact on the Company's results of operations, cash flows or
financial position.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this Report contains forward looking statements that
involve risks and uncertainties. The statements contained in this report that
are not purely historical are forward looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding the Company's "expectations," "beliefs," "hopes," "intentions" or
"strategies," or the like, regarding the future. All forward looking statements
included in this Report are based upon information available to the Company as
of the date hereof, and the Company assumes no obligation to update any such
forward looking statement. Actual results could differ materially from those
indicated by the forward looking statements made herein or presented elsewhere
by the Company's management from time to time. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Report including under the caption "Risk Factors." This Report
is intended to be read in conjunction with the Company's Annual Report as filed
with the SEC on Form 10-K on June 22, 1998.
OVERVIEW
Since its inception, SteriGenics International, Inc. (the "Company") has
engaged primarily in the business of operating, designing and developing Gamma
facilities to provide contract sterilization and radiation processing services
to manufacturers of medical and advanced applications products. The Company
currently operates 12 Gamma facilities nationwide and one electron beam
("E-Beam") facility in San Diego, California. E-Beam technology involves
exposing products to a high-energy electron beam, The San Diego E-Beam facility
was acquired through an asset acquisition in December 1997.
The Company has divided its operations into two divisions: medical and
advanced applications (including spices, fresh foods, cosmetics, and materials
processing). While the Company's primary market continues to be the
sterilization of medical products, the Company continues to increase its focus
on the sterilization and processing of advanced applications products. The
Company has dedicated four of its Gamma facilities to processing primarily
advanced applications products. In addition, a significant portion of the
Company's revenues from its E-Beam facility are generated from the processing of
advanced applications products.
In addition to standard contract sterilization and radiation processing, the
Company generates incremental revenues by offering its customers premium
services such as ExCell, precision dosing and validation services, and
GammaSTAT, a guaranteed variable time-based service. Recently the Company
introduced two additional premium services, ElectroSTAT, a guaranteed variable
time-based service using E-Beam, and SteriPro, a consultative and technical
assistance program created to assist medical device manufacturers with the
development, validation and ongoing sterilization management of a sterile health
care product. Revenues are recognized upon completion of the sterilization,
processing or consultative services.
The Company's cost of revenues is comprised primarily of: the depreciation of
Cobalt 60, facilities and equipment; direct labor costs; facilities rental; and
costs associated with facility quality assurance personnel. Since Cobalt 60
represents a significant portion of the Company's cost of revenues, Cobalt 60
efficiency and utilization are key determinants of the Company's gross margin.
Cobalt 60 is amortized using an accelerated method (approximately 12.3% of net
book value per year), which corresponds to its natural decay rate. As the
Company periodically increases its installed capacity of Cobalt 60 in existing
facilities, or when it opens a new facility, it typically has excess capacity
for some period of time, which can adversely affect gross margin.
Correspondingly, once a facility reaches its break-even point for a given amount
of Cobalt 60, there are relatively lower costs associated with incremental
revenues until such time as the amount of Cobalt 60 is increased. The Company's
gross margin is also affected by the mix of standard services and higher margin
premium services such as ExCell, GammaSTAT, ElectroSTAT and SteriPro.
From time to time, the Company has built or expanded facilities. The cost of
construction of a facility is reflected as construction-in-progress until
start-up of the facility, at which time depreciation commences. Building new
facilities requires significant capital investments in building construction,
equipment and, for Gamma facilities, in Cobalt 60. In addition to incurring
costs associated with Cobalt 60, the Company also incurs incremental personnel
costs in the months preceding initial operation, and typically incurs
substantial personnel and other operating expenses during the first several
months of operation. These costs have historically exceeded revenues during the
initial months of operation.
As a result of their own internal procedures, customers often delay
qualification and use of a new facility until it has been operational for
periods of up to 12 months. As a result, in the past, the Company failed to
realize a portion of anticipated revenues for the facility pending such
qualification. Qualification generally requires the completion of various audit
procedures by a customer's quality assurance personnel. Customers' decisions on
timing of qualification of new facilities are based on various issues including
internal policies and procedures, work load of internal quality assurance audit
personnel and the need for amendments of certain FDA approvals. Certain
customers will qualify a new facility shortly after opening, while others may
delay for three, six, nine or twelve
8
<PAGE> 9
months depending on various internal issues. The Company generally does not have
the ability to expedite this qualification process as the decisions are made
independently by the individual customers.
The following table provides a breakdown of the Company's consolidated
statements of operations on a percentage of revenues basis for the periods
indicated:
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
JUNE 30,
--------------------
1997 1998
------ ------
<S> <C> <C>
Revenues ......................................... 100.0% 100.0%
Cost of revenues ................................. 54.0 51.9
------ ------
46.0 48.1
Costs and expenses:
General and administrative ..................... 15.2 15.7
Marketing and selling .......................... 7.6 7.1
Research, development and engineering .......... 2.9 2.4
------ ------
25.7 25.2
------ ------
Income from operations ........................... 20.3 22.9
Other income (expense):
Interest income ................................ 0.2 3.6
Interest expense ............................... (5.6) (4.5)
Other income ................................... 0.1 0.3
------ ------
Income before provision for income taxes ......... 15.0 22.3
Provision for income taxes ....................... 5.9 8.8
------ ------
Net income ....................................... 9.1% 13.5%
====== ======
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1998
Revenues. Revenues increased 23.9% from $10.8 million for the three months
ended June 30, 1997 to $13.3 million for the three months ended June 30, 1998.
The increase is attributable to increased revenue from existing facilities, due
to a combination of increased quantity of product processed, higher prices, and
increased sales of premium services. The increase is also attributable to
facilities that where either new or not in place during the three months ended
June 30, 1997. The Hayward, California and Fort Worth II, Texas, facilities were
newly operational for the three months ended June 30, 1997 and therefore had
significantly less revenue in the three months ended June 30, 1997 as compared
with the same period ended June 30, 1998. The Gurnee, Illinois MiniCell (located
at the existing Gurnee facility) and the San Diego, California E-Beam facility
were not operational for the three months ended June 30,1997, and therefore had
no revenue in the three months ended June 30, 1997 as compared with the same
period ended June 30, 1998.
Cost of Revenues: Cost of revenues increased 19.0% from $5.8 million for the
three months ended June 30, 1997 to $6.9 million for the three months ended June
30, 1998. Gross margin increased from 46.0% for the three months ended June 30,
1997 to 48.1% for the same period ended June 30, 1998. The increase in gross
margin in primarily attributable to greater utilization of the Company's
existing facilities which enabled the Company to leverage the fixed costs
associated with such facilities, offset in part by the increase in installed
Cobalt 60. The Company expects gross margins to fluctuate in future periods, and
that it may be negatively impacted to the extent the Company adds facilities and
continues to expand it's installed capacity of Cobalt 60.
General and Administrative: General and administrative expenses increased
28.2% from $1.6 million for the three months ended June 30, 1997 to $2.1 million
for the three months ended June 30, 1998. As a percentage of revenue, these
expenses increased from 15.2% to 15.7% for the three months ended June 30, 1997
and 1998, respectively. The increase in both absolute dollars and as a
percentage of revenue is primarily attributable to the increase in corporate
overhead, including the addition of personnel at both the facility and corporate
level and additional costs associated with being a public Company. The Company
expects general and administrative expenses to increase in absolute dollars as
it adds facilities and corresponding plant administration, and incurs additional
costs associated with being a public Company.
Marketing and Selling: Marketing and selling expenses increased 15.6% from
$823,000 for the three months ended June 30, 1997 to $951,000 for the three
months ended June 30, 1998. As a percentage of revenue, these expenses decreased
from 7.6% for the three months ended June 30, 1997 to 7.1% for the three months
ended June 30, 1998. The increase in absolute dollars is attributable to the
addition of marketing and sales personnel at the facility and corporate level,
as well as increased travel, professional and marketing
9
<PAGE> 10
costs. The Company expects marketing and selling expenses to increase in
absolute dollars over the remainder of fiscal 1999 as it focuses on revenue
growth, expanding premium service offerings, and increasing market share.
Research, Development and Engineering: Research, development and engineering
expenses remained relatively unchanged in absolute dollars at $312,000 for the
three months ended June 30, 1997 and $318,000 for the three months ended June
30, 1998. As a percentage of revenue, these expenses decreased from 2.9% for the
three months ended June 30, 1997 to 2.4% for the three months ended June 30,
1998. The Company expects research, development and engineering expense to
increase in absolute dollars over the remainder of fiscal 1999 as it continues
to design and develop new facilities.
Interest Income: Interest income increased from $22,000 for the three months
ended June 30, 1997 to $485,000 for the three months ended June 30, 1998. The
increase is attributable to earnings on the investment of proceeds from the
Company's initial and follow-on public offerings of stock, in August 1997 and
February 1998, respectively. The Company expects interest income to decrease as
funds are used for capital expenditures and other general corporate purposes.
See - "Liquidity and Capital Resources."
Interest Expense: Interest expense remained relatively unchanged at $603,000
for the three months ended June 30, 1997 and $599,000 for the three months ended
June 30, 1998 as higher interest rates on tax free IRB debt was entirely offset
by a reduction in the total outstanding tax free IRB debt and reduced interest
expense on declining balances of outstanding capital lease debt. In February
1998, the Company retired $500,000 of tax free IRB debt which carried a fixed
interest rate of 10%. The remaining balance of tax free IRB debt carries
variable interest rates, 3.9% and 3.7% at June 30, 1998. The Company expects
interest expense to remain relatively unchanged in absolute dollars for the
remainder of the fiscal year.
Provision for Income Taxes: For the three months ended June 30, 1997 and
1998, the total provision for income taxes differs from the statutory rate
primarily due to state income taxes. The Company's net deferred tax liabilities
relate primarily to tax depreciation taken in excess of book depreciation. The
effective tax rate for fiscal 1999 is 39.5%, which is an increase from fiscal
year 1998 which was 39.5% for the three months ended June 30, 1997 and 39.0% for
the remainder of the fiscal year ended March 31, 1998. The higher effective rate
results from higher projected pre-tax income and declining accelerated tax
depreciation deductions.
LIQUIDITY AND CAPITAL RESOURCES
In August 1997, the Company completed its initial public offering of Common
Stock, raising approximately $21.4 million, net of expenses. Additionally, the
Company completed a follow-on offering of Common Stock in February 1998, raising
approximately $8.8 million, net of expenses. Prior to the initial and follow-on
public offerings, the Company had financed its operations mainly with cash from
operations, capital leases, IRB and bank financing, and the private placement of
equity securities. At June 30, 1998, the Company had $22.2 million in cash and
cash equivalents and $31.4 million in working capital.
Net cash provided by operating activities was $3.2 million and $5.1 million
for the three months ended June 30, 1997 and 1998, respectively, primarily
attributable to net income and depreciation.
Net cash provided by (used in) investing activities was $(3.2) million and
$5.0 million in the three months ended June 30, 1997 and 1998, respectively. Net
cash used in investing activities was primarily attributable to the purchase of
property, plant and equipment (including Cobalt 60) for the three months ended
June 30, 1997. Net cash provided by investing activities was primarily
attributable to the maturity of short term investments, partially offset by the
purchase of property, plant and equipment and short term investments for the
three months ended June 30, 1998.
Net cash used in financing activities was $471,000 and $581,000 for three
months ended June 30, 1997 and 1998, respectively. Net cash used in financing
activities for the three months ended June 30, 1997 was attributable to
repayments on bank line of credit and Cobalt 60 financing, offset in part by
borrowings on the bank line of credit. Net cash provided by financing activities
for the three months ended June 30, 1998 was attributable to repayments on
Cobalt 60 financing and the issuance of Common Stock under the Company's equity
incentive and employee stock purchase plans.
The Company has a $3.5 million revolving line of credit with a bank that
carries a variable interest rate (8.5% at June 30, 1998), collateralized by
certain assets of the Company. The line of credit is payable on demand, and at
June 30, 1998, no amount was outstanding under this line of credit. The payment
of cash dividends on the Company's Common Stock is limited by the terms of the
Company's revolving line of credit.
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<PAGE> 11
At June 30, 1998, the Company had $36.5 million in IRB financing which bears
interest at market rates (either 3.7% or 3.9% at June 30, 1998). The IRBs are
collateralized by certain assets of the Company and by letters of credit with a
bank. The Company is able to issue $3.5 million of additional tax-free IRBs
until it reaches the maximum aggregate tax-free IRB limit of $40.0 million.
Thereafter, the Company will be required to obtain any additional financing
through higher cost funding sources. See "Risk Factors Substantial Debt."
The Company had capital expenditures of $3.0 million and $1.9 million for the
three months ended June 30, 1997 and 1998, respectively. The Company currently
expects to make significant capital expenditures during the remainder fiscal
1999. These expenditures will include, but are not limited to, the purchase of
additional Cobalt 60, new facilities and renovations to existing facilities.
SteriGenics believes that existing cash balances, cash expected to be
generated from operations and available credit facilities will be sufficient to
fund the Company's anticipated capital expenditures, operations and repayment of
debt, at least through the end of fiscal 1999. There can be no assurance that
adequate sources of capital will be available in the future or, if available,
will be on terms acceptable to the Company. See "Risk Factors - Need for
Additional Capital."
The Company believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of opportunities
as they may arise. The Company may, from time to time, invest in or acquire
complementary businesses, products or technologies. The Company may attempt to
utilize additional equity or debt financing to fund such activities. The sale of
additional equity or convertible debt could result in additional dilution to the
Company's stockholders.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. Management
is in the process of working with its software vendors to assure that the
Company is prepared for the year 2000. Management does not anticipate that the
Company will incur significant operating expenses or be required to invest
heavily in computer systems improvements to be year 2000 compliant. However,
significant uncertainty exists concerning the potential costs and effects
associated with any year 2000 compliance. The Company is currently implementing
an upgrade to its management information system that the Company believes is
year 2000 compliant. Any year 2000 compliance problem of either the Company or
its suppliers or customers could materially adversely affect the Company's
business, results of operations, financial condition and prospects.
ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("FAS 131"). FAS 131 will require the Company to use the
"management approach" in disclosing segment information. Both statements are
effective for the Company during fiscal 1999. The Company believes that the
adoption of FAS 131 will not have a material impact on its results of
operations, cash flows, financial position or prospects.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this Report, the following risk
factors should be considered carefully in evaluating the Company and its
business.
UNPREDICTABILITY OF FUTURE OPERATING RESULTS; LIKELY FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS
The Company has experienced, and expects to continue to experience,
significant fluctuations in revenues and operating results from quarter to
quarter. As a result, the Company believes that period-to-period comparisons of
its operating results are not necessarily meaningful, and that such comparisons
cannot be relied upon as indicators of future performance. In addition, there
can be no assurance that the Company's revenues will grow or be sustained in
future periods or that the Company will maintain its current profitability in
the future. A significant component of such quarterly fluctuations results from
fluctuations in the demand by the Company's customers for sterilization and
radiation processing services due to varying manufacturing cycles, changes in
demand for customers' products and seasonality related to growth cycles for
spices and herbs and decreased demand during the third fiscal quarter and the
first part of the fourth fiscal quarter due to the holiday season. Other factors
that could cause the Company's operating results to vary significantly from
period to period include volatility in the market for medical devices; the
ability of the Company to deliver services in a timely and cost effective
manner; the ability of the Company to expand successfully in the advanced
applications sterilization and radiation processing market; the ability to
effectively integrate and successfully expand its recently acquired E-Beam
business; the timing and size of orders from the Company's customer base; the
ability of the Company to obtain supplies of Cobalt 60 on a timely basis and at
a reasonable cost; fluctuations in currency exchange rates because payments
under certain of the Company's Cobalt 60 operating leases are payable in
Canadian dollars; fluctuations in the costs of electricity for the Company's
E-Beam business; loss of processing time due to maintenance; the costs
associated with customer product being damaged as a consequence of overdosing
and other factors; changes in interest rates; regulatory matters; and
litigation, acquisitions and other extraordinary events.
The Company's results of operations are also influenced by competitive
factors, including the pricing and availability of the Company's and competing
sterilization and radiation processing services; the acceptance of Gamma and
E-Beam radiation as a means of sterilizing and processing products as opposed to
other technologies; the ability of the Company's competitors to obtain orders
from the Company's customers; the establishment of in-house sterilization
capabilities by the Company's customers; the acquisition of the Company's
customers by entities that do not use the Company's services; the timing of new
service or technology announcements and releases by the Company and its
competitors; and the entry of new competitors into the market for sterilization
and radiation processing services. A large portion of the Company's expenses are
fixed and difficult to reduce in a short period of time. If revenues do not meet
the Company's expectations, the Company's fixed expenses would exacerbate the
adverse effect of such a shortfall on net income.
