<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 1-11831
SABRATEK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
36-3700639
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
8111 NORTH ST. LOUIS AVENUE
SKOKIE, ILLINOIS 60076
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(847) 720-2400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") during the preceding 12 months (or for such shorter
period that the registrants were required to file such reports), and (2) have
been subject to such filing requirements for the past 90 days.
Yes X No
------- -------
As of November 3, 1998, 9,814,344 shares of Sabratek Corporation's Common Stock
were outstanding.
<PAGE> 2
SABRATEK CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1998 (Unaudited) and December 31, 1997............................................3
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1998 and 1997 (Unaudited)......................4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 (Unaudited).......................................5
Notes to Consolidated Financial Statements (Unaudited)..........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................................8
PART II OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................12
Item 2. Changes in Securities..........................................................................12
Item 6. Exhibits and Reports on Form 8-K...............................................................12
</TABLE>
-2-
<PAGE> 3
SABRATEK CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ -----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash & cash equivalents $ 53,097 $ 19,598
Investments in marketable securities 2,002 5,004
Receivables:
Trade, net of allowance for doubtful accounts
Of $837 and $503 at September 30, 1998
And December 31, 1997, respectively 21,361 15,293
Other 789 208
--------- ---------
Total receivables 22,150 15,501
--------- ---------
Inventories 22,189 13,719
Other current assets 1,329 821
--------- ---------
Total current assets 100,767 54,643
--------- ---------
Property, plant and equipment, net 5,682 3,546
Notes receivable 3,274 233
Investments in marketable securities 19,976 --
Intangible assets, net 19,820 12,644
Other 2,817 101
--------- ---------
$ 152,336 $ 71,167
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt, including capital lease obligation $ 24 $ 25
Accounts payable 3,675 3,718
Payroll & commissions 811 2,039
Warranty 336 304
Accrued expenses 2,871 300
Other 192 102
--------- ---------
Total current liabilities 7,909 6,488
--------- ---------
Long-term debt 85,000 --
Long-term obligations 340 264
--------- ---------
Total liabilities 93,249 6,752
--------- ---------
Stockholders' equity:
Preferred stock, par value $.01; 200,000 authorized, 0 issued -- --
Common stock, par value $.01; 25,000,000 authorized,
10,803,728 issued, 9,803,728 outstanding at September 30,
1998; 10,325,280 issued and outstanding at December 31, 1997 108 103
Additional paid-in capital 78,269 71,344
Treasury stock (19,340) --
Other (11) (12)
Accumulated other comprehensive income 373 44
Accumulated deficit (312) (7,064)
--------- ---------
Total stockholders' equity 59,087 64,415
--------- ---------
$ 152,336 $ 71,167
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE> 4
SABRATEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 18,808 $ 11,751 $ 50,265 $ 29,065
Cost of sales 8,489 5,231 22,206 12,416
-----------------------------------------------------
Gross margin 10,319 6,520 28,059 16,649
Selling, general and administrative expenses 6,433 4,757 18,022 12,663
-----------------------------------------------------
Operating income 3,886 1,763 10,037 3,986
-----------------------------------------------------
Other income (expense):
Interest income 1,203 374 2,546 931
Interest expense (1,277) (16) (2,344) (37)
Other - - - (32)
-----------------------------------------------------
Net income before taxes 3,812 2,121 10,239 4,848
Provision for income taxes 1,297 42 3,487 97
-----------------------------------------------------
Net income $ 2,515 $ 2,079 $ 6,752 $ 4,751
=====================================================
Basic income per share $ 0.24 $ 0.21 $ 0.64 $ 0.51
=====================================================
Basic weighted average shares outstanding 10,454 10,106 10,474 9,405
=====================================================
Diluted income per share $ 0.23 $ 0.18 $ 0.59 $ 0.45
=====================================================
Diluted weighted average shares outstanding 11,018 11,605 11,460 10,665
=====================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
SABRATEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------------
September 30, September 30,
1998 1997
-----------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,752 $ 4,751
Adjustments to reconcile net income to
Net cash used in operating activities:
Depreciation and amortization 1,964 697
Deferred compensation 1 3
Non-cash expense - 179
Non-cash interest expense 2,338 -
Tax effect of stock option exercises 3,487 -
Provision for bad debts 335 198
Changes in assets and liabilities:
Receivables (6,355) (5,983)
Other receivable (1,405) (182)
Deferred revenue - 35
Inventories (8,471) (5,658)
Other current assets (491) -
Accounts payable (77) (1,019)
Accrued liabilities (1,196) 513
Long term obligations (46) -
Other 323 (620)
-----------------------------------------
Net cash used in operating activities (2,841) (7,086)
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, equipment (2,800) (1,399)
Collection (issuance) of note receivable (2,217) 83
Purchase of intangible assets (8,026) (7,108)
Purchases of marketable securities (19,641) (2,507)
Sale and maturity of marketable securities 2,996 2,905
Purchase of Rocap, Inc., net of cash acquired - (1,433)
Purchase of CMS Healthcare, net of cash acquired (195) -
-----------------------------------------
Net cash used in investing activities (29,883) (9,459)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt (19) (319)
Repayment of long-term debt - (1)
Purchase of treasury stock (19,340) -
Proceeds (payments) of capital lease, net 82 (105)
Proceeds from issuance of long-term debt, net 82,057 -
Proceeds from exercise of stock options and warrants 3,443 3,419
Proceeds from issuance of stock, net - 21,605
-----------------------------------------
Net cash provided by financing activities 66,223 24,599
-----------------------------------------
Increase in cash and cash equivalents 33,499 8,054
Cash and cash equivalents at beginning of period 19,598 10,447
-----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,097 $ 18,501
=========================================
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE> 6
SABRATEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by the Company, without audit, and include all adjustments of a normal
recurring nature which are, in the opinion of management, necessary for fair
presentation of the results of operations for the three month and nine month
periods ended September 30, 1998 pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures in these consolidated financial statements are adequate to make the
information presented not misleading. These consolidated financial statements
should be read in conjunction with the Company's financial statements and the
notes thereto included in the Company's Form 10-K filed by the Company with the
Securities and Exchange Commission for the year ended December 31, 1997. The
results of operations for the three month and nine month periods ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998.
(2) SALE OF CONVERTIBLE NOTES
In April, 1998, the Company sold in a private placement, 6% Convertible
Notes ("Notes") in an aggregate principal amount of $85,000,000. The Notes are
unsecured and mature on April 15, 2005. Interest is payable at a fixed rate of
6% on April 14 and October 15 of each year, commencing on October 15, 1998. The
Notes are convertible at any time prior to maturity at the option of the holder
into shares of common stock of the Company at a conversion price of $40.46 per
share. The Company may redeem the Notes, in whole or in part, at any time after
April 18, 2001.
(3) ACQUISITION
In July, 1998, the Company purchased all of the capital stock of CMS
HealthCare, Inc. ("CMS"), a Florida corporation based in Tampa, for $160,000 in
cash. The Company could be obligated to make additional payments to the former
stockholders of CMS pursuant to an earnout formula on pre-tax income over a
specified period.
(4) INVENTORIES
Inventories shown on the consolidated balance sheets are comprised of
the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Raw materials........................................ $ 12,668 $ 7,392
Work in process...................................... 3,498 2,497
Finished goods....................................... 6,023 3,830
------------ -----------
$ 22,189 $ 13,719
============ ===========
</TABLE>
(5) NOTES RECEIVABLE
Notes receivable represent funds owed by third parties including those
with whom the Company has entered into license agreements. The notes bear
interest at 8% and are payable upon demand by the Company or at specified future
dates.
(6) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest during the nine month periods ended September
30, 1998 and 1997 was $6,751 and $20,325, respectively.
(7) EQUITY-RELATED ACTIVITY
-6-
<PAGE> 7
During the nine month period ended September 30, 1998, the Company
issued 232,107 shares, in aggregate, of common stock upon the exercise of stock
options pursuant to the Sabratek Corporation Amended and Restated 1993 Stock
Option Plan (the "Plan"). The option exercises resulted in proceeds to the
Company of $2,152,065, in aggregate. In addition, 8,844 shares of common stock
were issued pursuant to the Company's Stock Purchase Plan resulting in aggregate
proceeds of $201,757.
Options for a total of 588,000 shares of common stock were granted
during the nine month period pursuant to the Plan at an exercise price equal to
the fair market value on the date of grant. The stock options vest over a
multi-year period.
During the nine month period ended September 30, 1998, the Company
issued 237,497 shares, in aggregate, of common stock upon the exercise of
warrants. The warrant exercises resulted in proceeds to the Company of
$1,089,164, in aggregate.
During the three month period ended September 30, 1998, the Company
purchased 1,000,000 shares of its outstanding common stock at an aggregate price
of $19,339,901, pursuant to its repurchase program adopted during the period.
In August, 1998, the Company designated the relative rights and
preferences of a new Class of Series B Preferred Stock and adopted a Rights
Plan. Pursuant to such Plan the Company's Board of Directors declared a dividend
of one right for each share of the Company's common stock outstanding on
September 4, 1998. Each right gives the holder thereof the opportunity to
purchase one one-hundreth of one share of the Company's newly authorized Series
B Preferred Stock at a price of $150 (as adjusted from time to time) upon the
occurrence of certain events specified in the Plan. The Plan can be rescinded at
the discretion of the Company's Board of Directors.
(8) COMPREHENSIVE INCOME
In January, 1998, the Company adopted Statement of financial Accounting
Standards ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements, and requires a total for comprehensive
income to be provided in condensed financial statements of interim periods.
Comprehensive income includes all changes in stockholders' equity during the
period except those resulting from investments by owners and distributions to
owners. Comprehensive income for the nine months ended September 30, 1998 and
1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 2,515 $ 2,079 6,752 $ 4,751
Other comprehensive
Income :
Unrealized holding gains
arising during the period 361 3 322 35
Less: reclassification adjustment
For amounts realized in net income - 5 7 5
-------- -------- ---------- --------
Net unrealized gain 361 8 329 40
-------- -------- ---------- --------
Comprehensive income $ 2,876 $ 2,087 7,081 $ 4,791
======== ======== ========== ========
</TABLE>
(9) RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company is required to adopt this
new standard for periods ending after fiscal 1997, but is not required to be
reported in the interim consolidated financial statements in the first year of
application. This statement establishes standards for the way companies are to
report information about operating segments. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company is currently evaluating the impact of this standard on
disclosures required in its consolidated financial statements.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's founding vision and strategic focus is the creation of a
virtual hospital room for the alternate-site health care market. From its
inception in 1989 through mid-1992, the Company was in its development stage and
engaged primarily in research and development, product engineering and
activities related to obtaining clearance from the FDA for its first product,
the 3030 Stationary Pump. The Company has six years of operating history and,
although profitable since the third quarter of 1996, experienced significant
operating losses from its inception through mid-1996. Upon receiving FDA
clearance for the 3030 Stationary Pump in mid-1992, the Company focused its
efforts on creating a domestic and international sales and marketing network, as
well as a manufacturing capability, to assist in the distribution of its first
product to the alternate-site health care market. Concurrent with these sales
and marketing activities, the Company continued to fund the research,
development and regulatory clearance activities of other device and software
products.
The Company commercially launched the 6060 Ambulatory Pump and related
disposable supplies in late 1995 and both MediVIEW(R) and the PumpMaster(R) in
late 1996. Since then, the Company has continued its sales and marketing
activities domestically and internationally for the distribution of its products
and continued to fund the research and development of additional products. On
February 25, 1997, the Company acquired substantially all the assets of Rocap,
Inc. which produces and markets pre-packaged injectable prescription
pharmaceuticals and pre-filled flush syringes. In addition, the Company derives
revenues from the servicing of products, sale of accessories, sale of extended
warranties and consulting services.
The Company sells its products both directly to alternate-site and
acute-care providers, as well as to third-party distributors. The Company's
distributors and customers may make bulk purchases which may cause fluctuations
in quarterly revenues. The Company also markets and sells its products
internationally and, as a result, its revenues may be affected by fluctuations
in exchange rates. Failure to obtain regulatory approval for the distribution of
new products domestically or in international markets, or adverse regulatory
changes, may also affect the revenues of the Company.
The Company has entered into strategic partnerships, including Unitron
and GDS, which provide components of the virtual hospital room. Management
intends to pursue additional acquisition and partnering opportunities in order
to further accelerate the development of the virtual hospital room.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER 30, 1997
AND NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. NINE MONTHS ENDED SEPTEMBER 30,
1997
Net sales. Net sales increased $7.0 million to $18.8 million for the
three month period ended September 30, 1998 as compared to $11.8 million for the
three month period ended September 30, 1997, an increase of 60%. Net sales
increased $21.2 million to $50.3 million for the nine month period ended
September 30, 1998 as compared to $29.1million for the nine month period ended
September 30, 1997, an increase of 73%. The increase for the three month and
nine month periods is attributable to several factors; incremental unit sales
volume of the 3030 Stationary Pump and 6060 Ambulatory Pump and their respective
disposables, an increase in the average per unit selling price due to a higher
ratio of direct sales versus dealer sales, a significant increase in volume of
the Rocap product line acquired in February, 1997, additional sales of the
MediVIEW(R) and PumpMaster(R) products, revenues generated from product
licensing and consulting services, and the sale of certain licensed products
from GDS Technology, Inc.
Cost of Sales. Cost of sales increased $3.3 million to $8.5 million for
the three month period ended September 30, 1998 as compared to $5.2 million for
the three month period ended September 30, 1997, an increase of 62%. Cost of
sales increased $9.8 million to $22.2 million for the nine month period ended
September 30, 1998 as compared to $12.4 million for the nine month period ended
September 30, 1997, an increase of 79%. The increase for the three month and
nine month periods is primarily attributable to direct product costs associated
with incremental unit sales volume of the 3030 and 6060 infusion pumps and
related disposables, as well as the increased unit volume of the Rocap prefilled
syringe product line. To a lesser extent, the increase for the three month
period is attributable to amortization and period costs relating to the
expansion of production capacity.
-8-
<PAGE> 9
Gross Margin. Gross margin increased $3.8 million to $10.3 million for
the three month period ended September 30, 1998 as compared to $6.5 million for
the three month period ended September 30, 1997, an increase of 58%. Gross
margin increased $11.5 million to $28.1 million for the nine month period ended
September 30, 1998 as compared to $16.6 million for the nine month period ended
September 30, 1997, an increase of 68%. The increase for the three month and
nine month periods is due primarily to the incremental unit sales volume and the
per unit contribution thereon, including the allocation of fixed manufacturing
costs over a greater number of units. Gross margin as a percent of sales
remained unchanged at 55% for the three month period ended September 30, 1998,
as compared to the three month period ended September 30, 1997. Gross margin as
a percentage of sales decreased to 56% for the nine month period ended September
30, 1998, as compared to 57% for the nine month period ended September 30, 1997.