Additional factors that have a significant impact on the Company's results of
operations are the timing of construction and commencement of operations of new
facilities. Building new facilities requires significant capital investments in
construction and equipment and, for Gamma facilities, in Cobalt 60. In addition
to incurring costs associated with building and equipping such facilities, the
Company also incurs costs related to Cobalt 60 and higher personnel costs in the
months preceding initial operation. As a result of their own internal
procedures, customers often delay qualification and use of new facilities until
they have been operational for a specified period of time of up to 12 months. As
a result, in the past, the Company has failed to realize a portion of
anticipated revenues for the facility pending such qualification, while
incurring significant start-up costs, both of which adversely affected the
Company's results of operations.
Due to these factors, as well as other unanticipated factors, it is likely
that in some future quarter the Company's operating results will be below the
expectations of public market analysts or investors. In such event, the price of
the Company's Common Stock would be materially adversely affected.
DEPENDENCE ON MEDICAL PRODUCTS CUSTOMERS
The Company derives a substantial portion of its revenues from the sale of
sterilization services to manufacturers of medical devices, labware and eyecare
products ("medical products"), and the Company expects that the sterilization of
medical products will continue to account for a significant portion of the
Company's revenues for the foreseeable future. The Company thus depends to a
considerable extent upon the continued growth of the market for medical
products. In particular, a significant aspect of the Company's medical products
business is the sterilization of single-use medical devices. As a result, the
Company is dependent in part on continued growth in the market for single-use
medical devices. There has recently been an increasing focus on reusable medical
devices and, therefore, there can be no assurance that use of reusable medical
devices will not increase. Any significant increase in the
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use of reusable medical devices would decrease the use of single use devices of
the type sterilized by the Company, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company believes that continued growth in the use of medical products depends on
a number of factors, including the impact of health reform proposals. The
Company believes that government and private insurance company efforts to
contain or reduce health care costs are likely to continue. These trends may
lead to fewer medical procedures being performed or the increased use of
reusable medical devices, either of which could negatively impact the demand for
the Company's services. In addition, the Company is dependent on the ongoing
conversion of products from EtO to Gamma or E-Beam sterilization and there can
be no assurance that such conversion will continue at the rate currently
anticipated by the Company. Loss of significant business from medical products
manufacturers, including reductions caused by large customers establishing
captive facilities, changes in such customers' competitive position or a
decision to purchase contract sterilization services from other suppliers, a
downturn in the medical products market, or a failure of the conversion of
products from EtO to Gamma at the anticipated rate could have a material adverse
effect on the Company's business, financial condition and results of operations.
COMPETITION
The market for sterilization and radiation processing services is intensely
competitive and is characterized by significant price competition. The Company's
market is fragmented as a result of geographical limitations on the
transportation of products for sterilization, multiple technologies and the mix
of captive and contract facilities. In particular, the Company currently faces
competition from other providers of contract Gamma sterilization services, the
most significant of which is Isomedix, Inc., a subsidiary of Steris Corporation
("Isomedix"), and other providers of contract E-Beam sterilization services
including The Titan Corporation, E-Beam Services Inc. and Iotron Industries
Canada Inc. In addition, many products that can be sterilized using Gamma or
E-Beam can also be sterilized using EtO. As a result, the Company also competes
with companies that process products using EtO technology, including Cosmed
Group, Inc., Griffith Micro Science, Inc. and Isomedix. Certain of the Company's
competitors and potential competitors have substantially greater financial,
marketing, distribution, technical and other resources than the Company or offer
a broader range of sterilization technologies, which may enable them to address
more of the sterilization requirements of individual customers. In addition, the
Company competes with manufacturers that have or are considering establishing
in-house sterilization capabilities. The Company may also in the future face
competition from suppliers of Cobalt 60 radioisotope, particularly Nordion, as
well as foreign providers of sterilization services. In addition, Isomedix has
announced its intention to enter the California market for sterilization
services, which would increase competition in that market. To the extent that
the Company expands into international markets it will also be faced with
competition from existing providers of sterilization and radiation processing
services in those markets.
In recent years, price competition in the sterilization and radiation
processing services industry has intensified. The Company may in the future face
increased competition from companies that employ new or improved technologies or
that offer sterilization services that are more effective or less costly than
those developed and marketed by the Company. To the extent such increase in
competition were to occur, the Company may explore alternative sterilization
technologies as necessary to enhance its competitive position. Such competition
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to continue to compete effectively or that the competitive
pressures faced by the Company will not have a material adverse effect on the
Company's business, financial condition and results of operations.
UNCERTAINTY OF EXPANSION IN ADVANCED APPLICATIONS MARKETS
While the Company has traditionally focused primarily on the medical products
market, it has increased its efforts in the advanced application contract
sterilization and radiation processing market. The Company currently sterilizes
a wide range of food ingredients and consumer products, including cosmetics,
spices and herbs. The Company also processes various industrial compounds and
other materials using both Gamma and E-Beam technologies. In addition, as a
result of the Company's recently acquired E-Beam business, the Company has begun
to process other advanced applications products such as semiconductors and
gemstones. Many of the advanced application markets for Gamma sterilization and
processing are new and emerging, and there can be no assurance that any of these
markets will develop at the anticipated rate, if at all.
Approval for the irradiation of food products is regulated by the FDA and the
USDA. While the FDA has approved radiation for the processing of a variety of
foods, including pork, poultry and fresh fruits and vegetables, only limited
commercial sales of irradiated food have taken place. In December 1997, the FDA
approved radiation for the processing of red meat, meat byproducts and food
products in order to eliminate E. coli and other harmful foodborne pathogens.
However, before irradiated red meat can be sold commercially, the USDA must set
certain minimum standards for processors to follow. The USDA is currently
reviewing the issue and is expected to set such standards later in 1998,
although there can be no assurance it will do so. In addition, current FDA rules
and
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regulations require the labeling of any retail food product that is irradiated,
and to date, there has been significant consumer resistance to irradiated food.
The irradiation of red meat could also result in an increase in the cost of such
products to a level which may be unacceptable to most consumers. As a result,
there can be no assurance that sterilization of fresh food products will gain
public acceptance or will ultimately prove commercially feasible in the United
States or that the Company would undertake to expand its irradiation activities
to include red meat. To the extent that the Company seeks to take advantage of
future opportunities in this market, such activities would require significant
changes in the Company's processing techniques, including the redesign of
facilities and the addition of refrigeration capabilities. Furthermore, to
accommodate the perishable nature of red meat and the high processing volume
that may result from the commercial irradiation of red meat, the Company could
be required to expend significant capital to build specially equipped processing
facilities near customer facilities.
RISKS RELATED TO GEOGRAPHIC EXPANSION USING THE MINICELL; RISKS RELATED TO
INTERNATIONAL OPERATIONS
A key element of the Company's strategy is to expand geographically into
smaller regional markets and internationally using the MiniCell. There can be no
assurance that manufacturers in these markets will use the Company's facilities,
that such manufacturers will pay higher sterilization prices in exchange for
lower transportation costs and a decrease in turn-around time or that the
Company will receive enough volume of product to operate such facilities on a
profitable basis. In addition, many manufacturers in these smaller markets
currently use EtO to sterilize their products and would need to convert their
products to Gamma. Failure of the Company to successfully introduce and operate
MiniCells in these new markets could materially adversely affect the Company's
business, financial condition and results of operations.
If the Company is successful in expanding into international markets either
through the use of the MiniCell or otherwise, it will be subject to a number of
risks related to foreign operations, including fluctuations in currency exchange
rates, political and economic conditions in various jurisdictions, unexpected
changes in regulatory requirements, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer accounts
receivable payment cycles and potentially adverse tax consequences. There can be
no assurance that such factors will not have a material adverse effect on the
Company's future operations outside the U.S.
UNCERTAINTIES RELATED TO MINICELL LEASING
The Company's ability to successfully lease its MiniCell will depend upon the
acceptance of the Company's technology and the concept of "in-house outsourcing"
(utilizing third party contractors to provide services within a manufacturer's
own facility) by manufacturers with high volume sterilization needs, as well as
upon the Company's ability to enter into favorable leasing terms with potential
customers. The Company has not yet leased a MiniCell, and there can be no
assurance that manufacturers will elect to lease a MiniCell in lieu of relying
on traditional in-house sterilization operations and contract sterilization
providers or that any such leases will be on terms favorable to the Company. In
addition, the leasing of the MiniCell will involve a significant commitment of
management attention and resources by prospective customers and may require
input from and approval at multiple levels of a customer's organization.
Accordingly, the Company anticipates that the MiniCell leasing process will be
subject to long sales cycles typically associated with significant capital
expenditures. Delay in or the failure to lease the MiniCell could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON GAMMA TECHNOLOGY
Historically, the Company has performed all of its sterilization and
radiation processing services using Gamma radiation. Because of its reliance on
Gamma technology, a decline in the demand for, or the pricing of, Gamma services
would have a material adverse effect on the Company's business, financial
condition and results of operations. To remain competitive, the Company may also
need to respond quickly to technological changes and innovations in the
sterilization and radiation processing market, including changes in the
technologies used to perform sterilization or radiation processing services that
could render Gamma obsolete or noncompetitive. The Company is also dependent
upon continued consumer acceptance of the Gamma sterilization of medical
products and the ongoing conversion of products from EtO to Gamma sterilization.
There can be no assurance that such conversion will occur at the rate
anticipated by the Company. Failure by the Company to quickly and effectively
respond to changes in the sterilization and radiation processing market,
including the development of new technologies, or a significant increase in
consumer resistance to products sterilized by Gamma, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See " -- Competition" and " -- Risks Associated With Entry Into
E-Beam Business."
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SUBSTANTIAL DEBT
As of June 30, 1998, the Company's total consolidated liabilities were $60.9
million, of which $41.9 million represented long-term debt (including current
portion), its total consolidated assets were $132.6 million and its total
stockholders' equity was $71.8 million. The Company's substantial level of debt
presents the risk that the Company might not generate sufficient cash to service
the Company's indebtedness, including its Industrial Revenue Bonds ("IRBs"), or
that its debt level could limit its ability to finance an acquisition and
develop additional projects, to compete effectively or to operate successfully
under adverse economic conditions. As of June 30, 1998, the Company had $36.5
million of tax-free IRBs outstanding with variable interest rates as of June 30,
1998 of either 3.3% or 3.7%. Under federal regulations, the maximum aggregate
amount of tax-free IRBs that the Company may issue is $40.0 million. Once the
Company has issued the maximum amount of tax-free IRBs, it will be required to
obtain any additional financing through higher cost funding sources. Each of the
Company's IRBs is collateralized by certain assets of the Company. The Company
is also required, under certain IRB agreements, to maintain cash reserves in the
amount of the bond interest payments due within one year. As a result, such cash
is not available to the Company for working capital or other purposes.
RISKS RELATED TO GOVERNMENT REGULATION AND STANDARDS COMPLIANCE
The Company's business is subject to various federal, state and local laws,
regulations, agency actions and court decisions. Although the Company believes
it has received all licenses and permits necessary to conduct its current
sterilization business, there can be no assurance that the Company will not be
found in violation of applicable requirements or that governmental bodies will
not seek to impose regulatory requirements not now anticipated on the Company
and its business. In addition, the long-term course of regulatory policy cannot
be predicted and, there can be no assurance that laws and regulations will not
be applied in a manner that adversely affects the Company. The imposition of
such regulatory requirements could force the Company to alter or cease
operations of its facilities and could otherwise have a material adverse effect
on the Company's business, financial condition and results of operations.
The design, construction, use and operation of commercial Gamma facilities
such as those operated by the Company, and byproduct materials used in such
facilities, are extensively regulated by the United States Nuclear Regulatory
Commission (the "NRC"), or in some cases by various state regulatory agencies
and authorities that undertake comparable regulatory functions from the NRC (the
"Agreement States"). While E-Beam is not regulated by the NRC, the Company's
E-Beam facility is subject to regulation by the California Department of Health
Services. The Company is currently operating its E-Beam facility under a
California Department of Health Services license held by ThermoSpectra
Corporation pending the approval of its application for a new radioactive
material license. The Company is also subject to various local zoning and permit
rules in the construction of its facilities. The Company's facilities are
subject to regulation by additional regulatory bodies at the federal, state and
local levels, depending upon the type of product that is being irradiated. The
Company's facilities are subject to the requirements of the FDA when irradiating
medical devices, foods, cosmetics or food or drug packaging materials. In
addition, if the Company were to begin processing meat or poultry products, it
would become subject to the requirements of the Food Safety and Inspection
Service of the USDA, which would require the amendment of its regulations to
authorize this use of irradiation as well as the establishment of the applicable
manufacturing practices that must be followed when using such irradiation. The
Company is also subject to the requirements of other federal agencies, such as
the United States Occupational Safety and Health Administration and the United
States Environmental Protection Agency (the "EPA"). In addition, the Company is
subject to the regulatory requirements of the state and local agencies in the
jurisdictions where the various irradiation facilities are located.
In addition to extensive regulation by various governmental bodies and
agencies, the Company is subject to standards, guidelines and requirements
established by industry organizations and other non-governmental bodies, such as
the International Standards Organization ("ISO") and the Association for the
Advancement of Medical Instrumentation ("AAMI"). The ISO 9002 Standard is an
international quality standard that requires the Company to implement and
document an effective quality assurance program which is subject to quality
systems surveillance audits every six months.
Changes in, or reinterpretations of, existing requirements and standards or
adoption of new requirements beyond those described below or the failure at any
time to comply with any applicable material regulations and standards could have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will not incur
significant costs to comply with laws, regulations and other requirements in the
future or that such laws, regulations and other requirements will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
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Violations of or noncompliance with applicable governmental requirements may
result in an enforcement action including, among other things, a notice of
violation, imposition of civil penalties, suspension, modification or revocation
of any applicable license, criminal prosecution, or withholding or recall of the
nuclear byproduct material held by the Company. Any such action would have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS OF OPERATING FACILITIES USING RADIOACTIVE MATERIAL
The operation of the Company's Gamma and E-Beam facilities involves special
safety risks, potential liabilities related to exposure to radioactive material,
and specific regulatory, radiological health and safety and environmental
requirements and may raise concerns with respect to both worker safety and
community reaction. Should an incident involving exposure of workers or others
beyond regulatory limits to radioactive materials occur at any of the Company's
facilities, the resultant liability could be substantial. Such an incident would
also result in adverse community reaction, which could impact the Company's
ability to continue to operate any facility involved in such an incident, as
well as similar facilities. In the event any losses or liabilities related to
such an incident are underinsured or exceed accumulated funds, or adequate
recovery is not possible, the Company's business, financial condition and
results of operations would be materially adversely affected.
In addition, the Company may encounter resistance from those in the
communities where it seeks to build additional facilities or be subject to
protests or other actions in areas where it has facilities based on perceived
risk of exposure to radiation on the part of those living in the communities
surrounding the Company's facilities. Any actual or perceived exposure to
radiation as a result of the Company's activities or a failure related to the
Company's safety procedures could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Environmental and Related Risks."
The Cobalt 60 stored in water shielding pools at each of the Company's
facilities is double encapsulated in stainless steel. There can be no assurance
that these stainless steel capsules will not corrode. In 1995, the Company
encountered minor corrosion in the outer encapsulation of certain of its Cobalt
60 rods, requiring their replacement. Since the quantity of Cobalt 60 in a
facility is the key determinant of the amount of product that can be processed,
any significant delay in the replacement of such Cobalt 60 could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if the Company is determined to be responsible for the
corrosion, it could be required to bear the costs of transportation and
reencapsulation of the Cobalt 60. Furthermore, such corrosion, if undetected,
could result in radioactive material being released into the water shielding
pool, which could cause contamination of the pool and potentially the related
facility. Any contamination resulting from such release and the related
decontamination process would have a material adverse effect on the Company's
business, financial condition and results of operations. See " -- Risks Related
to Government Regulation and Standards Compliance."
Due to the high energy levels emitted from the electron accelerator in the
Company's E-Beam facility, some residual radiation remains in the cell after the
accelerator is turned off and items that are in the direct path of the beam,
such as equipment and portions of the concrete, may become radioactive for some
period of time. Therefore, although the Company complies with federal and state
regulations with regard to worker safety, workers who enter the E-Beam cell are
exposed to low levels of radiation. Furthermore, the Company may be required to
incur costs in connection with disposal of radioactive material in connection
with the replacement of equipment or upgrading or decommissioning of its E-Beam
facility.