The decrease in percentage for the nine month period is attributable to the
lower average gross margin generated from the Rocap product line.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased $1.6 million to $6.4 million for the three
month period ended September 30, 1998 as compared to $4.8 million for the three
month period ended September 30, 1997, an increase of 35%. Selling, general and
administrative expenses increased $5.3 million to $18.0 million for the nine
month period ended September 30, 1998 as compared to $12.7 million for the nine
month period ended September 30, 1997, an increase of 42%. The increase for the
three month and nine month periods is due primarily to the expansion of the
Company=s direct sales force and clinical support staff and associated travel.
Also contributing to the increase for the nine month period ended September 30,
1998 was three full quarters of expenses relating to the Rocap product line, and
the addition of administrative and management personnel. Selling, general and
administrative expenses as a percent of sales decreased to 34% for the three
month period ended September 30, 1998 as compared to 40% for the three month
period ended September 30, 1997. Selling, general and administrative expenses as
a percent of sales decreased to 36% for the nine month period ended September
30, 1998 as compared to 44% for the nine month period ended September 30, 1997.
Operating Income. Operating income increased $2.1 million to $3.9
million for the three month period ended September 30, 1998 as compared to $1.8
million for the three month period ended September 30, 1997, an increase of
120%. Operating income increased $6.0 million to $10.0 million for the nine
month period ended September 30, 1998 as compared to $4.0 million for the nine
month period ended September 30, 1997, an increase of 152%. Operating income as
a percent of sales increased to 21% for the three month period ended September
30, 1998 as compared to 15% for the three month period ended September 30, 1997.
Operating income as a percent of sales increased to 20% for the nine month
period ended September 30, 1998 as compared to 14% for the nine month period
ended September 30, 1997. The increase in operating income is due primarily to
incremental gross margin generated by increased unit sales volume of new and
existing products, as described above.
Interest Income. Interest income increased $826,000 to $1.2 million for
the three month period ended September 30, 1998 as compared to $374,000 for the
three month period ended September 30, 1997, an increase of 222%. Interest
income increased $1.6 to $2.5 million for the nine month period ended September
30, 1998 as compared to $931,000 for the nine month period ended September 30,
1997, an increase of 173%. The increase is attributable to a higher average
amount of cash available for investment as compared to that of the comparative
period. The Company completed a secondary public offering in April, 1997 which
resulted in proceeds to the Company of approximately $22 million, after
underwriting discounts and commissions. In addition, the Company completed the
sale of convertible notes in April, 1998 which resulted in net proceeds to the
Company of approximately $82.1 million.
Interest Expense. Interest expense increased $1.2 million to $1.3
million for the three month period ended September 30, 1998 as compared to
$16,000 for the three month period ended September 30, 1997, an increase of
7,881%. Interest expense increased $2.2 million to $2.3 million for the nine
month period ended September 30, 1998 as compared to $37,000 for the nine month
period ended September 30, 1997, an increase of 6,235%. The increase
-9-
<PAGE> 10
for the three month and nine month periods is attributable to the sale of 6%
convertible notes in April, 1998, for which interest expense is recorded at a
rate of $1.3 million per full fiscal quarter. Interest expense would be reduced
proportionately for any notes converted into common stock.
Provision for Income Taxes. The provision for income taxes increased
$1.2 million to $1.3 million for the three month period ended September 30, 1998
as compared to $42,000 for the three month period ended September 30, 1997, an
increase of 2,988%. The provision for income taxes increased $3.4 million to
$3.5 million for the nine month period ended September 30, 1998, as compared to
$97,000 for the nine month period ended September 30, 1997, an increase of
3,495%. The provision for income taxes for the three month and nine month
periods ended September 30, 1998 reflects an estimated 34% effective annual tax
rate, after adjusting for allowable net operating loss carryforwards. The
provision for income taxes for the three month and nine month periods ended
September 30, 1997 was reversed in the 1997 financial statements as no federal,
state or alternative minimum tax was incurred due to allowable net operating
loss carryforwards and tax deductible compensation expenses.
Net Income. Net income increased $436,000 to $2.5 million for the three
month period ended September 30, 1998 as compared to $2.1 million for the three
month period ended September 30, 1997, an increase of 21%. Net income increased
$2.0 million to $6.8 million for the nine month period ended September 30, 1998
as compared to $4.8 million for the nine month period ended September 30, 1997,
an increase of 42%. The increases in net income for the three month and nine
month periods were achieved primarily as a result of incremental gross margin
generated by increased unit sales volume of new and existing products, as
discussed above. The increase in net income was partially offset by an increase
in the provision for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
In April, 1998, the Company completed the private sale of 6%
Convertible Notes in an aggregate principal amount of $85,000,000 maturing in
2005. The interest is fixed and is payable semi-annually. The notes are
convertible into the Company's common stock at a conversion price of $40.46
anytime at the option of the noteholders. The Company may redeem the notes at
anytime after April 18, 2001. Upon the occurrence of a "Designated Event" the
Company is required to offer to redeem the notes. A designated event is defined
as a change in control or the cessation of trading of the Company's common
stock. Net proceeds to the Company were approximately $82.1 million and such
proceeds were used to purchase investment grade securities.
As of September 30, 1998, the Company had approximately $75.0 million
in cash, cash equivalents, and investments in marketable securities, and had net
working capital of approximately $92.9 million. During the three month period
ended September 30, 1998, approximately $19.3 million was used to purchase
outstanding common stock of the Company pursuant to a repurchase program
approved by the Company's Board of Directors. In March, 1997, the Company
entered into a two-year credit agreement with a financial institution with up to
$9.5 million of available borrowing. As of October 31, 1998, no borrowing had
occurred under the credit agreement.
The Company used cash in its operations of approximately $2.8 million
for the nine months ended September 30, 1998. Cash used in operations for the
period exceeds the Company's operating income for the same period due,
primarily, to the growth in trade accounts receivable and inventories as a
result of actual and anticipated growth in sales volume.
During the third quarter of 1997, the Company entered into strategic
partnerships with Unitron and GDS. The Company has made cumulative cash payments
of $14.6 million to Unitron and GDS in cash license fees, in aggregate, pursuant
to the respective license agreements. In addition, should the Company decide to
exercise its right to acquire either Unitron or GDS, such acquisitions could
require additional outlays of cash.
In September, 1997, the Company initiated a hedging program through the
use of forward contracts to
-10-
<PAGE> 11
minimize foreign currency fluctuation exposure. As of September 30, 1998, the
aggregate U.S. dollar amount of the contracts is $1,567,720 and such contracts
expire at various dates through March, 1999.
Future liquidity and capital resources could be adversely influenced by
certain factors, including the Company's dependence on a relatively new customer
base, regulatory or legislative changes pertaining to health care, product
liability exposure regarding the delivery of medication, dependence on future
product development, and others. There can be no assurance that the Company will
not require additional financing and, in the future, seek additional funds
through bank facilities, debt or equity offerings and to the extent such
additional financing is not available, the Company could suffer material adverse
effects to its financial condition and the results of its operations.
YEAR 2000 STATUS
Since their inception, all of the Company's products, including
software, have been developed with consideration for the millenium change.
Additionally, the products have undergone specific year 2000 date testing to
verify and validate compliance. The Company has made inquiry of its material
strategic partners, vendors, and suppliers and has received representation that
the devices and software that the Company currently licenses from third parties
have been determined to be year 2000 compliant. The Company continues the
process of verifying that its suppliers will not experience year 2000 problems
that could have a material adverse effect on the Company. Although the Company
knows of no problems in this regard, due to the ability of certain of the
Company's products to interact with other devices or software, the Company can
give no assurance that the performance of its products could not be directly and
indirectly affected by non-compliant products of a third party.
The Company has assessed its systems and believes them to be year 2000
compliant. The Company will continue to assess its year 2000 exposure, including
systems of third parties on which the Company relies. If the Company's
management becomes aware of non-compliant systems that will adversely affect the
Company or its products, it will develop an action plan and assess the resources
necessary to resolve such problem.
-11-
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 5, 1997, SIMS Deltec filed a complaint in the United States
District Court for the District of Minnesota alleging that Sabratek's
manufacture, use and/or sale of the MediVIEW(R) software in conjunction with its
infusion pumps infringes on a patent entitled "Systems and Methods of
Communicating with Ambulatory Medical Devices Such as Drug Delivery Devices"
previously issued to SIMS Deltec. Subsequently, SIMS Deltec filed other
pleadings that raised additional claims against Sabratek and three of its
employees including trade secret misappropriation, unfair competition and
interference with SIMS Deltec's customers. SIMS Deltec seeks injunctive relief,
unspecified monetary damages and costs. In addition, SIMS Deltec filed for a
preliminary injunction against Sabratek seeking to prevent on a preliminary
basis Sabratek's manufacture and sale of the MediVIEW(R) system. On August 4,
1997, the District Court denied the motion for preliminary injunction.
Additionally, one of the claims against a Sabratek employee has been dismissed
with prejudice. The Company and the individual defendants intend to vigorously
defend against the allegations made by SIMS Deltec. Protracted litigation or an
adverse outcome in this matter could have a material adverse impact on the
Company's business, financial condition and results of operations.
In addition, Sabratek has filed a complaint against SIMS Deltec in the
United States District Court for the Northern District of Illinois alleging that
SIMS Deltec employees have made misstatements about Sabratek's products.
Sabratek has stated claims under the Federal Lanham Act to stop SIMS Deltec's
improper disparagement and has requested preliminary and permanent injunctive
relief, monetary damages and costs.
ITEM 2. CHANGES IN SECURITIES
On August 20, 1998, the Board of Directors of the Company declared a
dividend distribution of one Right for each outstanding share of Common Stock of
the Company to stockholders of record at the close of business on September 4,
1998. Except as set forth in the Rights Agreement referred to below, each Right
entitles the registered holder to purchase from the Company one one-hundreth of
a share of Series B Preferred Stock, par value $0.01 per share ("Series B
Shares"), at a price of $150.00 (the "Purchase Price"), subject to adjustment.
The Purchase Price shall be paid in cash. The description and terms of the
Rights are set forth in a Rights Agreement between the Company and LaSalle
National Bank, as Rights agent, a copy of which was annexed to the Current
Report on Form 8-K filed by the Company on August 25, 1998. The relative rights
and preferences of the Series B Shares are as set forth in the Registration
Statement on Form 8-A filed by the Company on August 25, 1998.
During the nine month period ended September 30, 1998, the Company
issued the following securities without registration under the Securities Act of
1933, as amended.
From February 12, 1998 to September 15, 1998, the Company issued
237,497 shares of common stock upon the exercise of warrants not covered by a
registration statement. The Company received aggregate proceeds of approximately
$1,089,164 upon the exercise of such warrants. All such issuances of common
stock were exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
-12-
<PAGE> 13
EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K.)
<TABLE>
<CAPTION>
Incorporation by
Exhibit Reference (if
Number Description of Documents applicable)
------ ------------------------ -----------
<S> <C> <C>
3.1 Articles of Incorporation ........................................................... +
3.2 ByLaws .............................................................................. +
4.1 Indenture, dated April 14, 1998 by and between the Company
and LaSalle National Bank, as Trustee ............................................... ++++++
4.2 Rights Agreement, dated August 20, 1998 by and between the
Company and LaSalle National Bank, as the Rights Agent .............................. +++++++
10.1 Agreement with Americorp Financial, Inc. re: Leasing Services, +
dated March 22, 1995 ................................................................
10.1.1 Amendment, dated September 16, 1996, to Agreement with
Americorp Financial, Inc. ........................................................... +++
10.2 Intentionally Omitted ...............................................................
10.3 Intentionally Omitted ...............................................................
10.4 Intentionally Omitted ...............................................................
10.5 Intentionally Omitted ...............................................................
10.6 Intentionally Omitted ...............................................................
10.7 Intentionally Omitted ...............................................................
10.8 Intentionally Omitted ...............................................................
10.9 Intentionally Omitted ...............................................................
10.10 Intentionally Omitted ...............................................................
10.11 Intentionally Omitted ...............................................................
10.12 Intentionally Omitted ...............................................................
10.13 Pump Contract with Chartwell Home Therapies, dated November
22, 1993 ............................................................................ +
10.14 Sales Agreement with Pharmacy Corporation of America, dated +
March 17, 1995 ......................................................................
10.15 Sales & Marketing Agreement with Alpha Group, dated November 6,
1995 ................................................................................ +
10.16 Intentionally Omitted ...............................................................
10.17 Intentionally Omitted ...............................................................
10.18 Intentionally Omitted ...............................................................
10.19 Intentionally Omitted ...............................................................
10.20 Intentionally Omitted ...............................................................
10.21 Intentionally Omitted ...............................................................
10.22 Intentionally Omitted ...............................................................
</TABLE>
-13-
<PAGE> 14
<TABLE>
<S> <C> <C>
10.23 Intentionally Omitted ..............................................................
10.24 Intentionally Omitted ..............................................................
10.25 Intentionally Omitted ..............................................................
10.26 Stock Option Plan .................................................................. +
10.27 Lease for Real Property located at 5601 West Howard, Niles, Illinois,
dated as of May 31, 1994 ........................................................... +
10.27.1 Amendment, dated October 30, 1996 to Lease for Real Property located at
5601 West Howard, Niles, Illinois .................................................. +++
10.28.1 Employment Agreement for K. Shan Padda .............................................
10.29 Intentionally Omitted ..............................................................
10.30 Asset Purchase Agreement, dated February 25, 1997, by and among Sabratek
Corporation; Rocap, Inc. and Elliot Mandell ........................................ ++
10.31.1 Employment Agreement for Stephen L. Holden .........................................
10.32 Employment Agreement for Elliot Mandell ............................................ ++
10.33 Lease Agreement for property located at 11 Sixth Road, Woburn, Massachusetts,
dated February 1, 1997 ............................................................. ++++
10.34 Lease Agreement for property located at 5 Constitution Way, Woburn,
Massachusetts, dated June 26, 1995 ................................................. ++++
10.35 Lease Agreement for property located at 1629 Prime Court, Suite 100, Orlando,
Florida, dated March 11, 1997 ...................................................... +++++
10.36 Lease Agreement for property located at 8350 Parkline Blvd., Orlando, Florida,
dated June 18, 1998 ................................................................ ++++++++
10.37 Credit Agreement, dated as of March 26, 1997, by and between the Company
as Borrower and LaSalle National Bank (formerly known as LaSalle Bank NI) as Lender ++++++
10.38 Long Term Incentive Compensation Plan ..............................................
10.39 Lease Agreement for property located at 8111 N. St. Louis, Skokie, Illinois,
dated May 15, 1998. ................................................................