ENVIRONMENTAL AND RELATED RISKS
The Company's operations are subject to regulation by the EPA as well as
state and local governmental agencies. Although there can be no assurance, the
Company believes it currently maintains all licenses and permits necessary to
conduct its current business and that it is in material compliance with
applicable environmental, health and safety laws and regulations. The loss of
any of the Company's licenses or permits could force the Company to suspend or
terminate operations at one or more of its facilities or could otherwise have a
material adverse effect on the Company's business, financial condition and
results of operations.
Pursuant to an Asset Acquisition Agreement effective August 8, 1996 (the
"Asset Agreement"), the Company purchased certain assets of RTI, Inc. ("RTI"),
including property located in Haw River, North Carolina and leasehold interests
in property located in Salem, New Jersey and Rockaway, New Jersey (the "Rockaway
Property"). The Rockaway Property was previously owned and operated by Thiokol
Chemical Corporation ("Thiokol"), and is listed on the Superfund National
Priorities List ("NPL"). In 1992, RTI and Thiokol entered into an Administrative
Consent Order ("ACO") with the New Jersey Department of Environmental Protection
(the "NJDEP") requiring, among other things, implementation of a groundwater
remedy estimated to exceed $2.0 million in costs.
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Under the Asset Agreement, RTI retained ownership of the Rockaway Property
and all associated environmental liabilities as of the closing date. RTI agreed
to indemnify and hold the Company harmless from and against any and all claims
which may arise directly or indirectly from any use or release of hazardous
substances on or under the leased premises as of the closing date. In addition,
the Company obtained a letter from the NJDEP stating that the NJDEP will not
institute either judicial or administrative civil proceedings against the
Company for any discharge, deposit, release or disposal of hazardous substances
or pollutants existing at the Rockaway Property, emanating therefrom, or
occurring before the closing. However, the Company is required by the NJDEP to
maintain a standby letter of credit in the amount of $500,000, contingent upon
the continued clean up efforts required of RTI. The required amount of the
letter of credit decreases over the life of the leasehold interest, and/or as
the NJDEP requires. The Company believes, based on present information available
to it, including the indemnification from RTI, the ACO among RTI, Thiokol and
the NJDEP, and the NJDEP's letter stating that it will not seek recovery or
remediation costs from the Company for contamination that predates the purchase
of RTI's assets, that it does not face any significant environmental liability
with respect to the Rockaway Property. However, there can be no assurance that
the Company will not be subject to environmental liability relating to the
remediation of the Rockaway Property or liability for losses suffered by
adjacent property owners or other third parties, and such liability could have a
material adverse effect on its business, financial condition or results of
operations.
In the spring of 1985, the Company leased over 400 stainless steel capsules
of radioactive Cesium from the United States Department of Energy (the "DOE")
for use at the Company's Decatur, Georgia and Westerville, Ohio irradiation
facilities. On June 6, 1988, the Company discovered one or more of DOE's Cesium
capsules had leaked radioactive Cesium, which is water soluble, contaminating
the Company's Decatur, Georgia facility. As a result of the contamination, the
Company's Decatur irradiation facility was completely shut down from June 6,
1988 until July 1996, when the Company leased the facility to a third party for
a different purpose. The decontamination activities were conducted by the DOE
and its contractors, and the Company filed an administrative claim with the DOE
for damages the Company incurred as a result of the Cesium contamination. The
DOE did not pay or deny the Company's claim within the required six month
period. As a result, the Company filed suit against the U.S. government in June
1991. Although the DOE had orally offered to fund the costs of the cleanup, the
government subsequently asserted a substantial counterclaim against the Company
alleging that the Company had been negligent in its handling and use of the
Cesium capsules. A settlement was reached between the parties to this litigation
on April 9, 1997, following a trial and notice of appeals filed by both
SteriGenics, the U.S. government and two of its contractors. The presiding court
entered a stipulation of dismissal effective May 9, 1997. While the litigation
resulted in significant expenses and was a significant diversion of management
attention, the Company is not aware of any ongoing environmental or other legal
liabilities associated with the Cesium incident. However, there can be no
assurance that unspecified third parties, including former employees or persons
owning or occupying nearby properties, would not, in the future, assert claims
against the Company in connection with the contamination of the Decatur
facility. In January 1993, after the decontamination activities were completed,
final survey reports were prepared by both a contractor for DOE and by a third
party consultant on behalf of the Georgia Department of Human Resources, which
regulates such matters in Georgia, to allow for the unrestricted use of the
Decatur facility consistent with the requirements of the Georgia Department of
Human Resources. The documentation and data prepared by such third party
indicated that any residual radioactivity at the Decatur facility was beneath
that of regulatory concern to the applicable regulatory authority. While the
Company no longer uses Cesium in any of its facilities, there can be no
assurance that it will not experience any incidents of radioactive contamination
resulting from its use of Cobalt 60. Incidents involving radioactive
contamination from use of Cobalt 60 would likely differ from incidents involving
Cesium contamination in a number of respects. Cesium is a salt and water
soluble, in contrast to Cobalt 60, which is a metal and not water soluble. As a
result, when Cesium contamination occurs, the evaporation of contaminated water
can result in Cesium being spread to a greater extent than would be the case
with substances that are not water soluble, such as Cobalt 60. However, since
Cobalt 60 is a metal and therefore any released amount would remain in a more
concentrated form, direct exposure could potentially be more dangerous. See " --
Risks of Operating Facilities Using Radioactive Material."
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RISKS RELATED TO COBALT 60 SUPPLY
To date, the Company has obtained its supply of the Cobalt 60 radioactive
isotope from three sources. The Company's primary sources of Cobalt 60 are
Nordion, a Canadian company and the world's principal source of Cobalt 60, and
REVISS Services (UK) Limited ("REVISS"), a United Kingdom company and formerly a
division of Amersham International plc. In addition, the Company has purchased
smaller amounts of its Cobalt 60 requirements from Neutron Products Inc., a
Maryland corporation. While the Company has not experienced any shortages in
Cobalt 60 supply since the mid-1980s and has various supply contracts in place,
there can be no assurance that it will be able to obtain sufficient supplies of
Cobalt 60 from Nordion, REVISS or other suppliers on acceptable terms or that it
will be able to identify and qualify alternative sources. In addition, there is
no assurance that Nordion will not in the future become a competitor of the
Company in the delivery of sterilization services, which could result in a
decrease in the availability of Cobalt 60 from Nordion. In July 1997, Nordion
announced a joint venture with Griffith Micro Science, Inc. to provide
sterilization services in Mexico. If interruptions in the supply or increases in
the price of Cobalt 60 were to occur for any reason, including a decision by any
of the Company's suppliers to decrease or discontinue supplies of Cobalt 60 to
the Company, trade restrictions with Canada or the United Kingdom, political
unrest, labor disputes or other factors, the Company's business, financial
condition and results of operations would be materially adversely affected.
Since the Company pays for Cobalt 60 primarily in Canadian dollars, and the
Canadian dollar is currently trading at levels significantly lower than it has
in recent years, the Company's results of operations may be adversely affected
by fluctuations in currency exchange rates. In addition, the availability and
price of Cobalt 60 to the Company and its suppliers is dependent in part on the
political situation in countries with large deposits of Cobalt 59 (the material
that is processed into Cobalt 60), such as the Democratic Republic of Congo and
the republics of the former Soviet Union. Such countries have recently
experienced political unrest. In addition, since mined Cobalt 59 must be
converted into Cobalt 60 in nuclear reactors, the supply of Cobalt 60 to the
Company's suppliers is dependent upon the availability of nuclear reactors to
convert Cobalt 59 to Cobalt 60. An interruption in the Company's supply of
Cobalt 60 or significant increase in the price the Company is required to pay
for Cobalt 60 would have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS OF BUSINESS INTERRUPTION
Any prolonged disruption in the operations at any of the Company's
facilities, whether due to technical or labor difficulties, equipment
malfunction, regulatory action, destruction of or damage to any facility or
other reasons, would have a material adverse effect on the Company's business,
financial condition and results of operations. This risk is increased since
customers generally seek to have their products sterilized within a 300 mile
radius of their production or distribution facilities and, therefore, it is
often not feasible to transfer products to other facilities in the event of a
prolonged disruption in any facility. The Company is also susceptible to natural
disasters, including earthquakes, hurricanes and tornadoes, as well as other
catastrophic events such as fire. Furthermore, if additional capacity is
required as a result of unplanned increases in demand for the Company's
services, the Company may suffer delays and increased costs in establishing
other facilities or increasing production at existing facilities that could
adversely affect customer relationships, cause a loss of market opportunities
and have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the failure to effectively
implement any design or process changes could disrupt the sterilization process,
which could also adversely affect customer relationships, cause a loss of market
opportunities and have a material adverse effect on the Company's business,
financial condition and results of operations.
MANAGING GROWTH; RECENT AND POTENTIAL ACQUISITIONS
The Company has recently experienced a period of revenue growth and an
expansion in the number of its employees, the scope of its operating and
financial systems and the geographic area of its operations. This growth and
expansion has resulted in and may continue to result in new and increased
responsibilities for management personnel and has placed additional demands upon
the Company's management, operating and financial systems and resources. In
order to successfully integrate its expanded operations and to manage future
growth, if any, the Company will be required to implement new and expanded
business and financial systems, procedures and controls, and to upgrade its
accounting and other internal management systems. There can be no assurance that
the Company's systems, procedures, controls and staffing will be successfully
managed or will be adequate to successfully support the Company's operations.
Failure to manage any future growth properly would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company may in the future undertake acquisitions that could present
challenges to the Company's management, such as integrating and incorporating
new operations, technologies and personnel. If the Company's management is
unable to effectively manage these challenges, the Company's business, financial
condition and results of operations could be materially adversely affected.
Furthermore, there can be no assurance that any acquisitions will result in
increased revenue or positively impact the Company's
18
<PAGE> 19
profitability. Moreover, any new acquisition, depending on its size, could
result in the use of a significant portion of the Company's available cash or
the acquisition of additional debt or, if such acquisition is made utilizing the
Company's securities, could result in significant dilution to the Company's
stockholders. The Company does not currently have any understandings,
commitments or agreements with respect to any potential acquisition or corporate
partnering arrangements. While it is an element of the Company's strategy to
pursue strategic acquisitions, the Company believes that the number of potential
acquisition candidates in the domestic market is limited. Therefore, there can
be no assurance that the Company will successfully complete any such
transaction.
DEPENDENCE ON KEY PERSONNEL
The Company's progress to date has been highly dependent upon the skills of
its key technical and management personnel, many of whom would be difficult to
replace. To reach its future business objectives, the Company will need to hire
additional qualified personnel in the areas of sales, engineering and
management. There can be no assurance that the Company will be able to hire such
personnel, as the Company must compete with other companies, academic
institutions, government entities and other agencies. The number of persons with
experience in Gamma sterilization and E-Beam technology is limited, and as a
result, competition for such personnel is intense. There can be no assurance
that the Company can retain such personnel or that it can attract or retain
other highly qualified personnel in the future. The Company maintains $2.0
million of key person life insurance on James F. Clouser, the Company's Chief
Executive Officer and President. The loss of any of the Company's senior
management, facilities managers or other key research, regulatory, technical or
sales and marketing personnel, particularly if lost to competitors, or the
failure of any key employee to perform well in his or her current position,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In particular, the loss of James F. Clouser
could have a material adverse effect on the Company's business, financial
condition and results of operations.
FINANCIAL EXPOSURE TO PRODUCT LIABILITY CLAIMS
The Company faces the risk of financial exposure to product liability claims
alleging that the Company's failure to adequately perform its services resulted
in adverse effects. While the Company's customers are responsible for
determining the appropriate dosage of radiation their products should receive,
the Company is required to certify that such dose level was achieved. There can
be no assurance that the Company will not be held liable for damages that are
alleged to result from improper dosing or incorrect dosage instructions received
from a customer. The Company currently maintains product liability insurance
with a claims limit of $5.0 million per claim and $5.0 million in the aggregate.
However, there can be no assurance that the Company will avoid significant
product liability claims and attendant adverse publicity. Furthermore, there can
be no assurance that the Company's product liability insurance is adequate or
that such insurance coverage will remain available at acceptable costs. A
successful claim brought against the Company in excess of its insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. Additionally, adverse product liability
actions could negatively affect market acceptance of the Company's services and
the Company's ability to obtain and maintain regulatory approval for its
products.
NEED FOR ADDITIONAL CAPITAL
The Company requires substantial working capital to fund its business,
particularly for capital expenditures, including the construction of its
facilities and acquisition of Cobalt 60. There can be no assurance that as a
result of acquisitions, lower than anticipated cash flows or other unforeseen
events the Company will not require additional debt or equity financing.
Further, there can be no assurance that additional financing, if required, will
be available to the Company on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, scale back or eliminate
its planned expansion, acquisitions or research, development and engineering
programs. Accordingly, the inability to obtain or difficulty in obtaining such
financing could have a material adverse effect on the Company's business,
financial condition and results of operations.
19
<PAGE> 20
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
The Company relies on a combination of copyright and trade secret protection
and nondisclosure agreements to protect its proprietary rights. In addition, the
Company has a U.S. patent application pending on its MiniCell. There can be no
assurance, however, that patent and copyright law and trade secret protection
will be adequate to deter misappropriation of its technology, that any patents
issued to the Company will not be challenged, invalidated or circumvented, that
the rights granted thereunder will provide competitive advantages to the
Company, or that the claims under any patent application will be allowed.
Furthermore, there can be no assurance that others will not independently
develop similar processes or designs, duplicate the Company's processes or
design around any patents issued to the Company. The Company may be subject to
or may initiate interference proceedings in the United States Patent and
Trademark Office, which can demand significant financial and management
resources. The process of seeking patent protection can be time consuming and
expensive and there can be no assurance that patents will be issued from
currently pending or future applications or that any new patents that may be
issued will be sufficient in scope or strength to provide meaningful protection
or any commercial advantage to the Company.
The Company has received an inquiry from the Software Publishers Association
(the "SPA") regarding an alleged failure to obtain proper licenses for certain
third party software. The Company is in discussions with the SPA and, while
there can be no assurance, the Company does not believe that the resolution of
this matter will have a material adverse effect on its financial condition or
operating results.
The Company may in the future receive communications from third parties
asserting that the Company is infringing certain patents and other intellectual
property rights of others or seeking indemnification against such alleged
infringement. No assurance can be given that any of these claims will not result
in protracted and costly litigation, that damages for infringement will not be
assessed or that should it be necessary or desirable to obtain a license
relating to one or more of the Company's services or current or future
technologies, the Company will be able to do so on commercially reasonable terms
or at all.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has fluctuated and may
continue to be subject to significant fluctuations in the future. Factors such
as variations in the Company's financial results, comments by securities
analysts, changes in earnings estimates by securities analysts, fluctuations in
the stock prices of the Company's competitors, the Company's ability to
successfully sell its services in the U.S. and overseas, any loss of key
management, adverse regulatory actions or decisions, evidence regarding the
safety or efficacy of Gamma or E-Beam sterilization activities, announcements of
extraordinary events such as litigation or acquisitions, announcements of
technical innovations or changes in pricing policies by the Company or its
competitors, the development of in-house sterilization capabilities by
manufacturers, changing government regulations or industry standards and
developments with respect to FDA, NRC or other government regulations,
developments with respect to patents or other proprietary rights or public
concern as to the safety of sterilization services performed by the Company, as
well as changes in the market for medical products and general economic,
political and market conditions, may have a significant effect on the market
price of the Company's Common Stock. In addition, stock markets have experienced
extreme price and volume trading volatility in recent years. This volatility has
had a substantial effect on the market prices of securities of many companies
for reasons frequently unrelated or disproportionate to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Certificate of Incorporation may have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of the Company.
The Company's Certificate of Incorporation allows the Board of Directors to
issue and determine the rights, powers and preferences of Preferred Stock
without any vote or further action by the stockholders, and certain provisions
of the Company's Certificate of Incorporation and Bylaws eliminate the right of
stockholders to act by written consent without a meeting, and specify procedures
for director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. Certain provisions of Delaware law could
also delay or make more difficult a merger, tender offer or proxy contest
involving the Company, including Section 203 of the Delaware General Corporation
Law, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years unless
certain conditions are met. The possible issuance of Preferred Stock, the
procedures required for director nominations and stockholder proposals and
Delaware law could have the effect of delaying, deferring or preventing a change
in control of the Company, including without limitation, discouraging a proxy
contest or making more difficult the acquisition of a
20
<PAGE> 21
substantial block of the Company's Common Stock. These provisions could also
limit the price that investors might be willing to pay in the future for shares
of the Company's Common Stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - NOT
APPLICABLE
21
<PAGE> 22
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES -- NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- NOT
APPLICABLE
ITEM 5. OTHER INFORMATION -- NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
The exhibits listed in the accompanying Exhibit Index are filed
or incorporated by reference as part of this Report.
(b) REPORTS ON FORM 8-K.
There were no reports filed during the quarterly period ending
June 30, 1998.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
STERIGENICS INTERNATIONAL, INC.
August 7, 1998 /s/ James F. Clouser
------------- --------------------------------------------
Date James F. Clouser,
President and Chief Executive Officer
August 7, 1998 /s/ Thomas J. Balutis
------------- --------------------------------------------
Date Thomas J. Balutis,
Vice President of Finance and Administration
Chief Financial Officer
(Principal Financial Officer)
August 7, 1998 /s/ Carole-Lynn S. Glass
------------- --------------------------------------------
Date Carole-Lynn S. Glass,
Corporate Controller and Director of Finance
(Principal Accounting Officer)
</TABLE>
23
<PAGE> 24
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1++ Certificate of Incorporation of the Registrant, as amended to date.
3.3++ Bylaws of the Registrant.
4.1++ Reference is made to Exhibits 3.1 and 3.3.
4.2++ Specimen Common Stock certificate.
4.3++ Investors' Rights Agreement, dated September 20, 1993 among the
Registrant and the investors and the founders named therein.
4.4* Registration Rights Agreement, dated December 31, 1997 among the
Registrant and ThermoSpectra Corporation.
10.1++ Form of Indemnification Agreement.
10.2++ Second Amended and Restated 1986 Stock Option Plan.
10.3++ 1997 Equity Incentive Plan.
10.4++ 1997 Employee Stock Purchase Plan.
10.5++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985A
($2,150,000) -- Loan Agreement.
10.6++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985B
($2,450,000) -- Loan Agreement.
10.7++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985A
($2,150,000) -- Trust Indenture Agreement.
10.8++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985B
($2,450,000) -- Trust Indenture Agreement.
10.9++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond -- Bond Purchase
Agreement.
10.10++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985A
($2,150,000) -- Reimbursement Agreement.
10.11++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985B
($2,450,000) -- Reimbursement Agreement.
10.12++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985A
($2,150,000) -- Letter of Credit.
10.13++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985B
($2,450,000) -- Letter of Credit.
10.14++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985A
($2,150,000) -- Intercreditor Agreement.
10.15++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985B
($2,450,000) -- Intercreditor Agreement.
10.16++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985A
($2,150,000) -- Pledge and Security Agreement.
10.17++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond Series 1985B
($2,450,000) -- Pledge and Security Agreement.
10.18++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond -- General Continuing
Guarantee.
10.19++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond -- Company Security
Agreement.
10.20++ Trinity River Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Bond -- Guaranty Security
Agreement.
10.21++ County of Delaware, Ohio Variable Rate Demand Industrial
Development Revenue Bonds ($4,900,000) -- Loan Agreement.
10.22++ County of Delaware, Ohio Variable Rate Demand Industrial
Development Revenue Bonds ($4,900,000) -- Trust Agreement.
10.23++ County of Delaware, Ohio Variable Rate Demand Industrial
Development Revenue Bonds ($4,900,000) -- Letter of Credit
Agreement.
10.24++ County of Delaware, Ohio Variable Rate Demand Industrial
Development Revenue Bonds ($4,900,000) -- General Continuing
Guaranty.
10.25++ County of Delaware, Ohio Variable Rate Demand Industrial
Development Revenue Bonds ($4,900,000) -- Pledge and Security
Agreement.
10.26++ County of Delaware, Ohio Variable Rate Demand Industrial
Development Revenue Bonds ($4,900,000) --
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
Bond Purchase Agreement.
10.27++ Mecklenburg County Industrial Facilities and Pollution Control
Financing Authority Industrial Development Revenue Bonds Series
1996 ($9,000,000) -- Indenture of Trust.
10.28++ Mecklenburg County Industrial Facilities and Pollution Control
Financing Authority Industrial Development Revenue Bonds Series
1996 ($9,000,000) -- Loan Agreement.
10.29++ Mecklenburg County Industrial Facilities and Pollution Control
Financing Authority Industrial Development Revenue Bonds Series
1996 ($9,000,000) -- Reimbursement Agreement.
10.30++ Mecklenburg County Industrial Facilities and Pollution Control
Financing Authority Industrial Development Revenue Bonds Series
1996 ($9,000,000) -- Letter of Credit Agreement.
10.31++ Mecklenburg County Industrial Facilities and Pollution Control
Financing Authority Industrial Development Revenue Bonds Series
1996 ($9,000,000) -- Pledge and Security Agreement.
10.33++ Development Authority of DeKalb County Variable Rate Demand
Industrial Development Revenue Bonds, Series 1985 ($5,250,000) --
Bond Purchase Agreement.
10.34++ Development Authority of DeKalb County Variable Rate Demand
Industrial Development Revenue Bonds, Series 1985 ($5,250,000) --
Loan Agreement.
10.35++ Development Authority of DeKalb County Variable Rate Demand
Industrial Development Revenue Bonds, Series 1985 ($5,250,000) --
Trust Indenture.
10.36++ Development Authority of DeKalb County Variable Rate Demand
Industrial Development Revenue Bonds, Series 1985 ($5,250,000) --
Letter of Credit Agreement.
10.37++ Development Authority of DeKalb County Variable Rate Demand
Industrial Development Revenue Bonds, Series 1985 ($5,250,000) --
Pledge and Security Agreement.
10.38++ Development Authority of DeKalb County Variable Rate Demand
Industrial Development Revenue Bonds, Series 1985 ($5,250,000) --
Letter of Credit.
10.39++ Development Authority of DeKalb County Variable Rate Demand
Industrial Development Revenue Bonds, Series 1985 ($5,250,000) --
Security Agreement.
10.40++ Development Authority of DeKalb County Variable Rate Demand
Industrial Development Revenue Bonds, Series 1985 ($5,250,000) --
Agreement Re: Letter of Credit and Assignment of Collateral.
10.41++ Village of Gurnee, Illinois Industrial Development Revenue Bonds,
Series 1996 ($7,750,000) -- Loan Agreement.
10.42++ Village of Gurnee, Illinois Industrial Development Revenue Bonds,
Series 1996 ($7,750,000) -- Indenture of Trust.
10.43++ Village of Gurnee, Illinois Industrial Development Revenue Bonds,
Series 1996 ($7,750,000) -- Reimbursement Agreement.
10.44++ Village of Gurnee, Illinois Industrial Development Revenue Bonds,
Series 1996 ($7,750,000) -- Letter of Credit.
10.45++ Village of Gurnee, Illinois Industrial Development Revenue Bonds,
Series 1996 ($7,750,000) -- Intercreditor Agreement.
10.46++ Village of Gurnee, Illinois Industrial Development Revenue Bonds,
Series 1996 ($7,750,000) -- Pledge and Security Agreement.
10.47++ Village of Gurnee, Illinois Industrial Development Revenue Bonds,
Series 1996 ($7,750,000) -- Placement and Remarketing Agreement.
10.48++ City of Salem Municipal Port Authority, Port Development Revenue
Bonds, Series of 1984 ($2,500,000) -- Bond Purchase Agreement.
10.50++ City of Salem Municipal Port Authority, Port Development Revenue
Bonds, Series of 1984 ($2,500,000) -- Letter of Credit Agreement.
10.51++ City of Salem Municipal Port Authority, Port Development Revenue
Bonds, Series of 1984 ($2,500,000) -- Pledge and Security
Agreement.
10.53++ City of Salem Municipal Port Authority, Port Development Revenue
Bonds, Series of 1984 ($2,500,000) -- Trust Indenture.
10.54++ City of Salem Municipal Port Authority, Port Development Revenue
Bonds, Series of 1984 ($2,500,000) -- Sublease and Security
Agreement.
10.55++ City of Salem Municipal Port Authority, Port Development Revenue
Bonds, Series of 1984 ($2,500,000) -- Irrevocable Letter of
Credit.
10.56++ Facility lease dated February 8, 1993 between SCI Lt. Partnership
and the Registrant for the Fremont corporate facility.
10.57++ Facility lease dated June 25, 1997 between Charles King &
Associates and the Registrant for the Tustin facility.
10.58++ Facility lease dated June 25, 1997 between Charles King &
Associates and the Registrant for the Schaumburg facility.
10.59++ Facility lease dated December 2, 1991 between Galloway Industrial
Properties and the Registrant for the
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C>
Westerville warehouse facility.
10.60++ Facility lease dated February 8, 1993 between Aetna Investment
Group and the Registrant for the Corona facility.
10.61++ Facility lease dated August 16, 1996 between SCI Ltd. Partnership
and the Registrant for the Hayward facility.
10.62++ Facility lease dated August 8, 1996 between RTI Inc. and the
Registrant for the Rockaway facility.
10.63++ Asset Acquisition Agreement between RTI Inc. and the Registrant
effective as of August 8, 1996.
10.64** Asset Acquisition Agreement between RSI Leasing, Inc.,
ThermoSpectra Corporation and the Registrant dated December 27,
1997.
10.65*** Facility lease dated June 4,1998 between Maurice M. Weill,
Trustee Under Trust Indenture Dated December 1, 1972 and the
Registrant for a building.
21.1++ Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
</TABLE>
- ----------
++ Incorporated by reference from the exhibit of the same number in the
Registrant's Registration Statement on Form S-1 (Registration No. 333-30047)
as filed with the SEC on June 24, 1997.
* Incorporated by reference from Exhibit 4.1 of the Registrant's SEC Filing on
Form 8-K as filed with the SEC on January 14, 1998.
** Incorporated by reference from Exhibit 2.1 of the Registrant's SEC filing on
Form 8-K as filed with the SEC on January 14, 1998.
*** Included with this filing.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended June 30, 1998.
26
<PAGE> 1
Exhibit 10.65
LEASE AGREEMENT
BY AND BETWEEN:
MAURICE M. WEILL, TRUSTEE UNDER
TRUST INDENTURE DATED DECEMBER 1, 1972,
"Landlord"
-and-
STERIGENICS, INC.,
a corporation,
"Tenant"
PREMISES: 210 CLYDE ROAD
LOT 4.01, BLOCK 86.01
FRANKLIN TOWNSHIP, NEW JERSEY
PREPARED BY: ROBERT K. BROWN, ESQ.
DATED: JUNE 4, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. LEASED PREMISES..................................................... 1
2. TERM OF LEASE....................................................... 2
3. RENT................................................................ 3
4. CONDITION OF LEASED PREMISES........................................ 4
5. USE................................................................. 6
6. REPAIRS AND MAINTENANCE............................................. 7
7. UTILITIES........................................................... 8
8. TAXES............................................................... 9
9. INSURANCE........................................................... 10
10. SIGNS............................................................... 13
11. FIXTURES............................................................ 13
12. GLASS............................................................... 14
13. ASSIGNMENT AND SUBLETTING........................................... 14
14. FIRE AND CASUALTY................................................... 15
15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS......................... 17
16. INSPECTION BY LANDLORD.............................................. 21
17. DEFAULT BY TENANT................................................... 21
18. LIABILITY OF TENANT FOR DEFICIENCY.................................. 24
19. NOTICES............................................................. 25
20. NON-WAIVER BY LANDLORD.............................................. 25
21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS................ 25
22. NON-LIABILITY OF LANDLORD........................................... 26
23. WARRANTY OF TITLE................................................... 27
24. RESERVATION OF EASEMENT............................................. 27
25. AIR, GROUND AND WATER POLLUTION..................................... 27
26. STATEMENT OF ACCEPTANCE............................................. 28
27. FORCE MAJEURE....................................................... 28
28. STATEMENTS BY LANDLORD AND TENANT................................... 28
29. CONDEMNATION........................................................ 29
30. QUIET ENJOYMENT..................................................... 30
31. SURRENDER OF LEASED PREMISES........................................ 30
32. INDEMNITY........................................................... 31
33. SHORT FORM LEASE.................................................... 32
34. LEASE CONSTRUCTION.................................................. 32
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
35. BIND AND INURE CLAUSE.............................................. 32
36. DEFINITIONS........................................................ 32
37. NET RENT........................................................... 32
38. DEFINITION OF TERM OF "LANDLORD"................................... 33
39. COVENANTS OF FURTHER ASSURANCES.................................... 33
40. LANDLORD'S REMEDIES................................................ 34
41. COVENANT AGAINST LIENS............................................. 35
42. BROKERAGE.......................................................... 35
43. SUBORDINATION OF LEASE............................................. 35
44. LIMIT OF LANDLORD'S LIABILITY...................................... 36
45. LOSS OF OPTION RIGHTS.............................................. 36
46. SECURITY........................................................... 37
47. SURVIVAL OF OBLIGATION............................................. 37
48. EXECUTION AND DELIVERY............................................. 37
49. OPTION TO RENEW.................................................... 38
</TABLE>
<PAGE> 4
THIS AGREEMENT, made the ____ day of ___________, 1998, by and between
MAURICE M. WEILL, TRUSTEE UNDER TRUST INDENTURE DATED DECEMBER 1, 1972, having
an office at 51 Commerce Street, Springfield, New Jersey 07081, hereinafter
called the "Landlord"; and STERIGENICS, INC., a _____________ corporation, about
to have an office at 210 Clyde Road, Franklin Township, New Jersey, hereinafter
called the "Tenant".
W I T N E S S E T H :
WHEREAS, the Landlord owns certain lands and premises in the Township of
Franklin, County of Somerset and State of New Jersey, which said lands and
premises are located at 210 Clyde Road, and are more particularly referred to
and described by metes and bounds on Schedule "A" annexed hereto and made a part
hereof (the "Property"); and
WHEREAS, the Landlord has erected an industrial-type building, containing
approximately 59,939 square feet (hereinafter called the "Building"), on the
Property (which Building and Property are hereinafter called the "Leased
Premises"), all in accordance with the terms and conditions hereinafter
mentioned and the considerations herein expressed,
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for the rents
reserved, the mutual considerations herein and the parties mutually intending to
be legally bound hereby, the Landlord does demise, lease and let unto the Tenant
and the Tenant does rent and take from the Landlord the Leased Premises as
described in Paragraph #1, and the Landlord and Tenant do hereby mutually
covenant and agree as follows:
1. LEASED PREMISES
The Leased Premises shall consist of the Building containing
approximately 59,939 square feet, based on outside dimensions, as said Building
is located on and together with the Property and all improvements thereon which
have been constructed by the Landlord for the use of the Tenant, and together
with all easements, improvements, tenements, appurtenances, hereditaments,
fixtures and rights and privileges appurtenant thereto.
<PAGE> 5
2. TERM OF LEASE
2.1 The Landlord leases unto the Tenant and the Tenant hires the
Leased Premises for the term of ten (10) years, to commence on or after
September 1, 1998, subject to the provisions of Article 2.2 hereof. The
Landlord shall give the Tenant no less than ten (10) business days' prior
written notice of the anticipated delivery date of the Leased Premises.
2.2 Subject to the terms and conditions of this lease, in the
event the Leased Premises are delivered to the Tenant in the manner provided in
Article 4 hereof after September 1, 1998, the lease term of ten (10) years
shall commence on the first day of the next succeeding month following delivery
of possession of the office area of the Leased Premises to the Tenant
(hereinafter called the "Commencement Date") and shall continue for a term of
ten (10) years thereafter. The Tenant shall, however, pay to the Landlord a sum
equal to the pro rata share of one (1) month's Base Rent for that portion of
the month between the date of delivery of the Leased Premises to the Tenant and
the Commencement Date. During any such period of partial monthly occupancy, if
any, all other terms and conditions of this lease shall be applicable to the
occupancy of the Leased Premises by the Tenant.
2.3 Notwithstanding anything hereinabove contained, in the event
the Landlord has not delivered the office area of the Leased Premises, with all
work to be performed therein by Landlord having been substantially completed, on
or before January 1, 1999, the Tenant shall have the right to terminate this
lease upon ten (10) days' prior written notice to the Landlord, subject to the
following:
(a) Tenant shall have obtained the approval of its use by
the Township of Franklin on or before May 31, 1998; for each day
beyond May 31, 1998 that passes until Tenant obtains such use
approval, the January 1, 1999 date set forth above shall be extended
by one (1) additional day. In the event, however, Tenant does not
receive such use approval on or before June 30, 1998, either
Landlord or Tenant may terminate this lease upon written notice to
the other party.