11.1 Statement Re Computation of Per Share Earnings .....................................
27 Financial Data Schedule ............................................................
</TABLE>
- -------------------
+ Incorporated by reference to the Company's Registration Statement on
Form S-1, declared effective by the Commission on June 21, 1996 (File
No. 333-3866).
++ Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on March 11, 1997.
+++ Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 filed with the Commission
of March 31, 1997.
++++ Incorporated by reference to the Company's Registration Statement on
Form S-1 declared effective by the Commission on April 4, 1997.
+++++ Incorporated by reference to the Company's Quarterly Report on Form
10Q for the quarter ended March 31, 1997 filed with the Commission on
May 15, 1997
++++++ Incorporated by reference to the Company's Registration Statement on
Form S-3 declared effective by the Commission on July 14, 1998.
+++++++ Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on August 25, 1998.
++++++++ Incorporated by reference to the Company's Quarterly Report on Form
10Q for the quarter ended June 30, 1998 filed with the Commission on
August 14, 1998.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on August 25, 1998
announcing the adoption of a Rights Plan.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SABRATEK CORPORATION
Date: November 12, 1998 By: /s/ K. Shan Padda
------------------------------------
K. Shan Padda
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the principal
financial officer of the registrant.
Date: November 12, 1998 By: /s/ Paul S. Jurewicz
------------------------------------
Paul S. Jurewicz
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the chief
accounting officer of the registrant.
Date: November 12, 1998 By: /s/ Scott Skooglund
------------------------------------
Scott Skooglund
Chief Accounting Officer
-15-
<PAGE> 1
Exhibit 10.28.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
as of September 28, 1998, by and between Sabratek Corporation, a Delaware
corporation, with its principal office located at 8111 North St. Louis Avenue,
Skokie, Illinois 60076 (together with its successors and assigns permitted under
this Agreement, "Sabratek") and K. Shan Padda ("Padda").
WITNESSETH:
WHEREAS, Sabratek has determined that it is in the best interests of
Sabratek and its stockholders to continue to employ Padda and to set forth in
this Agreement the obligations and duties of both Sabratek and Padda; and
WHEREAS, Sabratek wishes to assure itself of the services of Padda for
the period hereinafter provided, and Padda is willing to be employed by Sabratek
for said period, upon the terms and conditions provided in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, Sabratek and Padda (individually a "Party" and
together the "Parties" ) agree as follows:
<PAGE> 2
1. DEFINITIONS.
(a) "BENEFICIARY" shall mean the person or persons named by Padda
pursuant to Section 14 below or, in the event that no such person is named who
survives Padda, his estate.
(b) "BOARD" shall mean the Board of Directors of Sabratek.
(c) "CAUSE" shall mean:
(i) Padda being found guilty of a felony or an act of fraud
or embezzlement, in each case related to Sabratek or its business;
(ii) any repeated and demonstrated failure by Padda to
discharge faithfully the responsibilities of his position that the Board in good
faith determines is extremely detrimental to the current and future interests of
Sabratek; or
(iii) a material breach by Padda of any provision of this
Agreement.
(d) "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events:
(i) Consummation of the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of beneficial ownership (within the meaning
of Rule l3d-3 promulgated under the 1934 Act) of 40 percent or more of the
combined voting power of the then outstanding voting securities of Sabratek; or
(ii) The individuals who, as of the date hereof, are members
of the Board cease for any reason to constitute a majority of the Board, unless
the election, or nomination for election by the stockholders of Sabratek, of any
new director or directors was approved by a vote of a majority of the Board, in
which case such new director or directors shall, for purposes of this Agreement,
be considered as a member or members of the Board; or
2
<PAGE> 3
(iii) Approval by stockholders of Sabratek of (A) a merger or
consolidation of Sabratek if the stockholders immediately before such merger or
consolidation do not, as a result of such merger or consolidation, own, directly
or indirectly, more than 60 percent of the combined voting power of the then
outstanding voting securities of the entity resulting from such merger or
consolidation in substantially the same proportion as their ownership of the
combined voting power of the voting securities of Sabratek outstanding
immediately before such merger or consolidation; or (B) a complete liquidation
or dissolution, or an agreement for the sale or other disposition, of all or
substantially all of the assets of Sabratek.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because 40 percent or more of the combined voting power of the
then outstanding securities is acquired by (i) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of Sabratek, or (ii) any corporation that, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of Sabratek in
the same proportion as their ownership of stock of Sabratek immediately prior to
such acquisition.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "COMMITTEE" shall mean the Compensation Committee of the
Board.
(g) "DISABILITY" shall mean the illness or other mental or
physical disability of Padda, as determined under the long-term disability plan
of Sabratek covering Padda, or if no such plan exists, Padda's failure (i) to
perform substantially his material duties under this Agreement for a period of
six consecutive months, or for an aggregate of 270 days during any 12-month
period, and
3
<PAGE> 4
(ii) to return to the performance of his duties within 30 days after receiving
written notice of termination.
(h) "SALARY" shall mean the annual salary provided for in Section
3 below, as adjusted from time to time.
(i) "TERM OF EMPLOYMENT" OR "TERM" shall mean the period specified
in Section 2(b) below.
(j) "YEAR" shall mean the calendar year, which is the fiscal year
of Sabratek.
2. EMPLOYMENT TERM, POSITIONS AND DUTIES.
(a) EMPLOYMENT OF PADDA. Sabratek hereby continues to employ
Padda, and Padda hereby accepts continued employment with Sabratek, in the
positions and with the duties and responsibilities set forth below and upon
such other terms and conditions as are hereinafter stated.
(b) TERM OF EMPLOYMENT. The Term of Employment shall commence on
the date hereof and shall terminate on September 27, 2003; provided, however,
that at the end of each 12-month period after September 27, 2000 (unless either
Party gives six months' written notice to the other that the Term shall not
continue), the Term shall thereafter automatically extend for an additional 12-
month period (with the result that, in the absence of such notice, the Term
shall never be less than three years in length), unless the Term is sooner
terminated as provided in Section 9 below.
(c) TITLES AND DUTIES.
(i) Until the date of termination of his employment hereunder,
Padda shall be employed as Chief Executive Officer, reporting to the full Board.
In his capacity as Chief Executive Officer, Padda shall have the customary
powers, responsibilities and authorities of chief executive
4
<PAGE> 5
officers of corporations of the size, type and nature of Sabratek including,
without limitation, authority, in conjunction with the Board as appropriate, to
hire and terminate other employees of Sabratek.
(ii) During the Term of Employment, Sabratek shall use its
best efforts to secure the election of Padda to the Board and to the
chairmanship thereof.
(d) TIME AND EFFORT.
(i) Padda agrees to devote his best efforts and abilities, and
such of his business time and attention as is reasonably necessary, to the
affairs of Sabratek in order to carry out his duties and responsibilities under
this Agreement.
(ii) Notwithstanding the foregoing, nothing shall preclude
Padda from (A) serving on the boards of a reasonable number of trade
associations, charitable organizations and/or businesses not in competition with
Sabratek, (B) engaging in charitable activities and community affairs, and (C)
managing his personal investments and affairs; provided, however, that, such
activities do not materially interfere with the proper performance of his duties
and responsibilities specified in Section 2 (c).
3. SALARY.
Padda shall receive from Sabratek a Salary, payable in accordance with
the regular payroll practices of Sabratek, in a minimum amount of $250,000.
During the Term the Committee shall review his Salary no less often than once
each Year, commencing January 1, 2000. On the basis of any such review, the
Committee may in its sole discretion increase Padda's Salary accordingly. The
term "Salary" as used in this Agreement shall refer to his Salary at any time as
so adjusted.
5
<PAGE> 6
4. BONUSES.
(a) ANNUAL BONUS. Padda shall be eligible to receive an annual
bonus for each Year or portion thereof during the Term, which bonus shall not be
(i) less than 60% of his Salary if he achieves 100% of specified performance
objectives, or (ii) less than 70% of his Salary if he achieves 120% of specified
performance objectives for any Year. The performance objectives shall be
determined and approved at the beginning of each Year by the Committee and
agreed to by Padda.
(b) SPECIAL BONUS. Padda shall be eligible to receive additional
bonuses during the Term. The Committee shall determine, in its discretion, the
occasion for payment, and the amount, of any such bonus.
5. LONG-TERM INCENTIVE COMPENSATION.
During the Term, Padda shall be entitled to participate in Sabratek's
Long-Term Incentive Compensation Plan (the "LTIP"), a copy of which is attached
hereto as Attachment I, and receive awards thereunder in accordance with its
terms.
6. EQUITY OPPORTUNITY.
During the Term, Padda shall be eligible to receive grants of options
to purchase shares of Sabratek's stock and awards of shares of Sabratek's stock,
either or both as determined by the Committee, under and in accordance with the
terms of applicable plans of Sabratek and related option and award agreements.
7. EXPENSE REIMBURSEMENT; CERTAIN OTHER COSTS.
During the Term, Padda shall be entitled to prompt reimbursement by
Sabratek for all reasonable out-of-pocket expenses incurred by him in performing
services under this Agreement, upon his submission of such accounts and records
as may be reasonably required by Sabratek. In
6
<PAGE> 7
addition, Padda shall be entitled to payment by Sabratek of all reasonable costs
and expenses, including attorneys' and consultants' fees and disbursements,
incurred by him in connection with adoption of this Agreement and any related
compensatory arrangements that Sabratek adopts solely for his benefit.
8. EMPLOYEE BENEFIT PLANS.
During the Term Padda shall be entitled to all benefits specifically
established for him, including, but not limited to, a $900 per month housing
allowance, and to participate in all employee benefit plans and programs made
available to Sabratek's senior executives or to its employees generally, as such
plans or programs may be in effect from time to time, including, without
limitation, pension and other retirement plans, profit-sharing plans, savings
and similar plans, group life insurance, accidental death and dismemberment
insurance, travel accident insurance, hospitalization insurance, surgical
insurance, major and excess major medical insurance, dental insurance,
short-term and long-term disability insurance, sick leave (including salary
continuation arrangements), holidays, vacation and any other employee benefit
plans or programs that may be sponsored by Sabratek from time to time, including
plans that supplement the above-listed types of plans, whether funded or
unfunded.
9. TERMINATION OF EMPLOYMENT.
(a) VOLUNTARY TERMINATION AND TERMINATION BY MUTUAL AGREEMENT. Padda
may terminate his employment voluntarily at any time. If he does so, his
entitlement hereunder shall be the same as if Sabratek had terminated his
employment for Cause. The Parties may terminate this Agreement by mutual
agreement at any time. If they do so, Padda's entitlement shall be as the
Parties mutually agree.
7
<PAGE> 8
(b) GENERAL. Notwithstanding anything to the contrary herein, in
the event of termination of Padda's employment under this Agreement, he or his
Beneficiary, as the case may be, shall be entitled to receive (in addition to
payments and benefits under, and except as specifically provided in, subsections
(c) through (h) below, as applicable):
(i) his Salary through the date of termination;
(ii) any unused vacation from prior years according to
Sabratek's vacation policy;
(iii) any annual or special bonus awarded but not yet paid to
him;
(iv) any deferred compensation payable under any deferred
compensation plan of Sabratek;
(v) any other compensation or benefits, including without
limitation long-term incentive compensation described in Section 5 above,
benefits under equity grants and awards described in Section 6 above and
employee benefits under plans described in Section 8 above, that have vested
through the date of termination or to which he may then be entitled in
accordance with the applicable terms and conditions of each grant, award or
plan; and
(vi) reimbursement in accordance with Section 7 above of any
business expenses incurred by Padda through the date of termination but not yet
paid to him.
(c) TERMINATION DUE TO DEATH. In the event that Padda's employment
is terminated due to his death, his Beneficiary shall be entitled, in addition
to the compensation and benefits specified in Section 9(b), to:
(i) Padda's Salary, at the rate in effect immediately before
such termination, payable through the end of the month in which the proceeds of
his life insurance under Sabratek's group plan are paid; and
8
<PAGE> 9
(ii) a prorated annual bonus for the Year in which his death
occurs.
(d) TERMINATION DUE TO DISABILITY. In the event of Disability,
Sabratek or Padda may terminate Padda's employment. If Padda's employment is
terminated due to Disability, he shall be entitled, in addition to the
compensation and benefits specified in Section 9(b), to a prorated annual bonus
for the Year in which his termination for Disability occurs.
(e) TERMINATION BY SABRATEK FOR CAUSE. Sabratek may terminate
Padda's employment hereunder for Cause only upon written notice to Padda not
less than 45 days prior to any intended termination date, which notice shall
specify the grounds for such termination in reasonable detail. Cause shall in no
event be deemed to exist except upon a finding reflected in a resolution
approved by a majority (excluding Padda) of the members of the Board (whose
findings shall not be binding upon or entitled to any deference by any court,
arbitrator or other decision-maker ruling on this Agreement). Upon receipt of
such notice, Padda (and his counsel) shall have 30 days to present to the Board
his position regarding any dispute relating to the existence of such Cause.
Unless rescinded by the Board, termination shall be effective on the date
specified in the original notice.
In the event that Padda's employment is terminated for Cause, he shall
be entitled only to the compensation and benefits specified in Section 9(b).
(f) TERMINATION WITHOUT CAUSE.
(i) Termination without Cause shall mean: (A) termination of
Padda's employment by Sabratek and shall include any reason for termination
other than (i) due to death, Disability or Cause, (ii) by Padda voluntarily, or
(iii) by mutual agreement of Padda and Sabratek; or (B) Sabratek changes the
primary employment location of Padda to a place that is outside the
9
<PAGE> 10
Chicago metropolitan area. Sabratek shall provide Padda ten days' prior written
notice of termination by it without Cause.