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(b) Tenant shall not have caused any delay in the work to be
performed by Landlord pursuant to Article 4 hereof.
(c) Landlord shall not be responsible to produce a
certificate of occupancy for the office space on or before the
Commencement Date hereunder, in the event the work to be performed
by Tenant is then still ongoing.
3. RENT
3.1 The Tenant covenants and agrees to pay the rent ("Base Rent")
as follows:
(a) During the first (1st) through fifth (5th) years of the
lease term, Tenant shall pay Base Rent in the amount of TWO HUNDRED EIGHTY FOUR
THOUSAND SEVEN HUNDRED TEN AND 25/100 ($284,710.25) DOLLARS per annum, payable
in equal installments in the sum of ($23,725.85) per month.
(b) During the sixth (6th) through tenth (10th) years of the
lease term, Tenant shall pay Base Rent in the amount of THREE HUNDRED TWENTY
THOUSAND SIX HUNDRED SEVENTY THREE AND 65/100 ($320,623.65) DOLLARS per annum,
payable in equal installments in the sum of TWENTY SIX THOUSAND SEVEN HUNDRED
TWENTY TWO AND 80/100 ($26,722.80) DOLLARS per month.
(c) The foregoing installments of Base Rent shall be paid
promptly, in advance, on the first day of each every month during the term of
this lease, without demand and without offset or deduction, together with such
additional rent and other charges required to be paid by Tenant as are
hereinafter set forth.
3.2 Any installment of Base Rent or additional rent (herein
collectively referred to as "Rent") accruing hereunder, and any other sum
payable hereunder by Tenant to Landlord which is not paid prior to the fifth
(5th) business day of any lease month, shall bear a late charge of ten (10%)
percent of such Base Rent or additional rent, to be paid therewith, and the
failure to pay such charge shall be a default. Such late charge shall be deemed
to be additional rent hereunder. It is expressly understood and agreed that the
foregoing late charge is not a penalty, but agreed upon compensation to the
Landlord for administrative costs incurred by
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Landlord in connection with any such late payment. The foregoing late charge
shall not be imposed in connection with the first episode of late payment
occurring during each twelve (12) month period of the lease term, provided that
the Rent in question is received by the Landlord on or before the tenth (10th)
day of the month in which it is due. In addition, any payment of Base Rent or
additional rent, which is not paid within thirty (30) days of the date upon
which it is due shall require the payment of interest at the rate of one and
one-half (1 1/2%) percent per month, calculated from the date that such payment
was due through the date that any such payment is actually made.
3.3 Receipt and acceptance by Landlord of any Base Rent,
additional rent and any other charge with knowledge of Tenant's default in any
covenant or condition of this lease shall not be deemed a waiver of such
default.
3.4 Simultaneously with the execution hereof, the Tenant has
delivered to the Landlord the first monthly installment of Base Rent payable
hereunder, together with the security deposit referred to herein.
4. CONDITION OF LEASED PREMISES
4.1 Anything herein contained to the contrary notwithstanding, it
is expressly understood and agreed that the Tenant shall take the Leased
Premises and improvements as of the Commencement Date of the within lease in an
"as is" condition, except for latent defects and any express representations or
warranties of Landlord which are set forth in this lease. In addition, prior to
delivery of the Leased Premises to the Tenant, the Landlord shall (a) install
leasehold improvements within the existing office area of the Leased Premises
in accordance with the plan which has been approved by Landlord and Tenant and
which is dated April 12, 1998, which improvements shall include building
standard carpeting, painting, the installation of new ceiling tiles and an
allowance of ONE THOUSAND AND 00/100 ($1,000.00) DOLLARS for the installation
or moving of electrical outlets, (b) deliver the
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warehouse area in a "broom clean" condition, (c) finish, as warehouse, the area
of the warehouse which had previously been office space, including raising the
sprinkler heads in said area and installing warehouse lighting, (d) perform
repairs to the masonry, roof, floor and other building components, as
necessary, (e) deliver the Leased Premises, including all mechanical systems,
in good working order and condition, (f) construct a 12' by 18' warehouse
manager's office with a vision panel, in an area to be mutually approved by
Landlord and Tenant, (g) install a 12' by 14' drive-in door in order to service
the warehouse area, (h) repair and repave the parking lot, as necessary, (i)
extend the demising wall surrounding the existing office area to the roof deck,
which extended demising wall shall be taped, spackled and painted, (j) replace
or resurface the counter top in the "break room", (k) deliver the bathrooms in
the office area in a good, clean and workable condition, with all bathroom
fixtures working and in condition reasonably acceptable to Tenant, (l) rebuild
the bathrooms in the warehouse area which are designated as Rooms 144 and 145
on and in accordance with the aforementioned plan, (m) finish off Rooms 141 and
142 as set forth on the plan as warehouse storage area, (n) install landscaping
as has been mutually approved in writing by Landlord and Tenant, and (o)
perform maintenance and repair of the Leased Premises in general conformance
with the report of KFA Engineering which is dated May 6, 1998. The Tenant shall
have thirty (30) days after delivery of the Leased Premises to inspect the
Leased Premises and to deliver to the Landlord a "punch list" of outstanding
repair items, which Landlord shall repair as soon as is reasonable possible
following the receipt by Landlord of such punch list.
4.2 It is understood and agreed that Tenant shall be installing a
"minicell" irradiation system within the warehouse area of the Leased Premises,
at Tenant's sole cost and expense. Tenant shall be responsible for the obtaining
of all permits and approvals necessary for the installation of said system and
shall
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install said system in accordance with all applicable laws, statutes, rules and
regulations of governmental entities having jurisdiction thereof. Tenant shall
indemnify, defend and save harmless the Landlord from and against any and all
claims or liabilities incurred in connection with the installation of said
"minicell" system within the Leased Premises. Upon expiration or earlier
termination of the lease, Tenant shall be responsible for the complete removal
of the "minicell" irradiation system and the repair and restoration of the
Leased Premises so that the same shall be redelivered to the Landlord in the
same condition in which the Leased Premises shall be delivered to the Tenant at
the commencement of this lease, reasonable wear and tear excepted.
5. USE
5.1 The Tenant covenants and agrees to use and occupy the Leased
Premises for offices, warehousing and the sterilization of medical and other
equipment and products only, which use by Tenant, however, is and shall be
expressly subject to all applicable zoning ordinances, rules and regulations of
any governmental boards or bureaus having jurisdiction thereof.
5.2 The Tenant shall be responsible, at its sole cost and expense,
to obtain all necessary permits and approvals which are required in connection
with the Tenant's specific use of the Leased Premises. Tenant expressly
covenants and agrees that it shall comply with the requirements of the New
Jersey Department of Environmental Protection, the United States Environmental
Protection Agency, the United States Nuclear Regulatory Commission and all
other governmental entities having jurisdiction over Tenant's use. Tenant shall
supply Landlord with supporting documentation evidencing Tenant's compliance
with all such requirements, upon written request of the Landlord.
5.3 Notwithstanding anything to the contrary herein contained,
Landlord agrees that it shall be responsible for compliance with all applicable
building codes and with the Americans with Disabilities Act (the "ADA") as the
same shall apply
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generally to the Building as an office/warehouse type building; Tenant,
however, shall be responsible for any required compliance with the ADA which is
necessary due to the specific use of the Leased Premises by the Tenant.
6. REPAIRS AND MAINTENANCE
6.1 The Landlord shall, with due diligence, at its own cost and
expense, make all repairs to the exterior bearing walls and foundation of the
Building, and Landlord shall be responsible for any required replacement of the
roof of the Building, provided that any damage to the foregoing is not caused
by the negligence of the Tenant, its servants, employees, agents or invitees,
in which case such damage shall be repaired by the Landlord at the Tenant's
sole cost and expense. Notwithstanding the above, Tenant shall be responsible
for the maintenance and repair of the roof of the Building, and for the
maintenance, repair and replacement, as necessary, of the roof leaders, drains,
metal gravel stops and flashings, all at Tenant's sole cost and expense.
6.2 The Tenant shall, except as provided in Article 6.1 above, take
good care of the Leased Premises and, at its cost and expense, maintain, repair
and replace, as necessary, the interior and exterior of the Building,
including, but not limited to the floor, loading dock, windows and doors, the
air-conditioning and heating plant, the plumbing, pipes and fixtures belonging
thereto; and shall replace all mechanical systems and working parts used in
connection with the air-conditioning, electrical, heating and plumbing plants,
fixtures and systems, including ballasts and fluorescent fixtures; and shall
keep the water and sewer pipes and connections free from ice and other
obstructions, and shall generally maintain and repair the interior and exterior
of the Building and shall, at the end of the expiration of the term, deliver up
the Leased Premises in good order and condition, damages by the elements,
ordinary wear and tear expected. Tenant shall enter into a maintenance contract
in connection with the maintenance and repair of all mechanical systems serving
the
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Building. Said contract shall be with a reputable, recognized contractor who is
reasonably acceptable to Landlord, and said contract shall provide for
inspection and service every three (3) months during the term of this lease.
Tenant shall promptly forward a copy of such contract, and all inspection
reports thereafter received by Tenant, promptly upon Tenant receipt of same.
Notwithstanding the above, Landlord hereby agrees that it shall be responsible
for the first required replacement of each of the HVAC units serving the office
area of the Leased Premises. In addition, Landlord shall guarantee the
operation of the warehouse heating units for a period of one (1) year following
the Commencement Date hereunder. The Tenant covenants and agrees that it shall
not cause or permit any waste (other than reasonable wear and tear), damage or
disfigurement to the Leased Premises, or any overloading of the floors of the
Building.
6.3 The Tenant shall maintain, repair and replace, as necessary,
the lawns, shrubbery, driveways and parking areas of the entire Property
described on Schedule "A", at Tenant's sole cost and expense. Tenant shall
enter into a maintenance and service contract with a landscaper who is
reasonably acceptable to the Landlord, providing for the services set forth on
Schedule "C" annexed hereto. In addition, the Tenant shall keep the walks and
parking area adjacent to the Building free and clear of ice, snow and debris.
At Tenant's request, Landlord will provide any of the foregoing services to the
Tenant, at Tenant's sole cost and expense, together with an additional ten
(10%) percent of any such cost for Landlord's overhead and profit. Any such
work will be billed to Tenant on a monthly basis, it being understood that
Tenant shall reimburse Landlord for the cost of such services, as additional
rent, within fifteen (15) days following receipt by Tenant of Landlord's
invoice therefor.
7. UTILITIES
The Tenant shall, at its own cost and expense, pay all
utility meter and service charges applicable to the Leased
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Premises, including gas, sewer, electric, water and pro rata standby sprinkler
charges, if any, janitorial and garbage disposal service.
8. TAXES
8.1 The Tenant shall, during the term of the lease, promptly pay
monthly, as additional tent, together with the Base Rent to be paid pursuant to
Article 3, one-twelfth (1/12th) of all real estate and personal property taxes
assessed against the Leased Premises for land, Building and improvements,
including such added assessment or omitted assessment which may be levied
against the Leased Premises for the year 1998, et seq., by the applicable
governmental taxing authority, said obligation to be prorated as of the
Commencement Date and as of the date of expiration hereunder as applicable. In
addition to the obligation to pay all real estate taxes as hereinabove set
forth, the Tenant shall, during the term of this lease, pay at its cost and
expense the full cost of any levy for the installation of local improvements
affecting the Leased Premises as may be assessed by any governmental boards or
bureaus having jurisdiction thereof. Any assessment or impositions for capital
or public improvements which may be payable by law at the option of the taxpayer
in installments, may be so paid by the Tenant in installments, together with any
required interest. The real estate tax obligation of the Tenant hereinabove set
forth shall include any tax or imposition which may be levied by any
governmental authority, agency or subdivision thereof having jurisdiction
applicable to parking lot usage. The Landlord shall furnish to Tenant annually
during the month of July a copy of the annual real estate tax bill. In the event
of any change in tax rate which shall require an adjustment of increase or
decrease in Tenant's annual tax obligation, such difference shall be adjusted by
Landlord and Tenant annually during the month of August of each lease year, or
as soon thereafter as is reasonably practicable.
8.2 If at any time during the term of this lease the method of scope
of taxation prevailing at the commencement of
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the lease term shall be altered, modified or enlarged so as to cause the method
of taxation to be changed, in whole or in part, so that in substitution for the
real estate taxes now assessed there may be, in whole or in part, a capital
levy or other imposition based on the value of the Building and the Property,
or the rents received therefrom, or some other form of assessment based in
whole or in part on some other valuation of the Landlord's real property
comprising the Leased Premises, then and in such event, such substituted tax or
imposition shall be payable and discharged by the Tenant in the manner required
pursuant to such law promulgated which shall authorize such change in the scope
of taxation, and as required by the terms and conditions of the within lease.
8.3 Nothing in this lease contained shall require the Tenant to pay
any franchise, estate, inheritance, succession, capital levy or transfer tax of
the Landlord, or Federal Income Tax, State Income Tax, or excess profits or
revenue tax, unless such taxes are in substitution for real property taxes as a
result of such change in the manner and scope of taxation as hereinbefore
provided in Article 8.2.
8.4 The Tenant shall have the right, during the term of this lease,
to contest any assessment of real estate taxes affecting the Building and
Property, the Landlord hereby agrees that it shall cooperate with Tenant in
connection with any such contest. The Tenant shall be entitled to any refund or
rebate of real estate taxes in connection with any such tax appeal, after
deducting the cost and expense of effectuating any such refund or rebate,
provided the Tenant shall have paid any portion of the taxes being refunded or
rebated.
9. INSURANCE
9.1 The Tenant shall obtain for the benefit of the
Landlord, wherein the Landlord shall be the named insured, fire insurance with
full extended coverage, including flood insurance if required by Landlord,
insuring the Property, in an amount and value equivalent to the full
replacement value of all of the insurable
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improvements on the Property, with a deductible not to exceed the sum of TEN
THOUSAND AND 00/100 ($10,000.00) DOLLARS (which deductible amount shall be
self-insured by the Tenant) which policy of insurance shall include broad form
boiler and machinery coverage (inclusive of air-conditioning system, if any),
together with insurance coverage against sprinkler damage to the Building and
its improvements. Said insurance, in any event, shall not be less than the
amount of any first mortgage which may be placed on the Property by the
Landlord and shall be in such form as any such bona fide mortgagee may
reasonably require. The insurance shall be written by a good and solvent
insurance company which is licensed to do business in the State of New Jersey
and which is reasonably satisfactory to the Landlord. The Landlord shall have
the right from time to time to determine the full replacement value as may be
required to comply with full replacement insurance requirements. The insurance
to be obtained by Tenant shall include casualty rent insurance payable to and
insuring the interest of the Landlord as to the value of the rental obligation
hereunder to the extent of one (1) year's gross rental value, (inclusive of
real estate taxes and applicable insurance premiums). The Tenant shall have the
right to request that Landlord carry the above insurance, at Tenant's sole cost
and expense, provided that coverage of the Property shall no otherwise
adversely affect the Landlord blanket fire and casualty insurance policy.
9.2 The Tenant covenants and agrees that it will, at its sole cost
and expense, carry liability insurance covering the Leased Premises in the
minimum amount of FIVE MILLION ($5,000,000.00) DOLLARS. Said policy shall be a
single limit policy. The Tenant further covenants and agrees that it will add
as a party insured by such policy the interest of the Landlord and will furnish
Landlord with a certificate of said liability insurance prior to the
commencement of the term of this lease. The Tenant agrees that such insurance
coverage will be maintained in full force and effect during the term of the
lease.
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9.3 Tenant hereby agrees to reimburse Landlord for Tenant's pro
rata share of the cost of excess liability coverage in the amount of up to
SIXTY MILLION ($60,000,000.00) DOLLARS, pursuant to an "umbrella policy" to be
obtained by Landlord, with respect to any premium or portion thereof applicable
solely to the Leased Premises. The Tenant's obligation pursuant to this Article
9.3 shall not exceed the sum of THREE THOUSAND AND 00/100 ($3,000.00) DOLLARS
per annum during the first five (5) years of the lease term, or SIX THOUSAND AND
00/100 ($6,000.00) DOLLARS per annum during the last five (5) years of the
original term of this lease.