(ii) In the event of termination by Sabratek of Padda's
employment without Cause, he shall be entitled, and Sabratek shall set aside in
escrow pursuant to the provisions of Section 9(i)(ii) (without regard to
Subsection (A) through (D) thereof) an amount sufficient to pay, in addition to
the compensation and benefits specified in Section 9(b), to:
(A) his Salary, at the rate in effect immediately before
such termination, for the longer of the remainder of the Term or three years;
and
(B) a prorated annual bonus for any partial year and an
annual bonus for each remaining Year of the Term equal to the average of the
three highest annual bonuses awarded to him during the five Years preceding the
Year of termination, such bonus to be paid at the same time annual bonuses are
regularly paid; and
(C) continued coverage under the health program
maintained by Sabratek for the remainder of the Term; and
(D) the Cumulative Unit Value (as defined in and
calculated under the LTIP) for each unit awarded under the LTIP prior to the
date of termination to be paid in accordance with the terms thereof; and
(E) notwithstanding anything in this Section 9(f) to the
contrary, Sabratek shall have no further obligation to make any salary or bonus
payments for any period following the first date on which Padda takes any action
which would fall within the definition of "Restrictive Covenant" as provided in
Section 12(a) hereof, whether or not such action occurs within the Restrictive
Period (as defined in Section 12(a) hereof).
10
<PAGE> 11
(g) VOLUNTARY TERMINATION BY PADDA. Padda shall have the right,
upon 60 days' prior written notice, voluntarily to terminate his employment. If
he exercises this right, his employment shall cease and the Term shall terminate
as of the date stated in such notice, and he shall be entitled to receive
compensation and benefits as if Sabratek had terminated his employment for
Cause, as provided in Section 9(e).
(h) NOTICE THAT THE TERM SHALL NOT RENEW. In the event that either
Party notifies the other that the Employment Term shall not renew pursuant to
the terms of Section 2(b) above, Padda shall continue to render services to
Sabratek through the end of the Term as in effect on the date of delivery of
such notice, unless: (A) the non-renewal decision was made by Sabratek, in which
case, (1) the Committee may elect to treat the notice as a termination without
Cause of Padda's employment, or (2) Padda may elect to treat the notice as
termination for Cause; or (B) the non-renewal decision was made by Padda, in
which case, the Committee may elect to treat the notice as a voluntary
termination of employment by Padda.
(i) CHANGE IN CONTROL. (i) Notwithstanding anything to the
contrary in this Section 9, if, within twelve months following a Change in
Control (A) Padda's employment is terminated for any reason other than death or
Disability, or (B) Padda terminates his employment, he shall be entitled to the
compensation and benefits provided in Sections 9(b) and 9(f)(ii), including, but
not limited to, any other compensation or benefits, including the Maximum
Cumulative Unit Value (as defined in the LTIP) for each unit awarded under the
LTIP to the date of termination, benefits under equity grants and awards
described in Section 6 above and employee benefits under plans described in
Section 8 above, that have vested through the date of termination or to which he
may then be entitled in accordance with the applicable terms and conditions of
each grant, award or plan.
11
<PAGE> 12
(ii) Immediately upon: (A) the filing by a third-party with
the United States Securities and Exchange Commission of any proxy or tender
offer material evidencing an intent to gain control of the Company; (B) the
mailing of a proxy statement by the Company to shareholders requesting an
affirmative vote regarding a Change in Control; or (C) the receipt of
information by the Company that 40 percent or more of its outstanding common
stock has been acquired by any person (as defined under the 1934 Act), the
Company shall contribute to an irrevocable grantor trust (a "Rabbi Trust") an
amount sufficient to enable all potential amounts due to Padda under this
Section to be paid. The Company shall provide Padda with a certification of the
payment to such trust of all such amounts. All such amounts which are due to
Padda shall be paid using the assets of said trust except to the extent its
terms preclude such payment, in which event payment shall be made by the Company
from its own funds, or unless the Company elects to pay any or all such amounts
from its own funds.
10. PARACHUTES.
(a) APPLICATION. If all, or any portion, of the payments provided
under this Agreement, and/or any other payments and benefits that Padda receives
or is entitled to receive from Sabratek, including, but not limited to, amounts
generated from the exercise and sale of options granted to Padda, constitutes an
excess "parachute payment" within the meaning of Section 280G(b) of the Code,
whether or not under an existing plan, arrangement or other agreement (each such
parachute payment, a "Parachute Payment") and will result in the imposition on
Padda of an excise tax under Section 4999 of the Code, then, in addition to any
other benefits to which Padda is entitled under this Agreement, Sabratek shall
pay him an amount in cash equal to the sum of the excise taxes payable by him by
reason of receiving such Parachute Payments, plus the amount necessary to put
him in
12
<PAGE> 13
the same after-tax position (taking into account any and all applicable federal,
state and local excise, income or other taxes at the highest possible applicable
rates on such Parachute Payments (including without limitation any payments
under this Section 10) as if no excise taxes had been imposed with respect to
Parachute Payments (the "Parachute Gross-up").
(b) COMPUTATION. The amount of any payment under this Section 10
shall be computed by Sabratek's certified public accounting firm in consultation
with legal counsel acceptable to Padda. Padda and Sabratek shall provide the
accounting firm with all information that it reasonably deems necessary in order
to compute the Parachute Gross-up. The cost and expenses of the accounting firm
retained to perform the computations shall be borne by Sabratek.
(c) PAYMENT. In any event, Sabratek shall pay to Padda, or pay on
his behalf, the Parachute Gross-up as computed by the accounting firm by the
time any taxes payable by him as a result of the Parachute Payments become due.
In the event that the Internal Revenue Service ("IRS") determines that
the amount of excise taxes thereon initially paid was insufficient to discharge
Padda's excise tax liability, Sabratek shall make additional payments to him as
may be necessary to reimburse him for discharging the full liability.
11. CONFIDENTIALITY AND LOYALTY.
(a) GENERAL.
(i) Padda hereby acknowledges that as a result of his
employment with Sabratek he has produced and had access to, and may hereafter
produce and have access to, material, records, data, trade secrets, inventions
and information not generally available to the public (collectively,
13
<PAGE> 14
"Confidential Information") regarding Sabratek and that any such Confidential
Information is the exclusive property of Sabratek.
(ii) Accordingly, Padda hereby agrees that, during and
subsequent to the Term, he shall hold in confidence and not directly or
indirectly disclose, use, copy or make lists of any such Confidential
Information, except to the extent that such information is or thereafter becomes
lawfully available from public sources, or such disclosure is authorized in
writing by Sabratek, required by a law or any competent administrative agency or
judicial authority, or otherwise as reasonably necessary or appropriate in
connection with performance by Padda of his duties hereunder.
(b) RETURN OF DOCUMENTS. All records, files, documents and other
materials or copies thereof relating to Sabratek's business that Padda prepares
or uses shall be and remain the sole property of Sabratek and shall not be
removed from Sabratek's premises without its written consent. Upon termination
of Padda's employment with Sabratek for any reason, he shall promptly deliver to
Sabratek all such items that are then in his possession or control.
(c) DUTY OF LOYALTY. Padda hereby agrees to abide by Sabratek's
reasonable policies, as in effect from time to time, respecting avoidance of
interests conflicting with those of Sabratek.
(d) REMEDIES AND SANCTIONS. In the event that Padda is found to be
in violation of Section 11(a), (b) or (c), Sabratek shall be entitled to relief
as provided in Section 13 below.
12. NONCOMPETITION/NONSOLICITATION.
(a) RESTRICTIVE COVENANT. Padda hereby agrees that, except with
the express prior written consent of Sabratek, for a period of one year after
termination of his employment with Sabratek for any reason (the "Restrictive
Period"), he will not directly or indirectly compete with the business of
Sabratek as conducted on the date of such termination, including, but not by way
of
14
<PAGE> 15
limitation, by (i) directly or indirectly owning, managing, operating,
controlling, financing, (ii) directly or indirectly serving as an employee,
officer or director of or consultant to, or (iii) soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Sabratek to terminate
employment with Sabratek and become employed by, any person, firm, partnership,
corporation, trust or other entity that owns or operates an entity that is
engaged in the same or similar business as Sabratek as conducted on the date of
such termination (the "Restrictive Covenant").
If Padda violates the Restrictive Covenant and Sabratek brings legal
action for injunctive or other relief, Sabratek shall not, as a result of the
time involved in obtaining such relief, be deprived of the benefit of the full
period of the Restrictive Covenant. Accordingly, the Restrictive Covenant shall
be deemed to endure for the period specified in this Section 12(a), computed
from the date the relief is granted but reduced by the time between the period
when the Restrictive Period began to run and the date of the first violation of
the Restrictive Covenant by Padda.
(b) EXCEPTIONS. Notwithstanding anything to the contrary in
Section 12(a), the Restrictive Covenant shall not:
(i) apply if Sabratek terminates Padda's employment without
Cause, as provided in Section 9(f) above; or
(ii) prohibit Padda from owning directly or indirectly capital
stock or similar securities which do not represent more than five percent of the
outstanding capital stock of any business similar to that of Sabratek as
conducted on the date of such termination.
(c) REMEDIES AND SANCTIONS. In the event that Padda is found to be
in violation of Section 12(a) above, Sabratek shall be entitled to relief as
provided in Section 13 below.
13. REMEDIES/SANCTIONS.
15
<PAGE> 16
Padda hereby acknowledges that the restrictions contained in Sections
11 (a), (b) and (c) and 12(a) above are reasonable and necessary for the
protection of the legitimate business interests of Sabratek, for which monetary
damages alone may not provide an adequate remedy, that any violation of these
restrictions would cause substantial injury to Sabratek and such interests, that
Sabratek would not have entered into this Agreement without receiving the
additional consideration offered by Padda in binding himself to these
restrictions and that such restrictions were a material inducement to Sabratek
to enter into this Agreement.
In the event of any violation or threatened violation of these
restrictions, Sabratek (a) shall be relieved of any further obligations under
the Agreement, (b) shall be entitled to monetary damages resulting from such
violation, and (c) in addition to and not in limitation of, any other rights,
remedies or damages available to Sabratek under this Agreement or otherwise at
law or in equity, shall be entitled to preliminary and permanent injunctive
relief to prevent or restrain any such violation by Padda and any and all
persons directly or indirectly acting for or with him, as the case may be.
14. BENEFICIARIES/REFERENCES.
Padda shall be entitled to select (and change, to the extent permitted
under any applicable law) a Beneficiary or Beneficiaries to receive any
compensation or benefit payable under this Agreement following his death by
giving Sabratek written notice thereof. In the event of Padda's death, or of a
judicial determination of his incompetence, reference in this Agreement to Padda
shall be deemed to refer, as appropriate, to his Beneficiary, estate or other
legal representative.
15. WITHHOLDING TAXES.
16
<PAGE> 17
All payments to Padda or his Beneficiary under this Agreement shall be
subject to withholding on account of federal, state and local taxes as required
by law.
16. INDEMNIFICATION AND LIABILITY INSURANCE.
Nothing herein is intended to limit Sabratek's indemnification of
Padda, and Sabratek shall indemnify him to the fullest extent permitted by
applicable law consistent with Sabratek's Certificate of Incorporation and
By-Laws as in effect at the beginning of the Term, with respect to any action or
failure to act on his part while he is an officer, director or employee of
Sabratek. Sabratek shall cause Padda to be covered at all times by directors'
and officers' liability insurance on terms no less favorable than the directors'
and officers' liability insurance maintained by Sabratek in effect on the date
hereof in terms of coverage and amounts. Sabratek shall continue to indemnify
Padda as provided above and maintain such liability insurance coverage for him
after the Term for any claims that may be made against him with respect to his
service as a director or officer of Sabratek.
17. EFFECT OF AGREEMENT ON OTHER BENEFITS.
The existence of this Agreement shall not prohibit or restrict Padda's
entitlement to participate fully in compensation, employee benefit and other
plans of Sabratek in which senior executives are eligible to participate.
18. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of Padda) and
assigns. No rights or obligations of Sabratek under this Agreement may be
assigned or transferred by Sabratek except pursuant to (a) a merger or
consolidation or (b) sale or liquidation of all or substantially all of the
assets of Sabratek, provided that the surviving entity or assignee or transferee
is the successor to all or substantially all of the
17
<PAGE> 18
assets of Sabratek and, in the case of a sale or other transfer of assets or a
merger in which Sabratek is not the surviving entity, such surviving entity or
assignee or transferee agrees in writing to assume the liabilities, obligations
and duties of Sabratek under this Agreement. Notwithstanding such assignment,
Sabratek shall remain liable and responsible for fulfillment of the terms and
conditions of this Agreement; and provided further, that in no event shall such
assignment of this Agreement adversely affect Padda's right upon a Change in
Control, as provided in Section 9(i) above. No rights or obligations of Padda
under this Agreement may be assigned or transferred by him.
19. REPRESENTATIONS.
The Parties respectively represent and warrant that each is fully
authorized and empowered to enter into this Agreement and that the performance
of its or his obligations, as the case may be, under this Agreement will not
violate any agreement between such Party and any other person, firm or
organization. Sabratek represents and warrants that this Agreement has been duly
authorized by all necessary corporate action and is valid, binding and
enforceable in accordance with its terms.
20. ENTIRE AGREEMENT.
Except to the extent otherwise provided herein, this Agreement contains
the entire understanding and agreement between the Parties concerning the
subject matter hereof and supersedes any prior agreements, whether written or
oral, between the Parties concerning the subject matter hereof, including
without limitation, the agreement made and entered into as of January 1, 1996
between Sabratek and Padda as heretofore amended and supplemented, provided that
the execution of this Agreement shall not adversely affect (i) any award
previously made to Padda under any compensation plan maintained by Sabratek, or
(ii) any statements regarding the vesting of options or other benefits in such
prior agreements. Payments and benefits provided under this
18
<PAGE> 19
Agreement are in lieu of any payments or other benefits under any severance
program or policy of Sabratek to which Padda would otherwise be entitled.
21. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by both Padda and an authorized officer of
Sabratek. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Party to be charged with the waiver. No delay by either Party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof.
22. SEVERABILITY.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
23. SURVIVAL.
The respective rights and obligations of the Parties under this
Agreement shall survive any termination of Padda's employment with Sabratek.
19
<PAGE> 20
24. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of Illinois, without reference to principles of
conflict of laws.