9.4 The Landlord and Tenant mutually waive all right of recovery
against each other, their agents, servants or employees, for any loss, damage
or injury of any nature whatsoever to property or person for which either party
is insured. Each party shall obtain from its insurance carrier waivers of
subrogation rights under their respective policies which shall be included
within the terms of the policies and will furnish evidence of such waiver upon
request.
9.5 It is expressly understood and agreed that, in the event the
net worth of the Tenant shall decrease below FIFTY MILLION AND 00/100
($50,000,000.00) DOLLARS at any time during the term of this lease, Tenant
shall provide to Landlord pollution liability insurance (including rent
insurance) with limits of no less than the greater of (a) the amount of any
first mortgage affecting the Property (but not to exceed $3,000,000.00) or (b)
the amount of $1,000,000.00, which insurance shall be in such form and written
by such company as shall be reasonably acceptable to Landlord, and which shall
thereafter be carried for the balance of the lease term. In the event Tenant
fails to provide such policy, Landlord shall have the right to obtain a
pollution liability policy with limits as above set forth and to charge the
premiums for such insurance to Tenant, as additional rent. Tenant shall
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forward evidence of its net worth to Landlord on an annual basis, on or before
June 30th of each lease year.
10. SIGNS
The Tenant shall have the right and privilege of erecting on and at
the Leased Premises only such signs as are required by Tenant for the purpose of
identifying the Tenant, subject to the prior written approval thereof by
Landlord, which approval shall not be unreasonably withheld. The said signs
shall comply with the applicable rules and regulations of the applicable
governmental boards and bureaus having jurisdiction thereof. The erection of
such signs shall not cause any structural damage to the Building. It is
expressly understood and agreed that the Tenant shall not erect roof signs.
11. FIXTURES
11.1 The Tenant is given the right and privilege of installing and
removing property, equipment and fixtures in the Building during the term of
the lease. However, if the Tenant is in default and moves out, or is
dispossessed, and fails to remove any property, equipment and fixtures or
other property prior to any such dispossess or removal, then and in that event,
the said property, equipment and fixtures or other property shall be deemed at
the option of the Landlord to be abandoned; or in lieu thereof, at the
Landlord's option, the Landlord may remove such property and charge the
reasonable cost and expense of removal, storage and disposal to the Tenant.
11.2 Anything to the contrary contained herein notwithstanding, it is
expressly understood and agreed that the Tenant may install, connect and
operate equipment as may be deemed necessary by the Tenant for its business,
subject to compliance with applicable rules and regulations of governmental
boards and bureaus having jurisdiction thereof. Subject to the terms and
conditions of this lease, the machinery, fixtures and equipment belonging to
the Tenant shall at all times be considered and intended to be personal property
of the Tenant, and not part of the
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realty, and subject to removal by the Tenant, provided at the time of such
removal, that the Tenant is not in default pursuant to the terms and conditions
of this lease, and that the Tenant, at its own cost and expense, pays for any
damage to the Leased Premises caused by such removal.
12. GLASS
The Tenant expressly covenants and agrees to replace any broken glass
in the windows or other apertures of the Building which may become damaged or
destroyed at Tenant's cost and expense.
13. ASSIGNMENT AND SUBLETTING
13.1 The Tenant may not assign this lease or sublet the Leased
Premises, or any part thereof, unless it shall first advise the Landlord in
writing, by certified mail, return receipt requested, of its intention to assign
or sublease. In such event, the Landlord shall have thirty (30) days from
receipt of such notice to (a) elect to recapture the Leased Premises and
terminate the within lease [in the event of any proposed assignment of the lease
or the subletting of more than fifty (50%) percent of the Building] or (b) to
consent to the assignment of the lease or the sublease of the Leased Premises,
which consent shall not be unreasonably withheld, providing the proposed
assignee or subtenant is financially responsible, and shall assume in writing
the terms and conditions of the within lease on the part of the Tenant to be
performed. In connection with any permitted assignment or subletting, the Tenant
shall pay to the Landlord one half of any increment in Rent, or other
consideration received by Tenant in lieu thereof, per square foot per annum over
the annual Base Rent then in effect.
13.2 The Landlord's consent shall not be required and the terms and
conditions of Article 13.1 shall not apply as to Landlord's right of first
refusal to recapture if the Tenant assigns or subleases the Leased Premises to
a parent, subsidiary, affiliate or a company into which Tenant is merged or
with which
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Tenant is consolidated, or to the purchaser of all or substantially all of the
assets of Tenant.
13.3 In the event of any assignment or subletting permitted by the
Landlord, the Tenant shall remain and be directly and primarily responsible for
payment and performance of the within lease obligations, and the Landlord
reserves the right, at all times, to require and demand that the Tenant pay and
perform the terms and conditions of this lease. No such assignment or
subletting shall be made to any Tenant who shall occupy the Leased Premises for
any use other than that which is permitted to the Tenant, for any use which
would trigger the applicability of ISRA, as hereinafter defined, or for any use
which may be reasonably deemed by the Landlord to be extra hazardous, or which
would in any way violate applicable laws, ordinances or rules and regulations
of governmental boards and bodies having jurisdiction.
14. FIRE AND CASUALTY
14.1 In case of any damage to or destruction of the Building by fire
or other casualty occurring during the term of this lease which is not covered
by the insurance required to be carried by Article 9.1, or in the case of
damage to or destruction of the Building which cannot be repaired within one
hundred eighty (180) days from the happening of such casualty, then, in such
event, the term hereby created shall, at the option of either party, upon
written notice to the other by certified mail, return receipt requested, within
thirty (30) days of such fire or casualty, cease and become null and void from
the date of such destruction or damage. However, if neither party shall elect
to cancel this lease within the thirty (30) day period hereinabove provided,
the Landlord shall thereupon repair and restore the Building with reasonable
speed and dispatch, and the Rent shall not be accrued after said damage or
while the repairs and restorations are being made, but shall recommence
immediately after said Building is restored. Landlord, in any event, shall
advise Tenant in writing as to whether or not the Building can be restored
within
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the one hundred eighty (180) day period from the date of such casualty. Anything
in this Article 14 to the contrary notwithstanding, it is expressly understood
and agreed that the Landlord shall be obligated to restore the Building only to
the extent of such cost as will be equivalent to the proceeds (including any
permitted deductible) received by Landlord pursuant to the fire insurance
coverage to be provided to Landlord as in Article 9 provided. If the insurance
proceeds are not sufficient to restore the Building to substantially the same
condition which they were in prior to the casualty, then the Landlord shall
have a period of thirty (30) days within which to determine whether to
terminate the term hereby created unless the Landlord and Tenant shall mutually
agree to the funding of any such excess construction costs. In the event of
cancellation in accordance with this Article, the Tenant shall immediately
surrender the Leased Premises and the Tenant's interest in said lease to the
Landlord, and the Tenant shall only pay Rent to the time of such destruction or
damage, in which event, the Landlord may re-enter and repossess the Leased
Premises thus discharged from this lease and may remove all parties therefrom.
14.2 In the event of any other insured casualty, which shall be
repairable within one hundred eighty (180) days from the happening of such
damage or casualty, the Landlord shall repair and restore the Building with
reasonable speed and dispatch, and the Rent shall abate and be equitably
apportioned as the case may be as to any portion of the Building which shall be
unfit for occupancy by the Tenant, or which cannot be used by the Tenant so as
to conduct its business. The Rent, however, shall accrue and recommence
immediately upon restoration of the Building.
14.3 Nothing hereinabove contained with respect to the Tenant's right
to abate Rent under proper conditions shall be construed to limit or affect the
Landlord's right to payment under any claim for damages covered by the rent
insurance policy pursuant
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to the contract therefor required to be provided pursuant to Article 9 of this
lease.
14.4 For the purposes of this Article 14, in determining what
constitutes reasonable speed and dispatch, consideration shall be given for
delays which would be excuses for non-performance as in Article 27 hereinafter
provided (Force Majeure).
14.5 In the event of such fire or casualty as above provided, wherein
the Landlord shall rebuild, the Tenant agrees, at its cost and expense, to
forthwith remove any and all of its equipment, fixtures, stock and personal
property as the same may be required to permit Landlord to expedite rebuilding
and/or repair. In any event, the Tenant shall assume at its sole risk the
responsibility for damage or security with respect to such fixtures and
equipment in the event the Building area where the same may be located has been
damaged, until the Building shall be restored and made secure.
14.6 Anything in this Article 14 to the contrary notwithstanding, it
is expressly understood and agreed that wherever reconstruction shall be
undertaken, in the event of damage or casualty as in this Article 14 provided,
the Landlord shall prosecute such reconstruction with reasonable speed and
dispatch. In the event, however, such reconstruction or repair shall not be
completed within seven (7) months from the date of such damage or casualty,
then, in the event, the Tenant shall have the option at the expiration of the
seven (7) month period to terminate the lease by notice in writing by Tenant to
Landlord by certified mail, return receipt requested. In the event of such
termination, neither party shall thereafter have any further liability, one to
the other, in accordance with the terms and conditions of the lease.
15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
15.1 (i) The Tenant covenants and agrees that upon acceptance and
occupancy of the Leased Premises, it will, during
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the lease term, promptly, at Tenant's cost and expense, execute and comply with
all statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State and City Government and of any and all their departments and
bureaus, applicable to the Leased Premises, as the same may require correction,
prevention and abatement or nuisances, violations or other grievances, in, upon
or connected with the Leased Premises, arising from the operations of the
Tenant therein.
(ii) The Tenant covenants and agrees, at its own cost and
expense, to comply with such regulations or requests as may be required by the
fire or liability insurance carriers providing insurance for the Leased
Premises regarding the Tenant's use of the Leased Premises, and will further
comply with such other requirements that may be promulgated by the Board of
Fire Underwriters, in connection with the use and occupancy by the Tenant of
the Leased Premises in the conduct of its business.
(iii) The Tenant covenants and agrees that it will not commit
any nuisance, nor permit the emission of any objectionable sound, noise, or
odors which would be violative of any applicable governmental rule or
regulation or would per se create a nuisance. The Tenant further covenants and
agrees that it will handle and dispose of all rubbish, garbage and waste in
connection with the Tenant's operations in the Leased Premises in accordance
with reasonable regulations established by the Landlord from time to time in
order to keep the Leased Premises in an orderly condition and in order to avoid
unreasonable emission of dirt, fumes, odors or debris which may constitute a
nuisance or induce pests or vermin.
15.2 In case the Tenant shall fail or neglect to comply with the
aforesaid statutes, ordinances, rules, orders, regulations and requirements or
any of them, or in case the Tenant shall neglect or fail to make any necessary
repairs, then the Landlord or the Landlord's agents may after thirty (30) days'
notice (except for emergency repairs, which may be made
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immediately) enter said Leased Premises and make said repairs and comply with
any and all of the said statutes, ordinances, rules, orders, regulations or
requirements, at the cost and expense of the Tenant and in case of the Tenant's
failure to pay therefor, the said cost and expense shall be added to the next
month's Rent and be due and payable as such, or the Landlord may deduct the
same from the balance of any sum remaining in the Landlord's hands. This
provision is in addition to the right of the Landlord to terminate this lease
by reason of any default on the part of the Tenant, subject to the rights of
the Tenant as hereinabove mentioned in the manner as in this lease otherwise
provided.
15.3 Without limiting anything hereinabove contained in this
Article 15, Tenant expressly covenants and agrees to fully comply with the
provisions of the New Jersey Industrial Site Recovery Act (N.J.S.A. 13:1K-6, et
seq.), or any successor statute, hereinafter referred to as "ISRA", and all
regulations promulgated thereto (or under the New Jersey Environmental Clean-Up
Responsibility Act, the predecessor statute of ISRA, as applicable) prior to the
expiration or earlier termination of the within lease, or at any time that any
action of the Tenant triggers the applicability of ISRA. In particular, the
Tenant agrees that it shall comply with the provisions of ISRA in the event of
any "closing, terminating or transferring" of Tenant's operations, as defined by
and in accordance with the regulations which have been promulgated pursuant to
ISRA. In the event evidence of such compliance is not delivered to the Landlord
prior to surrender of the Leased Premises by the Tenant to the Landlord, it is
understood and agreed that the Tenant shall be liable to pay to the Landlord an
amount equal to one and one-half (1 1/2) times the Base Rent then in effect,
prorated on a monthly basis, together with all applicable additional rent from
the date of such surrender until such time as evidence of compliance with ISRA
has been delivered to the Landlord, and together with any costs and expenses
incurred by Landlord in enforcing Tenant's obligations under this Article 15.3.
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Evidence of compliance, as used herein, shall mean a "letter of
non-applicability" issued by the New Jersey Department of Environmental
Protection, hereinafter referred to as "NJDEP", or an approved "negative
declaration", "no further action letter" or a "remediation work plan" which has
been fully implemented and approved by NJDEP. Evidence of compliance shall be
delivered to the Landlord, together with copies of all submissions made to, and
received from, the NJDEP, including all environmental reports, test results and
other supporting documentation. In addition to the above, Tenant hereby agrees
that it shall cooperate with Landlord in the event of the termination or
expiration of any other lease affecting the Property, or a transfer of any
portion of the property indicated on Schedule "A", or any interest therein,
which triggers the provisions of ISRA. In such case, Tenant agrees that it
shall fully cooperate with the Landlord in connection with any information or
documentation which may be requested by the NJDEP. In the event that any
remediation of the Property is required in connection with, and to the extent
caused by, the conduct by Tenant of its business at the Leased Premises, Tenant
expressly covenants and agrees that it shall be responsible for that portion of
said remediation which is attributable to the Tenant's use and occupancy
thereof. Tenant hereby represents and warrants that its Standard Industrial
Classification No. is 7389, and that Tenant shall not generate, manufacture,
refine, transport, treat, store, handle or dispose of "hazardous substances" as
the same are defined under ISRA and the regulations promulgated pursuant
thereto. Tenant hereby agrees that it shall promptly inform Landlord of any
change in its SIC number of the nature of the business to be conducted in the
Leased Premises. Notwithstanding anything to the contrary herein contained, it
is understood and agreed that Landlord shall indemnify, defend and save
harmless the Tenant from and against any and all claims or liabilities incurred
in connection with the environmental condition of the Leased Premises existing
as of the
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Commencement Date hereunder. The within covenants shall survive the expiration
or earlier termination of the lease term.
16. INSPECTION BY LANDLORD
The Tenant agrees that the said Landlord's agents, and other
representatives, shall have the right, during normal business hours, upon prior
written or telephonic notice to enter into and upon the Leased Premises, or any
part thereof, at all reasonable hours for the purpose of examining the same, or
for exhibiting the same to prospective tenants and purchasers in the presence
of a representative of Tenant or making such repairs or alterations therein as
may be necessary for the safety and preservation thereof, without unduly or
unreasonably disturbing the operations of the Tenant (except in the event of
emergency).
17. DEFAULT BY TENANT
17.1 Each of the following shall be deemed a default by
Tenant and breach of this lease:
(1) (i) filing of a petition by the Tenant for
adjudication as a bankrupt, or for reorganization, or for an arrangement under
any federal or state statute;
(ii) dissolution or liquidation of the Tenant;
(iii) appointment of a permanent receiver or a
permanent trustee of all or substantially all the property of the Tenant, which
receiver or trustee is not removed within thirty (30) days of his or her
appointment;
(iv) taking possession of the property of the
Tenant by a governmental officer or agency pursuant to statutory authority for
dissolution, rehabilitation, reorganization or liquidation of the Tenant which
action is not removed or stayed within thirty (30) days following such taking
of possession;
(v) making by the Tenant of an assignment for the
benefit of creditors; or
(vi) abandonment, desertion or vacation of the
Leased Premises by Tenant.
If any event mentioned in this subdivision (1) shall occur,
Landlord may thereupon or at any time thereafter elect to cancel this lease by
ten (10) days' notice to the Tenant, and this lease shall terminate on the day
in such notice specified with the same force and effect as if that date were
the date herein fixed for the expiration of the term of the lease.
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(2) (i) Default in the payment of the Base Rent or
additional rent herein reserved or any part thereof for a period of seven (7)
days after the same is due and payable as in this lease required.
(ii) a default in the performance of any other
covenant or condition of this lease on the part of the Tenant to be performed
for a period of thirty (30) days after notice. For purposes of this subdivision
(2)(ii) hereof, no default on the part of Tenant in performance of work
required to be performed or acts to be done or conditions to be modified shall
be deemed to exist if steps shall have been commenced by Tenant diligently
after notice to rectify the same and shall be prosecuted to completion with
reasonable diligence, subject, however, to unavoidable delays.
17.2 In case of any such default under Article 17.1(2) and
at any time thereafter following the expiration of the respective grace periods
above mentioned, or in the event that Tenant is consistently late in the
punctual payment of Base Rent and/or additional rent required to be paid under
this lease as shall be evidenced by notices delivered to Tenant of late
payments made during any period of four (4) months during any twelve (12) month
period measured from the date of the first late payment, Landlord may, at its
option, terminate this lease by serving a notice upon the Tenant electing to
terminate this lease upon a specified date not less than seven (7) days after
the date of serving such notice and this lease shall then expire on the date so
specified as if that date has been originally fixed as the expiration date of
the term herein granted; however, a default under Article 17.1(2) hereof shall
be deemed waived if such default is made good before the date specified for
termination in the notice of termination served on Tenant.
17.3 In case this lease shall be terminated as hereinbefore
provided, or by summary proceedings or otherwise, Landlord or its agents may,
immediately or any time thereafter, re-enter and resume possession of the
Leased Premises or such part thereof, and remove all persons and property
therefrom, either by summary proceedings or by a suitable action or proceeding
at law without being liable for any damages, provided any entry pursuant to the
foregoing shall be in accordance with law. No re-entry by Landlord shall be
deemed an acceptance of a surrender of this lease.
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17.4 In case this lease shall be terminated as hereinafter
provided, or by summary proceedings or otherwise, Landlord may, in its own name
and in its own behalf, relet the whole or any portion of the Leased Premises,
for any period equal to or greater or less than the remainder of the then
current term, for any sum which is commercially reasonable, to any tenant which
it may reasonably deem suitable and satisfactory, and for any use and purpose
which it may reasonably deem appropriate, and in connection with any such lease
Landlord may make such changes in the character of the improvements on the
Leased Premises as Landlord may determine to be appropriate or helpful in
effecting such lease, and Landlord may grant concessions or free rent. Landlord
agrees that it will take reasonable steps to mitigate Tenant's damages. It is
specifically understood and agreed that Landlord, by listing the Leased Premises
for lease with a recognized real estate broker doing business in the Somerset
County, New Jersey area, shall be conclusively deemed to have utilized
reasonable efforts to mitigate Tenant's damages. Landlord shall not in any
event be required to pay Tenant any surplus of any sums received by Landlord on
a reletting of the Leased Premises in excess of the rent reserved in this Lease.
17.5 (1) In case this lease be terminated by summary
proceedings, or otherwise, as provided in this Article 17, and whether or not
the Leased Premises be relet, Landlord shall be entitled to recover from the
Tenant, the following:
(i) A sum equal to all expenses, if any, including
reasonable counsel fees, incurred by Landlord in recovering possession of the
Leased Premises, and all reasonable costs and charges for the care of said
Leased Premises while vacant, which damages shall be due and payable by Tenant
to Landlord at such time or times as such expenses shall have been incurred by
Landlord; and
(ii) A sum qual to all damages set forth in this
Article 17 and in Article 18 hereinafter referred to.
(2) Without any previous notice or demand, separate actions
may be maintained by Landlord against Tenant from time to time to recover any
damages which, at the commencement of any such action, have then or theretofore
become due and payable to
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the Landlord under this Article 17 and subsections hereof without waiting until
the end of the then current term.
(3) All sums which Tenant has agreed to pay by way of
taxes, sewer charges, water rents or water meter charges, insurance premiums
and other similar items becoming due from time to time under the terms of this
lease, shall be deemed additional rent reserved in this lease within the
meaning of this Article 17 and subsections hereof. Notwithstanding anything in
this lease to the contrary, all amounts payable by Tenant to or on behalf of
Landlord under this lease, whether or not expressly denominated as rent, shall
constitute rent for the purposes of section 502(b)(6) of the Bankruptcy Code,
11 U.S.C. Section 502(b)(6), or any successor statute.
18. LIABILITY OF TENANT FOR DEFICIENCY
----------------------------------
In the event that the relation of the Landlord and Tenant may
cease or terminate by reason of the default by the Tenant and the re-entry of
the Landlord as permitted by the terms and conditions contained in this lease
or by the ejectment of the Tenant by summary proceedings or other judicial
proceedings, or after the abandonment of the Leased Premises by the Tenant, it
is hereby agreed that the Tenant shall remain liable to pay in monthly payments
the Rent which shall accrue subsequent to the re-entry by the Landlord, and the
Tenant expressly agrees to pay as damages for the breach of the covenants
herein contained the difference between the Rent reserved and the Rent
collected and received, if any, by the Landlord, during the remainder of the
unexpired term, as the amount of such difference or deficiency shall from time
to time be ascertained. Anything herein contained to the contrary
notwithstanding, the Rent referred to shall include the stated reserved Base
Rent together with all additional rent and charges required to be paid by the
Tenant under the lease including but not limited to taxes and insurance costs,
and the costs of re-renting.
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19. NOTICES
-------
All notices required or permitted to be given to the Landlord
shall be given by certified mail, return receipt requested, at the address
hereinbefore set forth on the first page of this lease, and/or such other place
as the Landlord may designate in writing.
All notices required or permitted to be given to the Tenant
shall be given by certified mail, return receipt requested, at the address
hereinbefore set forth on the first page of this lease, and/or such other place
as the Tenant shall designate in writing.
20. NON-WAIVER BY LANDLORD
----------------------
The failure of the Landlord to insist upon strict performance
of any of the covenants or conditions of this lease, or to exercise any option
of the Landlord herein conferred in any one or more instances, shall not be
construed as a waiver by the Landlord of any of its rights or remedies in this
lease, and shall not be construed as a waiver, relinquishment or failure of any
such covenants, conditions, or options, but the same shall be and remain in
full force and effect.
21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS
----------------------------------------------------
21.1 The Tenant may make alterations, additions or
improvements to the Building only with the prior written consent of the
Landlord, which consent shall not be unreasonably withheld, provided such
alterations, additions or improvements do not require structural changes in the
Building, or do not lessen the value of the Leased Premises or the Building.
Any consent which Landlord may given shall be conditioned upon Tenant
furnishing to Landlord, detailed plans and specifications with respect to any
such changes, to be approved by Landlord in writing. As a condition of such
consent, Landlord reserves the right to require Tenant to remove, at Tenant's
sole cost and expense, any such alterations or additions prior to the
expiration of the lease term, which election shall be made by Landlord at the
time it gives its consent to any
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such alteration or addition. If Landlord does not require such removal, any
such alterations or additions shall be deemed to be part of the realty upon
installation, provided that Tenant, at its option, shall have the right to
remove the same, provided it shall be responsible to repair any damage to the
Leased Premises or the Building occasioned by such removal, provided such
removal is made prior to the expiration of the lease term. All such
alterations, additions or improvements shall be only in conformity with
applicable governmental and insurance company requirements and regulations
applicable to the Leased Premises. Tenant shall hold and save Landlord harmless
and indemnify Landlord against any claim for damage or injury in connection
with any of the foregoing work which Tenant may make as hereinabove provided.
21.2 Nothing herein contained shall be construed as a consent on the
part of the Landlord to subject the estate of the Landlord to liability under
the Construction Lien Law of the State of New Jersey, it being expressly
understood that the Landlord's estate shall not be subject to such liability.
21.3 It is expressly understood and agreed that in the event
alterations or improvements required by Tenant are performed by Landlord's
designated contractor, Tenant shall make payments to said contractor strictly
in accordance with the agreement entered into between said parties. Default in
payment by Tenant under said construction contract shall be deemed to be a
default under this lease for which Landlord shall have the right of termination
as hereinbefore set forth in Article 17.
22. NON-LIABILITY OF LANDLORD
22.1 It is expressly understood and agreed by and between the parties
to this agreement that the Tenant shall assume all risk of damage to its
property, equipment and fixtures occurring in or about the Leased Premises,
whatever the cause of such damage or casualty.
22.2 It is expressly understood and agreed that in any event, the
Landlord shall not be liable for any damage or
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injury to property or person caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of the
Building, or from any damage or injury resulting or arising from any other
cause or happening whatsoever, except to the extent of Landlord's negligence or
willful misconduct.
23. WARRANTY OF TITLE
Landlord represents that it has title to the lands and Leased
Premises which are the subject of this lease and that it has the full right,
capacity and authority to enter into the within lease agreement.
24. RESERVATION OF EASEMENT
The Landlord reserves the right, easement and privilege to
enter on the Leased Premises in order to install, at its own cost and expense,
any storm drains and sewers and/or utility lines in connection therewith as
may be required by the Landlord. It is understood and agreed that if such work
as may be required by Landlord requires an installation which may displace any
paving, lawn, seeded area or shrubs, the Landlord, shall, at its own cost and
expense, restore said paving, lawn, seeded area or shrubs. The Landlord
covenants that the foregoing work shall not unreasonably interfere with the
normal operation of Tenant's business, and the Landlord shall indemnify and
save the Tenant harmless in connection with such installations.
25. AIR, GROUND AND WATER POLLUTION
The Tenant expressly covenants and agrees to indemnify,
defend, and save the Landlord harmless against any claim, damage, liability,
costs, penalties, or fines which the Landlord may suffer as a result of air,
ground or water pollution caused by the Tenant in its use of the Leased
Premises. The Tenant covenants and agrees to notify the Landlord immediately of
any claim or notice served upon it with respect to any such claim the Tenant is
causing water, ground or air pollution; and the Tenant, in any event, will take
immediate steps to halt, remedy or cure any
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pollution of air, ground or water caused by the Tenant by its use of the Leased
Premises. This covenant shall survive the expiration or earlier termination of
this lease.
26. STATEMENT OF ACCEPTANCE
During the term of this lease, the Tenant agrees that it will furnish
to the Landlord a statement that the lease is in full force and effect in
accordance with its terms, together with such other affirmative covenants as
may be required by Landlord's mortgagee or for other business purposes, so as
to provide for Landlord's benefit, and estoppel certificate as the same may be
required from time to time for legitimate business purposes of Landlord. Said
statement shall set forth the Date of Commencement and the Date of Expiration
of the lease term.
27. FORCE MAJEURE
Except for the obligation of the Tenant to pay Rent and other charges
as in this lease provided, the period of time during which the Landlord or
Tenant is prevented from performing any act required to be performed under this
lease by reason of fire, catastrophe, strikes, lockouts, civil commotion, acts
of God or the public enemy, government prohibitions or preemptions, embargoes,
inability to obtain material or labor by reason of governmental regulations or
prohibitions, the act or default of the other party, or other events beyond the
reasonable control of Landlord or Tenant, as the case may be, shall be added to
the time for performance of such act.
28. STATEMENTS BY LANDLORD AND TENANT
Landlord and Tenant agree at any time and from time to time upon not
less than ten (10) days' prior notice from the other to execute, acknowledge
and deliver to the party requesting same, a statement in writing, certifying
that this lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), that it is not in default (or if claimed to be in
default, stating the amount and nature of
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the default) and specifying the dates to which the Base Rent and other charges
have been paid in advance, if any; it being intended that any such statement
delivered pursuant to this paragraph may be relied upon as to the facts
contained therein.
29. CONDEMNATION
29.1 If due to condemnation or taking or seizure by any authority
having the right of eminent domain, (i) more than fifteen (15%) per cent of the
Building is taken, or (ii) in the event that more than twenty-five (25%) per
cent of the Property is taken (including the parking areas, but exclusive of
front, side and rear set back areas), or (iii) if access to the Leased Premises
be denied, which taking in the manner hereinabove referred to and in excess of
the foregoing percentage amounts shall unreasonably or unduly interfere with the
use of the Building, ground area, parking area, or deny access to the Leased
Premises, then and in either of such events as hereinabove provided, the lease
term created shall, at the option of the Tenant, terminate, cease and become
null and void from the date when the authority exercising the power of eminent
domain takes or interferes with the use of the Leased Premises, its use of the
ground area, parking area, or area of access to the Leased Premises. The Tenant
shall only be responsible for the payment of Rent until the time of surrender.
In any event, no part of the Landlord's condemnation award shall belong to or
be claimed by the Tenant. Without diminishing Landlord's award, the Tenant
shall have the right to make a claim against the condemning authority for such
independent claim which it may have and as may be allowed by law, for costs and
damages due to relocating, moving and other similar costs and charges directly
incurred by the Tenant and resulting from such condemnation.
29.2 In the event of any partial taking which would not be cause for
termination of the within lease or in the event of any partial taking in excess
of the percentage provided in Article 29.1, and in which event the Tenant shall
elect to retain the balance of the Leased Premises remaining after such taking,
then
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and in either event, the Rent shall abate in an amount mutually to be agreed
upon between the Landlord and Tenant based on the relationship that the
character of the property taken bears to the property which shall remain after
such condemnation. In any event, no part of the Landlord's condemnation award
shall belong to or be claimed by the Tenant. However, the Landlord shall, to
the extent permitted by applicable law and as the same may be practicable on
the site of the Leased Premises, at the Landlord's sole cost and expense,
promptly make such repairs and alterations in order to restore the Building
and/or improvements to the extent of the condemnation award.
30. QUIET ENJOYMENT
The Landlord further covenants that the Tenant, on paying the rental
and performing the covenants and conditions contained in this lease, shall and
may peaceably and quietly have, hold and enjoy the Leased Premises for the term
aforesaid.
31. SURRENDER OF LEASE PREMISES
On the last day, or earlier permitted termination of the lease term,
Tenant shall quit and surrender the Leased Premises in good orderly condition
and repair (reasonable wear and tear, and damage by fire or other casualty
excepted) and shall deliver and surrender the Leased Premises to the Landlord
peaceably, together with all alterations, additions and improvements in, to or
on the Leased Premises made by Tenant as permitted under the lease. The
Landlord reserves the right, however, to require the Tenant at its costs and
expense to remove any alterations or improvements installed by the Tenant and
not permitted or consented to by the Landlord pursuant to the terms and
conditions of the lease, which covenant shall survive the surrender and the
delivery of the Leased Premises as provided hereunder. Prior to the expiration
of the lease term the Tenant shall remove all of its property, fixtures,
equipment and trade fixtures from the Leased Premises. All property not removed
by Tenant shall be deemed abandoned by Tenant, and Landlord reserves the right
to charge the reasonable cost of
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such removal to the Tenant, which obligation shall survive the lease termination
and surrender hereinabove provided. If the Leased Premises are not surrendered
at the end of the lease term, Tenant shall be responsible to pay Landlord,
monthly, an amount equal to one and one-half (1 1/2) times the monthly
installment of Base Rent payable by Tenant prior to the expiration or earlier
termination of this lease for each month or part thereof that Tenant holds over
in the Leased Premises. In the event any environmental condition requiring
remediation exists on the Property at the time of expiration or earlier
termination of this lease, which was caused by the Tenant's operations at the
Leased Premises, Tenant shall be deemed to be a holdover Tenant and the Leased
Premises shall not be considered to be properly surrendered to the Landlord
until the remediation of such environmental condition has been completed.
32. INDEMNITY
Anything in this lease to the contrary notwithstanding, and without
limiting the Tenant's obligation to provide insurance pursuant to Article 9
hereunder, the Tenant covenants and agrees that it will indemnify, defend and
save harmless the Landlord against and from all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses, including without
limitation reasonable attorneys' fees, which may be imposed upon or incurred by
Landlord by reason of any of the following occurring during the term of this
lease:
(i) Any matter, cause or thing arising out of use, occupancy,
control or management of the Leased Premises and any part thereof;
(ii) Any negligence on the part of the Tenant or any of its agents,
contractors, servants, employees, licensees or invitees;
(iii) Any accident, injury, damage to any person or property
occurring in, or about the Leased Premises;
(iv) Any failure on the part of Tenant to perform or comply with any
of the covenants, agreements, terms or conditions contained in this lease on its
part to be performed or complied with.
(v) Subject to the exception set forth in Article 22.1, the
foregoing shall not require indemnity by Tenant in the event of damage or injury
occasioned by the negligence or acts of
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commission or omission of the Landlord, its agents, servants or employees.
Landlord shall promptly notify Tenant of any such claim asserted against
it and shall promptly send to Tenant copies of all papers or legal process
served upon it in connection with any action or proceeding brought against
Landlord by reason of any such claim.
33. SHORT FORM LEASE
It is understood between the parties hereto that this lease will
not be recorded, but that a short form lease, describing the property leased
hereby, giving the term of this lease, and making particular mention of any
special clauses as herein contained, may be recorded by Landlord in accordance
with the laws governing and regulating the recording of such documents in the
State of New Jersey.