25. ARBITRATION.
Any dispute or controversy other than a dispute or controversy arising
under Sections 11 or 12 hereof (actions regarding which may be brought in any
court (i) having situs within Cook County, Illinois and (ii) having jurisdiction
over the dispute or controversy) arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Padda within thirty (30)
miles from the main office of Sabratek, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
through the date of termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
26. LEGAL FEES.
All reasonable expenses and legal fees paid or incurred by Padda
pursuant to any bona fide dispute or question of interpretation relating to this
Agreement, including all such expenses and fees, if any, incurred in contesting
any termination of this Agreement by Sabratek or in seeking to obtain or enforce
any right or benefit provided by this Agreement, shall be paid or reimbursed by
Sabratek, provided, however, that if this Agreement is terminated for Cause or
if this Agreement is terminated voluntarily by Padda other than due to a breach
of this Agreement by Sabratek, Sabratek shall be
20
<PAGE> 21
obligated to pay any of Padda's expenses and legal fees arising therefrom only
if Padda is successful on the merits pursuant to a legal judgment, arbitration
or settlement.
27. NOTICES.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered either personally, by fax, by overnight
delivery service (such as Federal Express) or sent by certified or registered
mail postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as the Party
may subsequently give notice of:
If to Sabratek or the Board:
Sabratek Corporation
8111 North St. Louis Avenue
Skokie, Illinois 60076
Attention: President
FAX: (847) 647-2382
with a copy to:
Ross & Hardies
150 North Michigan Avenue
Chicago, Illinois 60601
Attention: David S. Guin
PHONE: (312) 750-3501
FAX: (312) 750-8600
If to Padda:
Sabratek Corporation
8111 North St. Louis Avenue
Skokie, Illinois 60076
Attention: Chairman
FAX: (847) 647-2382
21
<PAGE> 22
and
K. Shan Padda
1901 North Clybourn, 4th Floor
Chicago, Illinois 60614
28. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
29. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have Agreement as of the date first
written above.
SABRATEK CORPORATION
By: -----------------------------------------
Edson W. Spencer, Jr., Chairman
of the Compensation Committee
-----------------------------------------
K. Shan Padda
22
<PAGE> 1
EXHIBIT 10.31.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
as of September 28, 1998, by and between Sabratek Corporation, a Delaware
corporation, with its principal office located at 8111 North St. Louis Avenue,
Skokie, Illinois 60076 (together with its successors and assigns permitted under
this Agreement, "Sabratek") and Stephen L. Holden ("Employee").
WITNESSETH:
WHEREAS, Sabratek has determined that it is in the best interests of
Sabratek and its stockholders to continue to employ Employee and to set forth in
this Agreement the obligations and duties of both Sabratek and Employee; and
WHEREAS, Sabratek wishes to assure itself of the services of Employee
for the period hereinafter provided, and Employee is willing to be employed by
Sabratek for said period, upon the terms and conditions provided in this
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, Sabratek and Employee (individually a "Party"
and together the "Parties" ) agree as follows:
<PAGE> 2
1. DEFINITIONS.
(a) "BENEFICIARY" shall mean the person or persons named by Employee
pursuant to Section 13 below or, in the event that no such person is named who
survives Employee, his estate.
(b) "BOARD" shall mean the Board of Directors of Sabratek.
(c) "CAUSE" shall mean:
(i) Employee being found guilty of a felony or an act of fraud or
embezzlement, in each case related to Sabratek or its business;
(ii) any repeated and demonstrated failure by Employee to discharge
faithfully the responsibilities of his position that the Board in good faith
determines is extremely detrimental to the current and future interests of
Sabratek; or
(iii) a material breach by Employee of any provision of this
Agreement.
(d) "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events:
(i) Consummation of the acquisition by any person (as such term is
defined in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")) of beneficial ownership (within the meaning of Rule
l3d-3 promulgated under the 1934 Act) of 40 percent or more of the combined
voting power of the then outstanding voting securities of Sabratek; or
(ii) The individuals who, as of the date hereof, are members of the
Board cease for any reason to constitute a majority of the Board, unless the
election, or nomination for election by the stockholders of Sabratek, of any new
director or directors was approved by a vote of a majority of the Board, in
which case such new director or directors shall, for purposes of this Agreement,
be considered as a member or members of the Board; or
2
<PAGE> 3
(iii) Approval by stockholders of Sabratek of (A) a merger or
consolidation of Sabratek if the stockholders immediately before such merger or
consolidation do not, as a result of such merger or consolidation, own, directly
or indirectly, more than 60 percent of the combined voting power of the then
outstanding voting securities of the entity resulting from such merger or
consolidation in substantially the same proportion as their ownership of the
combined voting power of the voting securities of Sabratek outstanding
immediately before such merger or consolidation; or (B) a complete liquidation
or dissolution, or an agreement for the sale or other disposition, of all or
substantially all of the assets of Sabratek.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because 40 percent or more of the combined voting power of the
then outstanding securities is acquired by (i) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of Sabratek, or (ii) any corporation that, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of Sabratek in
the same proportion as their ownership of stock of Sabratek immediately prior to
such acquisition.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(f) "COMMITTEE" shall mean the Compensation Committee of the Board.
(g) "DISABILITY" shall mean the illness or other mental or physical
disability of Employee, as determined under the long-term disability plan of
Sabratek covering Employee, or if no such plan exists, Employee's failure (i)
to perform substantially his material duties under this Agreement for a period
of six consecutive months, or for an aggregate of 270 days during any 12-
3
<PAGE> 4
month period, and (ii) to return to the performance of his duties within 30 days
after receiving written notice of termination.
(h) "SALARY" shall mean the annual salary provided for in Section 3
below, as adjusted from time to time.
(i) "TERM OF EMPLOYMENT" or "TERM" shall mean the period specified in
Section 2(b) below.
(j) "YEAR" shall mean the calendar year, which is the fiscal year of
Sabratek.
2. EMPLOYMENT TERM, POSITIONS AND DUTIES.
(a) EMPLOYMENT OF EMPLOYEE. Sabratek hereby continues to employ
Employee, and Employee hereby accepts continued employment with Sabratek, in the
positions and with the duties and responsibilities set forth below and upon such
other terms and conditions as are hereinafter stated.
(b) TERM OF EMPLOYMENT. The Term of Employment shall commence on the
date hereof and shall terminate on September 27, 2001; provided, however, that
at the end of each 12-month period after September 27, 1999 (unless either Party
gives three months' written notice to the other that the Term shall not
continue), the Term shall thereafter automatically extend for an additional
12-month period (with the result that, in the absence of such notice, the Term
shall never be less than two years in length), unless the Term is sooner
terminated as provided in Section 9 below.
(c) TITLES AND DUTIES. Until the date of termination of his employment
hereunder, Employee shall be employed as President and Treasurer, reporting to
the Chief Executive Officer. In his capacity as President and Treasurer,
Employee shall have the customary powers,
4
<PAGE> 5
responsibilities and authorities of president and treasurer of
corporations of the size, type and nature of Sabratek.
(d) TIME AND EFFORT.
(i) Employee agrees to devote his full business time to the affairs
of Sabratek in order to carry out his duties and responsibilities under this
Agreement.
(ii) Notwithstanding the foregoing, nothing shall preclude Employee
from (A) serving on the boards of a reasonable number of trade associations,
charitable organizations and/or businesses not in competition with Sabratek, (B)
engaging in charitable activities and community affairs, and (C) managing his
personal investments and affairs; provided, however, that, such activities do
not materially interfere with the proper performance of his duties and
responsibilities specified in Section 2(c).
3. SALARY.
Employee shall receive from Sabratek a Salary, payable in accordance
with the regular payroll practices of Sabratek, in a minimum amount of $200,000.
During the Term the Chief Executive Officer shall review his Salary no less
often than once each Year, commencing January 1, 1999. On the basis of any such
review, the Chief Executive Officer may in its sole discretion adjust Employee's
Salary accordingly. The term "Salary" as used in this Agreement shall refer to
his Salary at any time as so adjusted.
4. BONUSES.
(a) ANNUAL BONUS. Employee shall be eligible to receive an annual bonus
for each Year or portion thereof during the Term, which bonus shall not be (i)
less than 40% of his Salary if he achieves 80% of specified performance
objectives, (ii) less than 50% of his Salary if he achieves
5
<PAGE> 6
100% of specified performance objectives, or (iii) less than 60% of his Salary
if he achieves 120% of specified performance objectives for any Year. The
performance objectives shall be determined and approved at the beginning of each
Year by the Chief Executive Officer and agreed to by Employee.
(b) SPECIAL BONUS. Employee shall be eligible to receive additional
bonuses during the Term. The Chief Executive Officer shall determine, in its
discretion, the occasion for payment, and the amount, of any such bonus.
5. LONG-TERM INCENTIVE COMPENSATION.
During the Term, Employee shall be entitled to participate in
Sabratek's Long-Term Incentive Compensation Plan (the "LTIP"), a copy of which
is attached hereto as Attachment I, and receive awards thereunder in accordance
with its terms.
6. EQUITY OPPORTUNITY.
During the Term, Employee shall be eligible to receive grants of
options to purchase shares of Sabratek's stock and awards of shares of
Sabratek's stock, either or both as determined by the Chief Executive Officer,
under and in accordance with the terms of applicable plans of Sabratek and
related option and award agreements.
7. EXPENSE REIMBURSEMENT; CERTAIN OTHER COSTS.
During the Term, Employee shall be entitled to prompt reimbursement by
Sabratek for all reasonable out-of-pocket expenses incurred by him in performing
services under this Agreement, upon his submission of such accounts and records
as may be reasonably required by Sabratek. In addition, Employee shall be
entitled to payment by Sabratek of all reasonable costs and expenses, including
attorneys' and consultants' fees and disbursements, incurred by him in
connection with
6
<PAGE> 7
adoption of this Agreement and any related compensatory arrangements that
Sabratek adopts solely for his benefit.
8. EMPLOYEE BENEFIT PLANS.
During the Term Employee shall be entitled to all benefits specifically
established for him, and to participate in all employee benefit plans and
programs made available to Sabratek's senior executives or to its employees
generally, as such plans or programs may be in effect from time to time,
including, without limitation, pension and other retirement plans,
profit-sharing plans, savings and similar plans, group life insurance,
accidental death and dismemberment insurance, travel accident insurance,
hospitalization insurance, surgical insurance, major and excess major medical
insurance, dental insurance, short-term and long-term disability insurance, sick
leave (including salary continuation arrangements), holidays, vacation and any
other employee benefit plans or programs that may be sponsored by Sabratek from
time to time, including plans that supplement the above-listed types of plans,
whether funded or unfunded.
9. TERMINATION OF EMPLOYMENT.
(a) VOLUNTARY TERMINATION AND TERMINATION BY MUTUAL AGREEMENT. Employee
may terminate his employment voluntarily at any time. If he does so, his
entitlement hereunder shall be the same as if Sabratek had terminated his
employment for Cause. The Parties may terminate this Agreement by mutual
agreement at any time. If they do so, Employee's entitlement shall be as the
Parties mutually agree.
(b) GENERAL. Notwithstanding anything to the contrary herein, in the
event of termination of Employee's employment under this Agreement, he or his
Beneficiary, as the case may
7
<PAGE> 8
be, shall be entitled to receive (in addition to payments and benefits under,
and except as specifically provided in, subsections (c) through (h) below, as
applicable):
(i) his Salary through the date of termination;
(ii) any unused vacation from prior years according to Sabratek's
vacation policy;
(iii) any annual or special bonus awarded but not yet paid to him;
(iv) any deferred compensation payable under any deferred
compensation plan of Sabratek;
(v) any other compensation or benefits, including without
limitation long-term incentive compensation described in Section 5 above,
benefits under equity grants and awards described in Section 6 above and
employee benefits under plans described in Section 8 above, that have vested
through the date of termination or to which he may then be entitled in
accordance with the applicable terms and conditions of each grant, award or
plan; and
(vi) reimbursement in accordance with Section 7 above of any
business expenses incurred by Employee through the date of termination but not
yet paid to him.
(c) TERMINATION DUE TO DEATH. In the event that Employee's employment
is terminated due to his death, his Beneficiary shall be entitled, in addition
to the compensation and benefits specified in Section 9(b), to:
(i) Employee's Salary, at the rate in effect immediately before
such termination, payable through the end of the month in which the proceeds of
his life insurance under Sabratek's group plan are paid; and
(ii) a prorated annual bonus for the Year in which his death
occurs.
8
<PAGE> 9
(d) TERMINATION DUE TO DISABILITY. In the event of Disability, Sabratek
or Employee may terminate Employee's employment. If Employee's employment is
terminated due to Disability, he shall be entitled, in addition to the
compensation and benefits specified in Section 9(b), to a prorated annual bonus
for the Year in which his termination for Disability occurs.
(e) TERMINATION BY SABRATEK FOR CAUSE. Sabratek may terminate
Employee's employment hereunder for Cause only upon written notice to Employee
not less than 45 days prior to any intended termination date, which notice shall
specify the grounds for such termination in reasonable detail. Upon receipt of
such notice, Employee (and his counsel) shall have 30 days to present to the
Chief Executive Officer his position regarding any dispute relating to the
existence of such Cause. Unless rescinded by the Chief Executive Officer,
termination shall be effective on the date specified in the original notice.
In the event that Employee's employment is terminated for Cause, he
shall be entitled only to the compensation and benefits specified in Section
9(b).
(f) TERMINATION WITHOUT CAUSE.
(i) Termination without Cause shall mean: (A) termination of
Employee's employment by Sabratek and shall include any reason for termination
other than (i) due to death, Disability or Cause, (ii) by Employee voluntarily,
or (iii) by mutual agreement of Employee and Sabratek; or (B) Sabratek changes
the primary employment location of Employee to a place that is outside of the
Chicago metropolitan area. Sabratek shall provide Employee ten days' prior
written notice of termination by it without Cause.
9
<PAGE> 10
(ii) In the event of termination by Sabratek of Employee's
employment without Cause, he shall be entitled, in addition to the compensation
and benefits specified in Section 9(b), to:
(A) his Salary, at the rate in effect immediately before such
termination, for the longer of the remainder of the Term or two years; and
(B) a prorated annual bonus for any partial year and an annual
bonus for each remaining Year of the Term equal to the average of the three
highest annual bonuses awarded to him during the five Years preceding the Year
of termination, such bonuses to be paid at the same time annual bonuses are
regularly paid; and
(C) continued coverage under the health program maintained by
Sabratek for the remainder of the Term; and
(D) the Cumulative Unit Value (as defined in and calculated
under the LTIP) for each unit awarded under the LTIP prior to the date of
termination to be paid in accordance with the terms thereof; and
(E) notwithstanding anything in this Section 9(f) to the
contrary, Sabratek shall have no further obligation to make any salary or bonus
payments for any period following the first date on which Employee takes any
action which would fall within the definition of "Restrictive Covenant" as
provided in Section 12(a) hereof, whether or not such action occurs within the
Restrictive Period (as defined in Section 12(a) hereof).
(g) VOLUNTARY TERMINATION BY EMPLOYEE. Employee shall have the right,
upon 60 days' prior written notice, voluntarily to terminate his employment. If
he exercises this right, his employment shall cease and the Term shall terminate
as of the date stated in such notice, and he shall
10
<PAGE> 11
be entitled to receive compensation and benefits as if Sabratek had terminated
his employment for Cause, as provided in Section 9(e).
(h) NOTICE THAT THE EMPLOYMENT TERM SHALL NOT RENEW. In the event that
either Party notifies the other that the Employment Term shall not renew
pursuant to the terms of Section 2(b) above, Employee shall continue to render
services to Sabratek through the end of the Term as in effect on the date of
delivery of such notice, unless: (A) the non-renewal decision was made by
Sabratek, in which case, (1) the Chief Executive Officer may elect to treat the
notice as a termination without Cause of Employee's employment, or (2) Employee
may elect to treat the notice as termination for Cause; or (B) the non-renewal
decision was made by Employee, in which case, the Chief Executive Officer may
elect to treat the notice as a voluntary termination of employment by Employee.
(i) CHANGE IN CONTROL. (i) Notwithstanding anything to the contrary in
this Section 9, if, within twelve months following a Change in Control (A)
Employee's employment is terminated for any reason other than death or
Disability, or (B) Employee terminates his employment, he shall be entitled to
the compensation and benefits provided in Sections 9(b) and 9(f)(ii), including,
but not limited to, any other compensation or benefits, including the Maximum
Cumulative Unit Value (as defined in the LTIP) for each unit awarded under the
LTIP to the date of termination, benefits under equity grants and awards
described in Section 6 above and employee benefits under plans described in
Section 8 above, that have vested through the date of termination or to which he
may then be entitled in accordance with the applicable terms and conditions of
each grant, award or plan.
(ii) Immediately upon: (A) the filing by a third-party with the
United States Securities and Exchange Commission of any proxy or tender offer
material evidencing an intent to
11
<PAGE> 12
gain control of the Company; (B) the mailing of a proxy statement by the Company
to shareholders requesting an affirmative vote regarding a Change in Control; or
(C) the receipt of information by the Company that 40 percent or more of its
outstanding common stock has been acquired by any person (as defined under the
1934 Act), the Company shall contribute to an irrevocable grantor trust (a
"Rabbi Trust") an amount sufficient to enable all potential amounts due to
Employee under this Section to be paid. The Company shall provide Employee with
a certification of the payment to such trust of all such amounts. All such
amounts which are due to Employee shall be paid using the assets of said trust
except to the extent its terms preclude such payment, in which event payment
shall be made by the Company from its own funds, or unless the Company elects to
pay any or all such amounts from its own funds.
10. PARACHUTES.
(a) APPLICATION. If all, or any portion, of the payments provided under
this Agreement, and/or any other payments and benefits that Employee receives or
is entitled to receive from Sabratek, including, but not limited to, amounts
generated from the exercise and sale of options granted to Employee, constitutes
an excess "parachute payment" within the meaning of Section 280G(b) of the Code,
whether or not under an existing plan, arrangement or other agreement (each such
parachute payment, a "Parachute Payment") and will result in the imposition on
Employee of an excise tax under Section 4999 of the Code, then, in addition to
any other benefits to which Employee is entitled under this Agreement, Sabratek
shall pay him an amount in cash equal to the sum of the excise taxes payable by
him by reason of receiving such Parachute Payments, plus the amount necessary to
put him in the same after-tax position (taking into account any and all
applicable federal, state and local excise, income or other taxes at the highest
possible applicable
12
<PAGE> 13
rates on such Parachute Payments (including without limitation any payments
under this Section 10) as if no excise taxes had been imposed with respect to
Parachute Payments (the "Parachute Gross- up").
(b) COMPUTATION. The amount of any payment under this Section 10 shall
be computed by Sabratek's certified public accounting firm in consultation with
legal counsel acceptable to Employee. Employee and Sabratek shall provide the
accounting firm with all information that it reasonably deems necessary in order
to compute the Parachute Gross-up. The cost and expenses of the accounting firm
retained to perform the computations shall be borne by Sabratek.
(c) PAYMENT. In any event, Sabratek shall pay to Employee, or pay on
his behalf, the Parachute Gross-up as computed by the accounting firm by the
time any taxes payable by him as a result of the Parachute Payments become due.
In the event that the Internal Revenue Service ("IRS") determines that
the amount of excise taxes thereon initially paid was insufficient to discharge
Employee's excise tax liability, Sabratek shall make additional payments to him
as may be necessary to reimburse him for discharging the full liability.
11. CONFIDENTIALITY AND LOYALTY.
(a) GENERAL.
(i) Employee hereby acknowledges that as a result of his employment
with Sabratek he has produced and had access to, and may hereafter produce and
have access to, material, records, data, trade secrets, inventions and
information not generally available to the public (collectively, "Confidential
Information") regarding Sabratek and that any such Confidential Information is
the exclusive property of Sabratek.
13
<PAGE> 14
(ii) Accordingly, Employee hereby agrees that, during and
subsequent to the Term, he shall hold in confidence and not directly or
indirectly disclose, use, copy or make lists of any such Confidential
Information, except to the extent that such information is or thereafter becomes
lawfully available from public sources, or such disclosure is authorized in
writing by Sabratek, required by a law or any competent administrative agency or
judicial authority, or otherwise as reasonably necessary or appropriate in
connection with performance by Employee of his duties hereunder.
(b) RETURN OF DOCUMENTS. All records, files, documents and other
materials or copies thereof relating to Sabratek's business that Employee
prepares or uses shall be and remain the sole property of Sabratek and shall not
be removed from Sabratek's premises without its written consent. Upon
termination of Employee's employment with Sabratek for any reason, he shall
promptly deliver to Sabratek all such items that are then in his possession or
control.
(c) DUTY OF LOYALTY. Employee hereby agrees to abide by Sabratek's
reasonable policies, as in effect from time to time, respecting avoidance of
interests conflicting with those of Sabratek.
(d) REMEDIES AND SANCTIONS. In the event that Employee is found to be
in violation of Section 11(a), (b) or (c), Sabratek shall be entitled to relief
as provided in Section 13 below.
12. NONCOMPETITION/NONSOLICITATION.
(a) RESTRICTIVE COVENANT. Employee hereby agrees that, except with the
express prior written consent of Sabratek, for a period of one year after
termination of his employment with Sabratek for any reason (the "Restrictive
Period"), he will not directly or indirectly compete with the business of
Sabratek as conducted on the date of such termination, including, but not by way
of
14
<PAGE> 15
limitation, by (i) directly or indirectly owning, managing, operating,
controlling, financing, (ii) directly or indirectly serving as an employee,
officer or director of or consultant to, or (iii) soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Sabratek to terminate
employment with Sabratek and become employed by, any person, firm, partnership,
corporation, trust or other entity that owns or operates an entity that is
engaged in the same or similar business as Sabratek as conducted on the date of
such termination (the "Restrictive Covenant").
If Employee violates the Restrictive Covenant and Sabratek brings legal
action for injunctive or other relief, Sabratek shall not, as a result of the
time involved in obtaining such relief, be deprived of the benefit of the full
period of the Restrictive Covenant. Accordingly, the Restrictive Covenant shall
be deemed to endure for the period specified in this Section 12(a), computed
from the date the relief is granted but reduced by the time between the period
when the Restrictive Period began to run and the date of the first violation of
the Restrictive Covenant by Employee.
(b) EXCEPTIONS. Notwithstanding anything to the contrary in Section
12(a), the Restrictive Covenant shall not:
(i) apply if Sabratek terminates Employee's employment without
Cause, as provided in Section 9(f) above; or
(ii) prohibit Employee from owning directly or indirectly capital
stock or similar securities which do not represent more than five percent of the
outstanding capital stock of any business similar to that of Sabratek as
conducted on the date of such termination.
(c) REMEDIES AND SANCTIONS. In the event that Employee is found to be in
violation of Section 12(a) above, Sabratek shall be entitled to relief as
provided in Section 13 below.
15
<PAGE> 16
13. REMEDIES/SANCTIONS.
Employee hereby acknowledges that the restrictions contained in
Sections 11(a), (b) and (c) and 12(a) above are reasonable and necessary for
the protection of the legitimate business interests of Sabratek, for which
monetary damages alone may not provide an adequate remedy, that any violation of
these restrictions would cause substantial injury to Sabratek and such
interests, that Sabratek would not have entered into this Agreement without
receiving the additional consideration offered by Employee in binding himself to
these restrictions and that such restrictions were a material inducement to
Sabratek to enter into this Agreement.
In the event of any violation or threatened violation of these
restrictions, Sabratek (a) shall be relieved of any further obligations under
the Agreement, (b) shall be entitled to monetary damages resulting from such
violation, and (c) in addition to and not in limitation of, any other rights,
remedies or damages available to Sabratek under this Agreement or otherwise at
law or in equity, shall be entitled to preliminary and permanent injunctive
relief to prevent or restrain any such violation by Employee and any and all
persons directly or indirectly acting for or with him, as the case may be.
14. BENEFICIARIES/REFERENCES.
Employee shall be entitled to select (and change, to the extent
permitted under any applicable law) a Beneficiary or Beneficiaries to receive
any compensation or benefit payable under this Agreement following his death by
giving Sabratek written notice thereof. In the event of Employee's death, or of
a judicial determination of his incompetence, reference in this Agreement to
Employee shall be deemed to refer, as appropriate, to his Beneficiary, estate or
other legal representative.
15. WITHHOLDING TAXES.
16
<PAGE> 17
All payments to Employee or his Beneficiary under this Agreement shall
be subject to withholding on account of federal, state and local taxes as
required by law.
16. INDEMNIFICATION AND LIABILITY INSURANCE.
Nothing herein is intended to limit Sabratek's indemnification of
Employee, and Sabratek shall indemnify him to the fullest extent permitted by
applicable law consistent with Sabratek's Certificate of Incorporation and
By-Laws as in effect at the beginning of the Term, with respect to any action or
failure to act on his part while he is an officer, director or employee of
Sabratek. Sabratek shall cause Employee to be covered at all times by directors'
and officers' liability insurance on terms no less favorable than the directors'
and officers' liability insurance maintained by Sabratek in effect on the date
hereof in terms of coverage and amounts. Sabratek shall continue to indemnify
Employee as provided above and maintain such liability insurance coverage for
him after the Term for any claims that may be made against him with respect to
his service as a director or officer of Sabratek.
17. EFFECT OF AGREEMENT ON OTHER BENEFITS.
The existence of this Agreement shall not prohibit or restrict
Employee's entitlement to participate fully in compensation, employee benefit
and other plans of Sabratek in which senior executives are eligible to
participate.
18. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of Employee) and
assigns. No rights or obligations of Sabratek under this Agreement may be
assigned or transferred by Sabratek except pursuant to (a) a merger or
consolidation or (b) sale or liquidation of all or substantially all of the
assets of Sabratek,
17
<PAGE> 18
provided that the surviving entity or assignee or transferee is the successor to
all or substantially all of the assets of Sabratek and, in the case of a sale or
other transfer of assets or a merger in which Sabratek is not the surviving
entity, such surviving entity or assignee or transferee agrees in writing to
assume the liabilities, obligations and duties of Sabratek under this Agreement.
Notwithstanding such assignment, Sabratek shall remain liable and responsible
for fulfillment of the terms and conditions of this Agreement; and provided
further, that in no event shall such assignment of this Agreement adversely
affect Employee's right upon a Change in Control, as provided in Section 9(i)
above. No rights or obligations of Employee under this Agreement may be assigned
or transferred by him.
19. REPRESENTATIONS.
The Parties respectively represent and warrant that each is fully
authorized and empowered to enter into this Agreement and that the performance
of its or his obligations, as the case may be, under this Agreement will not
violate any agreement between such Party and any other person, firm or
organization. Sabratek represents and warrants that this Agreement has been duly
authorized by all necessary corporate action and is valid, binding and
enforceable in accordance with its terms.
20. ENTIRE AGREEMENT.
Except to the extent otherwise provided herein, this Agreement contains
the entire understanding and agreement between the Parties concerning the
subject matter hereof and supersedes any prior agreements, whether written or
oral, between the Parties concerning the subject matter hereof, including
without limitation, the agreement made and entered into as of July 2, 1998,
between Sabratek and Employee as heretofore amended and supplemented, provided
that the execution of this Agreement shall not adversely affect (i) any award
previously made to Employee
18
<PAGE> 19
under any compensation plan maintained by Sabratek, or (ii) any statements
regarding the vesting of options or other benefits in such prior agreements.
Payments and benefits provided under this Agreement are in lieu of any payments
or other benefits under any severance program or policy of Sabratek to which
Employee would otherwise be entitled.
21. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by both Employee and an authorized officer of
Sabratek. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Party to be charged with the waiver. No delay by either Party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof.
22. SEVERABILITY.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
23. SURVIVAL.
The respective rights and obligations of the Parties under this
Agreement shall survive any termination of Employee's employment with Sabratek.
19
<PAGE> 20
24. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of Illinois, without reference to principles of
conflict of laws.
25. ARBITRATION.
Any dispute or controversy other than a dispute or controversy arising
under Sections 11 or 12 hereof (actions regarding which may be brought in any
court (i) having situs within Cook County, Illinois and (ii) having jurisdiction
over the dispute or controversy) arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Employee within thirty
(30) miles from the main office of Sabratek, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
through the date of termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
26. LEGAL FEES.
All reasonable expenses and legal fees paid or incurred by Employee
pursuant to any bona fide dispute or question of interpretation relating to this
Agreement, including all such expenses and fees, if any, incurred in contesting
any termination of this Agreement by Sabratek or in seeking to obtain or enforce
any right or benefit provided by this Agreement, shall be paid or reimbursed by
Sabratek, provided, however, that if this Agreement is terminated for Cause or
if this Agreement is terminated voluntarily by Employee other than due to a
breach of this Agreement by Sabratek,
20
<PAGE> 21
Sabratek shall be obligated to pay any of Employee's expenses and legal fees
arising therefrom only if Employee is successful on the merits pursuant to a
legal judgment, arbitration or settlement.