34. LEASE CONSTRUCTION
This lease shall be construed pursuant to the laws of the State of
New Jersey.
35. BIND AND INURE CLAUSE
The terms, covenants and conditions of the within lease shall be
binding upon and inure to the benefit of each of the parties hereto, their
respective executors, administrators, heirs, successors and assigns, as the
case may be.
36. DEFINITIONS
The neuter gender, when used herein and in the acknowledgement
hereafter set forth, shall include all persons and corporations, and words used
in the singular shall include words in the plural where the text of the
instrument so requires.
37. NET RENT
It is the purpose and intent of the Landlord and Tenant that the
Rent shall be absolutely net to Landlord, so that this lease shall yield, net,
to Landlord, the Rent specified in Article 3 hereof in each month during the
term of the lease, and that all costs, expenses and obligations of every kind
and nature whatsoever relating to the Leased Premises which may arise or
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become due during or out of the term of this lease, shall be paid by the
Tenant, except for such obligations and charges as have otherwise expressly
been assumed by the Landlord in accordance with the terms and conditions of
the lease. Nothing herein shall require the Tenant to undertake obligations in
connection with the sale or mortgaging of the Leased Premises, unless otherwise
expressly provided in accordance with the terms and conditions of this lease.
38. DEFINITION OF TERM OF "LANDLORD"
When the term "Landlord" is used in this lease it shall be
construed to mean and include only the owner of the fee title of the Leased
Premises. Upon the transfer by the Landlord of the fee title hereunder, the
Landlord shall advise the Tenant in writing by certified mail, return receipt
requested of the name of the Landlord's transferee. In such event, the then
Landlord shall be automatically freed and relieved from and after the date of
such transfer of title of all personal liability with respect to the
performance of any of the covenants and obligations on the part of the Landlord
herein contained to be performed, provided any such transfer and conveyance by
the Landlord is expressly subject to the assumption by the grantee or
transferee of the obligations of the Landlord to be performed pursuant to the
terms and conditions of the within lease.
39. COVENANTS OF FURTHER ASSURANCES
If, in connection with obtaining financing for the improvements on
the Leased Premises, the Mortgage Lender shall request reasonable modifications
in this lease as a condition to such financing, Tenant will not unreasonably
withhold, delay or refuse its consent thereto, provided that such modifications
do not in Tenant's reasonable judgment increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest hereby created
or Tenant's use and enjoyment of the Leased Premises.
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40. LANDLORD'S REMEDIES
40.1 The rights and remedies given to the Landlord in this lease are
distinct, separate and cumulative remedies, and no one of them, whether or not
exercised by the Landlord, shall be deemed to be in exclusion of any of the
others.
40.2 In addition to any other legal remedies for violation or breach
by or on the part of the Tenant or by any undertenant or by anyone holding or
claiming under the Tenant or any one of them, of the restrictions, agreements or
covenants of this lease on the part of the Tenant to be performed or fulfilled,
such violation or breach shall be restrainable by injunction at the suit of the
Landlord.
40.3 No receipt of money by the Landlord from any receiver, trustee
or custodian, debtor in possession, or any permitted subtenant, shall reinstate,
continue or extend the term of this lease or affect any notice theretofore given
to the Tenant, or to any such receiver, trustee or custodian, debtor in
possession, or any permitted subtenant, or operate as a waiver or estoppel of
the right of the Landlord to recover possession of the Leased Premises for any
of the causes therein enumerated by any lawful remedy; and the failure of the
Landlord to enforce any covenant or condition by reason of its breach by the
Tenant shall not be deemed to void or affect the right of the Landlord to
enforce the same covenant or condition on the occasion of any subsequent default
or breach.
40.4 Each party agrees that, in the event of litigation to enforce
this lease or to interpret its provisions, the losing party shall reimburse the
prevailing party for the prevailing party's reasonable attorney's fees incurred
in such litigation. Tenant further agrees to reimburse Landlord for Landlord's
reasonable attorney's fees incurred in connection with the review by Landlord of
any Landlord's waiver, assignment or sublet agreement or any other documentation
reviewed by Landlord at Tenant's request.
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41. COVENANT AGAINST LIENS
Tenant agrees that it shall not knowingly encumber, or suffer or
permit to be encumbered, the Leased Premises or the fee thereof by any lien,
charge or encumbrance, and Tenant shall have no authority to mortgage or
hypothecate this lease in any way whatsoever. The violation of this Article
shall be considered a breach of this lease.
42. BROKERAGE
The parties mutually represent to each other that CUSHMAN & WAKEFIELD
OF NEW JERSEY, INC. and MANGELS & CO. REALTORS are the sole brokers who
negotiated and consummated the within transaction, and that neither party dealt
with any other broker in connection with the within lease, it being understood
and agreed that the Landlord shall be responsible, at its sole cost and
expense, to pay the real estate brokerage in connection with this lease
transaction. Landlord agrees to indemnify, defend and save harmless Tenant in
connection with the claims of any other real estate brokers claiming
commissions in connection with the within transaction and claiming authority
from Landlord. Tenant agrees to indemnify, defend and save harmless Landlord in
connection with the claims of any other real estate brokers claiming
commissions in connection with the within transaction and claiming authority
from Tenant.
43. SUBORDINATION OF LEASE
This lease shall be subject and subordinate at all times to the lien
of any bona fide mortgages, ground leases or other encumbrances now or
hereafter placed on the Leased Premises without the necessity of any further
instrument or act on the part of Tenant to effectuate such subordination, but
Tenant covenants and agrees to execute and deliver upon demand such further
instrument or instruments evidencing such subordination of the lease to the lien
of any such mortgages or ground leases or other encumbrances as shall be
desired by a mortgagee or proposed mortgagee or by any person. Landlord hereby
agrees that it shall
35
<PAGE> 39
use its best efforts to obtain, for the benefit of Tenant, a subordination,
non-disturbance and attornment agreement from Landlord's current mortgagee.
Landlord shall obtain such an agreement from all future mortgagees of the
Property, for Tenant's benefit. It is expressly understood and agreed that any
subordination, non-disturbance and attornment agreement to be delivered by
Landlord shall be written on the applicable mortgagee's customary form.
44. LIMIT OF LANDLORD'S LIABILITY
In case the Landlord shall be a joint venture, partnership, tenancy
in common, trust, association or other form of joint ownership, the individual
members thereof shall have absolutely no personal liability or obligation with
respect to any provision of this lease, or any obligation or liability arising
therefrom or in connection therewith, except to the extent of any individual
member's equity ownership of the land, Building and improvements located on the
Property, which covenant hereinabove referred to, shall be deemed effective as
of the date Landlord completes and delivers the Leased Premises in accordance
with the terms and conditions of the lease.
45. LOSS OF OPTION RIGHTS
Anything in this lease to the contrary notwithstanding, it is
expressly understood and agreed that the Option to Renew as provided in Article
49 shall be deemed null and void and of no further force and effect upon notice
by Landlord to Tenant in the event (i) Landlord is obligated to institute
litigation to enforce payment and performance as required under this lease, and
providing Landlord is successful and prevails in such action; or (ii) Tenant is
consistently late in the punctual payment of annual Base Rent and/or additional
rent required to be paid under this lease as shall be evidenced by Landlord
delivering notices of late payments made during any period of four (4) months
during any twelve (12) month period measured from the date of the first late
payment.
36
<PAGE> 40
46. SECURITY
Upon execution of this lease, the Tenant shall deposit with
the Landlord the sum of FORTY SEVEN THOUSAND FOUR HUNDRED FIFTY ONE AND 70/100
($47,451.70) DOLLARS as security for the full and faithful performance of this
lease upon the part of the Tenant to be performed. Upon termination of this
lease, and providing the Tenant is not in default hereunder and has performed
all of the conditions of this lease, the Landlord shall return the said sum of
FORTY SEVEN THOUSAND FOUR HUNDRED FIFTY ONE AND 70/100 ($47,451.70) DOLLARS to
the Tenant. Anything herein contained to the contrary notwithstanding, it is
expressly understood and agreed that the said security deposit shall not bear
interest. Tenant covenants and agrees that it will not assign, pledge,
hypothecate, mortgage or otherwise encumber the aforementioned security during
the term of this lease. It is expressly understood and agreed that the Landlord
shall have the right to co-mingle the security funds with its general funds and
said security shall not be required to be segregated.
47. SURVIVAL OF OBLIGATION
It is expressly understood and agreed that in the event there
are any obligations of Tenant with respect to payment or performance as
required under the terms and conditions of this lease that shall have not been
performed prior to the expiration or termination of the lease in accordance
with its terms, such obligation, including the obligation to make Rent
adjustments and other lease adjustments, shall survive the expiration or
termination of the lease term and surrender of the Leased Premises by the
Tenant to the Landlord.
48. EXECUTION AND DELIVERY
The submission of the within lease by Landlord to Tenant for
review and approval shall not be deemed an option to lease, an offer to lease,
or a reservation of the Leased Premises in favor of Tenant, it being intended
that no rights or obligations shall be created by Landlord or Tenant until the
execution and
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<PAGE> 41
delivery of the within lease by Landlord and Tenant, one to the other.
49. OPTION TO RENEW
Provided the Tenant is not in default beyond any applicable
cure period pursuant to the terms and conditions of this lease, the Tenant is
hereby given the right and privilege to renew the within lease, for two (2)
five (5) year periods, to commence at the end of the initial term of this
lease, which renewals shall be upon the same terms and conditions as in this
lease contained, except as follows:
(1) Tenant shall pay during the each five (5) year renewal
term annual Base Rent based upon the fair market value per square foot
applicable to the Leased Premises. The fair market value shall be determined as
follows: After Tenant has given written notice to the Landlord, as hereinafter
provided, of its exercise or the within option, the Landlord shall deliver to
Tenant a written notice stating the fair market value to be paid for the Leased
Premises during the applicable five (5) year renewal term. In the event that
the Tenant objects to the fair market value quoted by Landlord, the issue of
fair market value shall be open to negotiation between Landlord and Tenant. In
the event the parties cannot agree within thirty (30) days after Landlord's
notice of the then fair market rental value, the parties shall agree on the
appointment of a real estate appraiser (the "Appraiser") having the M.A.I.
designation, the cost of which shall be shared equally by Landlord and Tenant,
which Appraiser shall be knowledgeable in the Somerset County, New Jersey
market rental area, who shall make a fair market rental determination. If the
parties cannot agree within thirty (30) days subsequent to the appointment of
the Appraiser, then the matter shall be submitted to binding arbitration
pursuant to the rules for commercial arbitration of the American Arbitration
Association, at the equal administration cost of Landlord and Tenant. It is
expressly understood and agreed that in any event the renewal Base Rent for the
first five (5) year
38
<PAGE> 42
renewal term shall not be less than the annual Base Rent of THREE HUNDRED
TWENTY THOUSAND SIX HUNDRED SEVENTY THREE AND 65/100 ($320,673.65) DOLLARS, and
that the renewal Base Rent for the second five (5) year renewal term shall not
be less than the annual Base Rent payable by the Tenant during the first five
(5) year renewal term, in the event fair market rent shall be determined to be
less than said sum as such determination shall be made in the manner
hereinabove provided.
(2) The right, option, and privilege of the Tenant to renew
this lease as hereinabove set forth is expressly conditioned upon the Tenant
delivering to the Landlord, in writing, by certified mail, return receipt
requested, nine (9) months' prior notice of its intention to renew, which notice
shall be given to the Landlord by the Tenant no later than nine (9) months prior
to the date fixed for termination of the original term, or first renewal term,
of this lease, as applicable.
(3) The obligation to pay the Base Rent as hereinabove
provided shall be in addition to the obligation to pay all additional rent and
other charges required by the terms and conditions of this lease.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
or caused these presents to be signed by its proper corporate officers and
caused its proper corporate seal to be hereunto affixed, the day and year first
above written.
WITNESS:
<TABLE>
<CAPTION>
<S> <C>
[SIG] [SIG] (L.S.)
- ------------------------------------- -------------------------------------
MAURICE M. WEILL, TRUSTEE UNDER TRUST
INDENTURE DATED DECEMBER 1, 1972
ATTEST: STERIGENICS, INC.
[SIG] By: [SIG]
- ------------------------------------- ---------------------------------
DONALD A. CURRIE DAVID E. MEYER
Vice-President, Medical Sterilization President, Medical Sterilization
</TABLE>
39
<PAGE> 43
STATE OF NEW JERSEY )
) SS.:
COUNTY OF )
BE IT REMEMBERED, that on this day of , 1998, before me,
the subscriber, personally appeared MAURICE M. WEILL,
TRUSTEE UNDER TRUST INDENTURE DATED DECEMBER 1, 1972, who, I am satisfied, is
the Landlord mentioned in the within Instrument, and thereupon he acknowledged
that he signed, sealed and delivered the same as his act and deed, for the uses
and purposes therein expressed.
--------------------------------------
STATE OF NEW JERSEY )
) SS.:
COUNTY OF UNION )
BE IT REMEMBERED, that on this 4th day of June, 1998, before me, the
subscriber, a Notary Public, personally appeared DAVID E. MEYER, who, I am
satisfied, is the person who signed the within Instrument as President, of
STERIGENICS, INC., a Corporation, the Tenant named therein, and he thereupon
acknowledged that the said instrument made by the corporation and sealed with
its corporate seal, was signed and sealed with the corporate seal and delivered
by him as such officer, and is the voluntary act and deed of the corporation,
made by virtue of authority from its Board of Directors.
/s/ Helen Goldberg
--------------------------------------
HELEN GOLDBERG
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES MARCH 20, 1999
<PAGE> 44
EXHIBIT "A"
BEGINNING at the intersection of the proposed Northwesterly line of Clyde
Road as measured fifty feet from the center line at right angles thereto with
the proposed Southwesterly line of Commerce Drive (sixty feet wide), said point
of intersection being distant 60.16 feet on a course of South 37 degrees 59' 5"
West along the proposed Northwesterly line of Clyde Road from the line dividing
lands owned by Joseph Marton and Maurice M. Weill, formerly of Norman and
Mildred Thaw, thence running,
(1) Along the proposed northwesterly line of Clyde Road aforesaid, South 37
degrees 59' 5" West, a distance of 311.76 feet to a point, thence
(2) Through lands of Maurice M. Weill, North 47 degrees 50' 55" West, a
distance of 570.95 feet to a point, thence
(3) Again through property of Maurice M. Weill, North 42 degrees 9' 5" East, a
distance of 310.94 feet to a point in the proposed Southwesterly line of
Commerce Drive, thence
(4) Along the proposed Southwesterly line of Commerce Drive and parallel to a
line dividing lands of Joseph Marton and Maurice M. Weill aforesaid, South
47 degrees 50' 55" East, a distance of 548.30 feet to the point and place
of BEGINNING.
Together with and subject to right to use a proposed roadway as hereinabove
designated as Commerce Drive, sixty feet wide, for access, ingress and egress,
in and to the premises hereinabove described.
Containing 3.995 acres of land as surveyed by Bartolone & Associates,
Engineering, Surveying and Planning, 90 Bayard Street, New Brunswick, New
Jersey.
<PAGE> 45
Schedule "C"
Landscaping Services
(A) Grass Cutting - Grass cutting is to be done once a week, March through
November.
(B) Fertilization - Lawns are to be fertilized spring, summer and fall.
(C) Seeding - Lawns are to be seeded in the spring and fall.
(D) Shrubs and Trees - Shrubs and trees are to be pruned in the spring and
fall.
(E) Tenant is to provide Landlord with copies of maintenance and service
contracts.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,160
<SECURITIES> 12,354
<RECEIVABLES> 6,275
<ALLOWANCES> 214
<INVENTORY> 0
<CURRENT-ASSETS> 43,525
<PP&E> 133,457
<DEPRECIATION> 52,398
<TOTAL-ASSETS> 132,639
<CURRENT-LIABILITIES> 12,087
<BONDS> 36,000
0
0
<COMMON> 8
<OTHER-SE> 71,730
<TOTAL-LIABILITY-AND-EQUITY> 132,639
<SALES> 13,317
<TOTAL-REVENUES> 13,317
<CGS> 6,905
<TOTAL-COSTS> 6,905
<OTHER-EXPENSES> 318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 599
<INCOME-PRETAX> 2,965
<INCOME-TAX> 1,171
<INCOME-CONTINUING> 1,794
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,794
<EPS-PRIMARY> 0.23<F1>
<EPS-DILUTED> 0.22
<FN>
<F1>For purposes of this exhibit, Primary means Basic.
</FN>
</TABLE>