27. NOTICES.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered either personally, by fax, by overnight
delivery service (such as Federal Express) or sent by certified or registered
mail postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as the Party
may subsequently give notice of:
If to Sabratek or the Board:
Sabratek Corporation
8111 North St. Louis Avenue
Skokie, Illinois 60076
Attention: Chairman
FAX: (847) 647-2382
with a copy to:
Ross & Hardies
150 North Michigan Avenue
Chicago, Illinois 60601
Attention: David S. Guin
PHONE: (312) 750-3501
FAX: (312) 750-8600
If to Employee:
Sabratek Corporation
8111 North St. Louis Avenue
Skokie, Illinois 60076
Attention: Stephen L. Holden
FAX: (847) 647-2382
21
<PAGE> 22
and
Stephen L. Holden
395 Carlisle Avenue
Deerfield, Illinois 60015
28. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
29. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have Agreement as of the date first
written above.
SABRATEK CORPORATION
By:
---------------------------------
K. Shan Padda, Chairman
and Chief Executive Officer
---------------------------------
Stephen L. Holden
22
<PAGE> 1
EXHIBIT 10.38
SABRATEK CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
ARTICLE I
PURPOSE
The purpose of the Long-Tem Incentive Compensation Plan (the "Plan") is to
promote the interests of Sabratek Corporation (the "Company") and its
stockholders by (i) helping the Company to attract and retain outstanding
management , (ii) stimulating management's efforts on behalf of the Company by
giving participants a direct interest in the performance of the Company, and
(iii) suitably rewarding participants' contributions to success of the Company.
Except for amounts payable upon a Change in Control (as hereinafter
defined) which shall be payable in all instances, no payments shall be made
hereunder unless the Company stockholders have approved the Plan in accordance
with the requirements of Code (as hereinafter defined) Section 162(m).
ARTICLE II
DEFINITIONS
2.1 Award Certificate: A written instrument evidencing the award of Units
to a Participant.
2.2 Base Year EPS: Earnings Per Share for the Fiscal Year immediately
preceding the date of an award of Units.
2.3 Beneficiary: The person or persons designated by a Participant, in
accordance with Section 9. 1, to receive any amount payable under the Plan upon
the Participant's death.
<PAGE> 2
2.4 Board: The Board of Directors of the Company.
2.5 Change in Control:
(a) Consummation of the acquisition by any person (as such term is
defined in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of 40 percent or more of the combined
voting power of the then outstanding voting securities of the Company; or
(b) The individuals who, as of the Effective Date, are members of the
Board cease for any reason to constitute a majority of the Board, unless the
election, or nomination for election by the stockholders of the Company, of any
new director or directors was approved by a vote of a majority of the Board, in
which case such new director or directors shall, for purposes of this Plan, be
considered a member or members of the Board; or
(c) Approval by stockholders of the Company of (i) a merger or
consolidation of the Company if the stockholders immediately before such merger
or consolidation do not, as a result of such merger or consolidation, own,
directly or indirectly, more than 60 percent of the combined voting power of the
then outstanding voting securities of the entity resulting from such merger or
consolidation in substantially the same proportion as their ownership of the
combined voting power of the voting securities of the Company outstanding
immediately before such merger or consolidation, or (ii) a complete liquidation
or dissolution, or an agreement for the sale or other disposition, of all or
substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because 40 percent or more of the combined voting power of the then
outstanding securities is
2
<PAGE> 3
acquired by (i) a trustee or other fiduciary holding securities under one
or more employee benefit plans maintained for employees of the Company, or (ii)
any corporation which, immediately prior to such acquisition, is owned directly
or indirectly by the stockholders of the Company in the same proportion as their
ownership of stock of the Company immediately prior to such acquisition.
2.6 Code: The Internal Revenue Code of 1986, as amended from time to time.
2.7 Committee: The Compensation Committee of the Board, which is comprised
solely of two or more "outside directors" within the meaning of Section 162(m)
of the Code.
2.8 Common Shares: Shares of common stock ($0.01 par value) of the Company.
2.9 Company: Sabratek Corporation, a Delaware corporation, and its
consolidated subsidiaries, or any successor thereto.
2.10 Cumulative Unit Value: The amount determined in accordance with
Section 7.2.
2.11 Disability: Disability, as defined in a Participant's employment
agreement with the Company, or, absent an agreement, in the Company's group
disability insurance contract.
2.12 Earnings: For any Fiscal Year, the consolidated income of the Company
prepared in accordance with generally accepted accounting principles, as
reported in the Company's audited consolidated financial statements for that
Fiscal Year, adjusted on an after-tax basis (a) to exclude (i) in its entirety
any items of nonrecurring gain or loss in excess of $1,000,000 including write
downs of items included in operating income, except that gains resulting from
the settlement or adjudication of intellectual property litigation shall be
totally includible, and (ii) any accruals for this Plan, and (b) to add back
write-offs required in connection with any acquisition in the year of
acquisition.
3
<PAGE> 4
2.13 Earnings Per Share: For any Fiscal Year, Earnings divided by the
number of Common Shares used to determine the Company's fully diluted earnings
per share for that Fiscal Year, as reported in the Company's audited
consolidated financial statements for the Fiscal Year; provided, however, that
for the Fiscal Year ending December 31, 1998, Earnings Per Share shall be the
lesser of (i) 160 percent of Earnings Per Share for the period July 1, 1998
through December 31, 1998 or (ii) Earnings Per Share for 1998.
2.14 Effective Date: The effective date of the Plan shall be July 1, 1998.
2.15 Enterprise Value: The total proceeds and other consideration paid or
received or to be paid or received in connection with a Change in Control (which
consideration shall be deemed to include amounts in escrow), including, without
limitation, and taking into account: (i) cash; (ii) notes, securities and other
property valued at the fair market thereof; (iii) liabilities, including all
debt, pension liabilities, guarantees and capitalized leases, directly or
indirectly assumed, refinanced or extinguished; (iv) the value of operating
lease rental expense (calculated by multiplying the latest fiscal quarter
annualized operating lease rental expense prior to the closing of a Change in
Control by 10); (v) payments to be made in installments; (vi) amounts payable
under consulting agreements, agreements not to compete or similar arrangements
(including such payments to management); (vii) the net present value of
contingent payments (whether or not related to future earnings or operations);
(viii) if the Change in Control involves the disposition of assets, the net
value of current assets not sold; and (iv) if the Change in Control takes the
form of a recapitalization, restructuring or similar transaction, the fair
market value of equity securities of the acquired company retained by the
acquired company's security holders upon consummation of such Change in Control
(such
4
<PAGE> 5
securities, and all other securities received by such security holders, being
deemed to have been paid to such security holders in such Change in Control).
2.16 Fiscal Year: The Company's fiscal year, which is the calendar year.
2.17 Incremental Unit Value: The amount determined in accordance with
Section 7.1.
5
<PAGE> 6
2.18 Maximum Cumulative Unit Value: For Units awarded as of the Effective
Date, $500 per Unit. For Units awards as of the beginning of any Fiscal Year
thereafter, the amount determined by the Committee with respect to those Units
when they are awarded.
2.19 Measuring Price: For each Unit awarded as of the Effective Date,
$28.75; for each Unit awarded thereafter, the closing price of a Common Share as
reported on the NASDAQ National Market System on the last day of the Fiscal Year
preceding the date as of which the Unit is awarded.
2.20 Participant: A key employee of the Company designated by the Committee
to participate in the Plan.
2.21 Plan: The Sabratek Corporation Long-Term Inventive Compensation Plan,
as herein set forth and as it may be amended from time to time.
2.22 Term of the Plan: The period commencing on the Effective Date and
ending five years after the final award of Units (but in no event later than
December 31, 2012), in accordance with Section 5.1 or on such earlier date as
the Maximum Cumulative Unit Value of all Units available for award under the
Plan has been achieved.
2.23 Termination Without Cause: Termination of a Participants employment by
the Company for other than "Cause," as defined in the Participants employment
agreement with the Company. If the Participant's employment agreement does not
define "Cause," or the Participant has no employment agreement, "Cause" shall
mean (i) the Participant being found guilty of a felony, fraud or embezzlement,
in each case related to Sabratek or its business, or (ii) any repeated and
demonstrated failure by the Participant to discharge faithfully the
responsibilities of his position that the Board determines in good faith is
extremely detrimental to the current and future interests of the Company.
6
<PAGE> 7
2.24 Unit: A unit of participation in the Plan awarded to a Participant in
accordance with Article V.
2.25 Valuation Date: The last day of any Fiscal Year.
ARTICLE III
ADMINISTRATION
3.1 The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum. Committee decisions and determinations
shall be made by a majority of its members present at a meeting at which a
quorum is present, and they shall be final. The actions of the Committee with
respect to the Plan shall be binding on all affected Participants. Any decision
or determination reduced to writing, and signed by all members of the Committee
shall be fully effective as if it had been made by a vote at a meeting duly
called and held. The Committee shall keep minutes of its meetings and shall make
such rules and regulations for the conduct of its business as it shall deem
advisable.
3.2 The Committee shall have full authority, subject to the provisions of
the Plan: (i) to select Participants and determine the extent and terms of their
participation; (ii) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable in the administration, of the Plan; (iii) to
construe and interpret the Plan, the rules and regulations adopted thereunder
and any notice or Award Certificate given to a Participant; and (iv) to make all
other determinations that it deems necessary or advisable in the administration
of the Plan.
3.3 The Committee may employ attorneys, consultants, accountants or other
persons as it deems necessary for the proper administration of the Plan and may
rely on the advice, opinions
7
<PAGE> 8
or valuations of any such Persons. No member of the Committee shall be
personally liable for any action, determination or interpretation taken or made
in good faith by the Committee with respect to the Plan or any award hereunder,
and all members of the Committee shall be fully indemnified and protected by the
Company in respect of any such action, determination or interpretation.
3.4 In the event of any stock split, stock dividend, reclassification,
recapitalization or other change that affects the character or amount of
outstanding Common Shares and Earnings Per Share, the Committee shall make such
adjustments in the number of Units (whether authorized or outstanding and
unexercised), the Measuring Price or both as shall, in the sole judgment of the
Committee, be equitable and appropriate in order to make the value of such
Units, as nearly as may be practicable, equivalent to the value of Units
outstanding and unexercised immediately prior to such change. In no event,
however, shall any such adjustment give any Participant any additional benefits.
3.5 The Committee shall be precluded from increasing compensation payable
under the Plan to a Participant, including acceleration of payment and increase
of any amount payable, unless specifically provided for by the Plan.
ARTICLE IV
PARTICIPATION
4.1 Only key employees of the Company who, in the Committees judgment, will
have a significant impact an the success of the business shall be eligible to
participate in the Plan. The Committee, in its sole discretion, shall select the
Participants.
8
<PAGE> 9
4.2 In selecting Participants and in determining the number of Units to be
awarded to any Participant for any Fiscal Year, the Committee shall take into
account such factors as the individual's position, experience, knowledge,
responsibilities, advancement potential and past and anticipated contributions
to the Company's performance.
ARTICLE V
AWARD OF UNITS
5.1 Subject to adjustment as provided in Section 3.4, a maximum of 100,000
Units may be awarded under the Plan. A Participant who has been awarded Units
may be awarded additional Units from time to time, and new Participants may be
awarded Units, both in the discretion of the Committee, provided, however, that
no Units shall be awarded after 2008.
5.2 Units shall be awarded solely by the Committee and shall be evidenced
by an Award Certificate, as provided in Article X.
5.3 Subject to adjustment as provided in Section 3.4, the maximum number of
Units awarded to any one individual shall not exceed 75,000 during the Term of
the Plan.
ARTICLE VI
TERM AND VESTING OF UNITS
6.1 Each Unit shall have a term of five years from the date of award,
subject to earlier termination (i) as provided in Article XI, or (ii) upon
attainment before five years of the Units Maximum Cumulative Unit Value. Units
awarded in 1998 shall be deemed to be awarded as of the
9
<PAGE> 10
Effective Date. Future awards of Units shall be deemed made as of the first
day of any subsequent Fiscal Year through 2008, as the case may be.
6.2 Each Unit shall become vested on the date on which the Company publicly
discloses the Earnings Per Share applicable to the Valuation Date immediately
preceding the fifth anniversary of the date of its award or, if earlier, upon
(i) attainment of its Maximum Cumulative Unit Value, (ii) a Participant's
Termination Without Cause (before or after a Change in Control), (iii) the
termination of Participant's employment at the Participant's option within one
year of a Change in Control, or (iv) termination of a Participant's employment
with the Company by reason of death or Disability. Notwithstanding the
foregoing, Units awarded as of the Effective Date shall vest on the last day of
the Fiscal Year ending in 2002, subject to earlier vesting as aforesaid.
ARTICLE VII
DETERMINATION OF VALUE OF A UNIT
7.1 For any Fiscal Year, the Incremental Unit Value of a Unit shall be
equal to the product of the Measuring Price multiplied by.85 of the percentage
by which Earnings Per Share for the Fiscal Year exceeds Base Year EPS. In the
event Base Year EPS exceeds Earnings Per Share for any Fiscal Year, the
Incremental Unit Value for the Fiscal Year shall be zero. The Committee shall
notify each Participant of the Incremental Unit Value of his or her Units for
each Fiscal Year as soon as practicable after the Valuation Date for the Fiscal
Year.
7.2 The Incremental Unit Value of each Unit for any Fiscal Year shall be
cumulated
10
<PAGE> 11
with the Incremental Unit Value of the Unit for all prior Fiscal Years from the
date of the Unit award. The cumulative amount thus determined shall be the then
Cumulative Unit Value of such Unit.
11
<PAGE> 12
ARTICLE VIII
EXERCISE AND PAYMENT OF UNITS
8.1 Except as provided in Article XI, a Unit that is vested, in accordance
with Article VI, shall thereupon be exercised. Prior to receiving payment for an
exercised Unit, a Participant shall deliver his or her Award Certificate to the
Secretary of the Company. Upon surrender of the Award Certificate, the
Participant shall be entitled to receive the Cumulative Unit Value of the Units
being exercised, determined as of the concurrent or immediately preceding
Valuation Date, but not in excess of the Maximum Cumulative Unit Value of each
such Unit.
8.2 Payment of the amount due under the Plan shall be made not later than
five days following the date of exercise of any Unit or the date of such other
event as shall entitle the Participant to payment, provided, however, that,
before any payment may be made, the Committee must certify in writing that all
performance criteria under the Plan have been met. Not less than 40 percent of
any amount due shall be paid in cash, and the balance shall be paid in cash or
Common Shares or both, as determined by the Committee in its discretion.
8.3 If a Participant's employment is terminated for any reason: other than
death or Disability within one year following a Change in Control, the
Participant shall be entitled to receive a lump-sum cash payment in an amount
equal to the Maximum Cumulative Unit Value of any Units awarded; provided,
however, that the amount paid to any Participant following a Change in Control
may not exceed 5 percent of the Company's Enterprise Value, and the amount paid
to all Participants may not exceed 7 percent of the Company's Enterprise Value.
If the amount otherwise payable to all Participants would exceed 7 percent of
the Enterprise Value, the payment to each Participant shall
12
<PAGE> 13
be reduced pro rata based on the amount each Participant would have received if
no limits existed as necessary in order not to exceed the limit.
ARTICLE IX
LIMITS ON TRANSFERABILITY OF UNITS
9.1 Each Participant shall file with the Committee a written designation of
one or more persons as the Beneficiary who shall be entitled to receive any
amount payable under the Plan upon his or her death. A Participant may, from
time to time, revoke or change his or her Beneficiary designation without the
consent of any previously designated Beneficiary by filing a new designation
with the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt. If at the date of a Participant's death, there is no designation
of a Beneficiary in effect for the Participant or if no Beneficiary survives to
receive any amount payable under the Plan by reason of the Participant's death,
the Participant's estate shall be treated as the Beneficiary for purpose of the
Plan.
9.2 A Unit may be exercised only by the Participant to whom it was awarded,
except in the event of the Participants death, when a Unit may be exercised by
his or her Beneficiary. Except as provided in Section 9.1, a Participant may not
transfer, assign, alienate or hypothecate any benefits under the Plan.
13
<PAGE> 14
ARTICLE X
AWARD CERTIFICATE
10.1 Promptly following the making of an award, the Company shall deliver
to the recipient an Award Certificate specifying the terms and conditions of the
Unit. This writing shall be in such form and contain such provisions not
inconsistent with the Plan as the Committee shall prescribe.
ARTICLE XI
TERMINATION OF UNITS
11.1 An outstanding Unit awarded to a Participant shall be canceled and all
rights with respect thereto shall expire upon the earlier to occur of (i) its
exercise as provided in Section 8.1, or (ii) termination of the Participant's
employment with the Company; provided, however, that if such termination occurs
pursuant to clause (ii) of Section 6.2 above, or for any other reason
specifically approved in advance by the Committee, the term of such Unit shall
continue for a period of 14 months from the data of termination (the "Extended
Term"). For purposes of this Section 11.1, the Cumulative Unit Value of such
Unit shall be determined as of the Valuation Date concurrent with or immediately
preceding the end of the Extended Term or any earlier exercise date, whichever
is applicable. A Unit whose term is continued for an Extended Term shall be
deemed to be automatically exercised as of the last Valuation Date within the
Extended Term, unless sooner exercised by the Participant or his or her legal
representative.
11.2 Nothing contained in Section 11.1 shall be deemed to extend the term
of any Unit beyond the end of the Term of the Plan.
14
<PAGE> 15
ARTICLE XII
FUNDING
12.1 Immediately upon: (i) the filing by a third party with the United
States Securities and Exchange Commission of any proxy or tender offer material
evidencing an intent to gain control of the Company; (ii) the mailing of a proxy
statement by the Company to shareholders requesting an affirmative vote
regarding a Change in Control; or (iii) the receipt of information by the
Company that 40 percent or more of its outstanding common stock has been
acquired by any person (as defined under the 1934 Act), the Company shall
contribute to an irrevocable grantor trust (a "Rabbi Trust") an amount
sufficient to enable all amounts potentially due to the Participants hereunder
to be paid. The Company shall provide the Participants with a certification of
the payment to such trust. All such amounts which are due to the Participants
shall be paid using the assets of said trust except to the extent its terms
preclude such payment, in which event payment shall be made by the Company from
its own funds, or unless the Company elects to pay any or all such amounts from
its own funds.
ARTICLE XIII
TERMINATION AND AMENDMENT OF THE PLAN
13.1 The Company reserves the right to amend or terminate the Plan at any
time, by action of the Committee, but no such amendment or termination shall
adversely affect the rights of any Participant with respect to outstanding Units
held by the Participant without his or her written consent. No amendment will be
effective prior to the approval of the Company's stockholders to the extent that
such approval is required by Section 162(m) of the Code or is otherwise required
by law.
15
<PAGE> 16
ARTICLE XIV
GENERAL PROVISIONS
14.1 Nothing in the Plan, nor the award of any Unit shall confer on any
Participant a right to continue in the employment of the Company or affect any
right of the Company to terminate a Participant's employment.
14.2 The Plan shall be governed by and construed in accordance with the
laws of the State of Illinois without reference to principles of conflict of
laws.
14.3 The Company shall be authorized to withhold from any award or payment
it makes under the Plan to a Participant the amount of withholding taxes due
with respect to such award or payment and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes.
14.4 Nothing in the Plan shall prevent the Board from adopting other or
additional compensation arrangements, subject to stockholder approval as may be
necessary, and such arrangements may be either generally applicable or
applicable only in specific cases.
14.5 Participants shall not be required to make any payment or provide any
consideration for awards under the Plan other than the rendering of services.
16
<PAGE> 1
EXHIBIT 10.39
INDUSTRIAL BUILDING LEASE BY AND BETWEEN
FIRST INDUSTRIAL, L.P. AND SABRATEK CORPORATION
SECTION 1: BASIC TERMS
This Section 1 contains the Basic Terms of this Lease between Landlord and
Tenant, named below. Other Sections of the Lease referred to in this Section 1
explain and define the Basic Terms and are to be read in conjunction with the
Basic Terms.
1.1 Date of Lease: May 15, 1998
-----------------------------------------------------
1.2 Landlord: First Industrial, L.P., a Delaware limited partnership
----------------------------------------------------------
1.3 Tenant: Sabratek Corporation, a Delaware corporation
------------------------------------------------------------
1.4 Premises: See Exhibit "A"
----------------------------------------------------------
1.5 Lease Term: 5 years 15 days (together with any renewals, the
"Term"), commencing on the earlier to occur of (i) July 15, 1998 and (ii) the
date Tenant begins conducting business at the Premises ("commencement Date") and
ending July 30, 2003 ("Expiration Date").
1.6 Permitted Uses: (See Section 4) Office; storage and light assembly
------------------------------------
1.7 Tenant's Guarantor: (if none, so state) None
----------------------------
1.8 Brokers: (See Section 22; if none, so state)
(A) Tenant's Broker: Rose Real Estate Services, Inc.
----------------------------------------------
(B) Landlord's Broker: None
--------------------------------------------
1.9 Security Deposit: (See Section 4) $33,550.83
----------------------------------
1.10 Rent Payable by Tenant: See Exhibit "B"
--------------------------------------------
1.11 Riders to Lease: The following riders are attached to and made a
part of this Lease: None
-------------------------------
SECTION 2: LEASE OF PREMISES: RENT
2.1 LEASE OF PREMISES FOR LEASE TERM. Landlord hereby leases the
Premises to Tenant, and Tenant hereby rents the Premises from Landlord, for the
Term and subject to the conditions of this Lease.
2.2 TYPES OF RENTAL PAYMENTS. Tenant shall pay rents effective as of the
Commencement Date of (a) net base rent payable in monthly installments as set
forth in Exhibit "B" attached hereto (the "Net Base Rent"), in advance, on the
first day of each and every calendar month during the term of this Lease; (b)
all costs, expenses and charges of every nature relating to, or incurred in
connection with, the ownership and operation of the Premises and that are
attributable to or become due during the Term ("Additional Rent"); and (c) in
the event that any monthly installment of Net Base Rent is not paid within ten
(10) days of the date when due a late charge in an amount equal to five percent
(5%) of the then-delinquent installment of Net Base Rent (the "Late Charge"; the
Net Base Rent, Additional Rent and Late Charge shall collectively be referred to
as "Rent"). All Rent shall be paid to Landlord c/o First Industrial, L.P., 75
Remittance Drive, Suite 1449, Chicago, Illinois 60675-1149, or if sent by
overnight courier, The Northern Trust Co., 801 South Canal Street, 4th Floor
Receipt and Dispatch, Chicago, Illinois 60607, Attn: First Industrial, L.P.,
Suit 1449 (or to such other entity designated as Landlord's management agent, if
any, and if Landlord so appoints such a management agent, the "Agent"), or
pursuant to such other directions as Landlord shall designate in this Lease or
otherwise.
2.3 COVENANTS CONCERNING RENTAL PAYMENTS. Tenant shall pay the Rent
promptly when due, without notice or demand, and without any abatement,
deduction or setoff, except as may otherwise be expressly and specifically
provided in this Lease. No payment by Tenant, or receipt or acceptance by Agent
or Landlord, of a lesser amount than the correct Rent shall be deemed to be
other than a payment on account, nor shall any endorsement or statement on any
check or letter accompanying any payment be deemed an accord or satisfaction,
and Agent or Landlord may accept such payment without prejudice to its right to
recover the balance due or to pursue any other remedy available to Landlord. If
the Commencement Date occurs on a day other than the first day of a calendar
month, the Rent due for the partial calendar months occurring at the
commencement and the expiration of the Term shall be prorated on a per diem
basis. It is intended that the Rent provided in this Lease shall be an
absolutely net return to Landlord throughout the Term and any renewals or
extensions thereof.
SECTION 3: TAXES AND ASSESSMENTS
3.1 TAXES. Tenant agrees to pay as "Additional Rent" for the Premises (i)
all governmental taxes, assessments, fees, penalties and charges of every kind
or nature (other than Landlord's income taxes), whether general, special,
ordinary or extraordinary, due to any time, or from time to time, during the
Term and any extensions thereof, in connection with the ownership, leasing or
operation of the Premises or of the personal property and equipment located
therein or in connection therewith and (ii) any expenses incurred by Landlord in
contesting such taxes or assessments and/or the assessed value of the Premises
(the "Taxes"), provided that Tenant receives the benefit of any resulting
reductions in Taxes. All such Taxes shall be paid by Tenant before they become
delinquent. The Taxes for the first and last years of the Term and any extension
thereof will be appropriately prorated. If any special assessments levied
against the Premises are payable in installments, Tenant shall be responsible
only for those installments that are attributable to the period during which
Tenant has possession of the
<PAGE> 2
Premises. For purposes hereof, Taxes for any year shall be Taxes that are due
for payment or paid in that year, rather than taxes that are assessed or become
a lien or accrue during such year. If at any time during the Term, the methods
of taxation prevailing on the date hereof shall be altered, such additional or
substitute tax, assessment, levy, charge or imposition shall be deemed to be
included within the term "Taxes" for the purposes hereof.
SECTION 4: USE OF PREMISES; SECURITY DEPOSIT
4.1 USE OF PREMISES. The Premises shall be used for the purpose(s) set
forth in Section 1.6 above and for no other purpose whatsoever. Tenant shall
not, at any time, use or occupy, or knowingly permit anyone to use or occupy,
the Premises, or do or knowingly permit anything to be done in the Premises, in
any manner that may (a) violate any Certificate of Occupancy for the Premises;
(b) cause, or be liable to cause, injury to the Premises or any equipment,
facilities or systems therein; (c) constitute a violation of the laws and
requirements of any public authority or the requirements of insurance bodies or
the rules and regulations of the Premises; and (d) impair or tend to impair the
proper and economic maintenance, operation, and repair of the Premises and its
equipment, facilities or systems.
4.2 SIGNAGE. Tenant shall not affix any sign of any size or character to
any portion of the Premises without prior written approval of Landlord, which
approval shall not be unreasonably withheld or delayed. Landlord hereby consents
to Tenant's signage as described on Exhibit "E" attached hereto. Tenant shall
remove all signs of Tenant upon the expiration or earlier termination of this
Lease and immediately repair any damage to the Premises caused by, or resulting
from, such removal.
4.3 SECURITY DEPOSIT. Simultaneously with the execution and delivery of
this Lease, Tenant shall deposit with Landlord or Agent the sum set forth in
Section 1.9 above, in cash (the "Security"), representing security for the
performance by Tenant of the covenants and obligations hereunder. The Security
shall be held by Landlord or Agent, without interest, in favor of Tenant;
provided, however, that no trust relationship shall be deemed created thereby
and the Security may be commingled with other assets of Landlord. If Tenant
defaults in the performance of any of its covenants hereunder, Landlord or Agent
may, with notice to Tenant, apply the whole or any part of the Security, to the
extent required for the payment of any Rent or other sums due from Tenant
hereunder, in addition to any other remedies available to Landlord. In the event
Landlord or Agent shall so apply the Security, Tenant shall, upon demand,
immediately deposit with Landlord or Agent a sum equal to the amount so used.
Tenant's failure to do so shall constitute a default under this Lease. If Tenant
fully and faithfully complies with all the covenants hereunder, the Security (or
any balance thereof) shall be returned to Tenant within thirty (30) days after
the last to occur of (i) the date the Term expires or terminates, and (ii)
delivery to Landlord of possession of the Premises. Landlord may deliver the
Security to any purchaser of Landlord's interest in the Premises [or any
Successor Landlord (defined below), if applicable], and thereupon Landlord and
Agent shall be discharged from any further liability with respect to the
Security, provided that such purchaser or Successor Landlord assumes Landlord's
obligation hereunder.
SECTION 5: CONDITION AND DELIVERY OF PREMISES
5.1 CONDITION OF PREMISES. Tenant agrees that Tenant is familiar with the
condition of the Premises, and Tenant hereby accepts the Premises on an "AS-IS,"
"WHERE-IS" basis. Tenant acknowledges that, except as provided herein, neither
Landlord nor Agent nor any representative of Landlord has made any
representation as to the condition of the Premises or the suitability of the
Premises for Tenant's intended use. Tenant represents and warrants that Tenant
has made its own inspection of the Premises and is not relying on any
representation of Landlord with respect thereto, except as to those
representations provided herein. Neither Landlord nor Agent shall be obligated
to make any repairs, replacements or improvements of any kind or nature to the
Premises (whether structural or nonstructural and whether or not involving the
roof of the Building, the Building's HVAC (defined below) system, the Premises'
parking lot, or any other component of the Premises) in connection with, or in
consideration of, this Lease, except (a) as set forth in Section 17 and (b) with
respect to any repairs and improvements expressly and specifically described in
Exhibit "C" attached hereto ("Work Items"). Landlord agrees to enforce, or cause
Agent to enforce, upon Tenant's request, all manufacturer's or contractor's
warranties, if any, given in connection with the Work Items. It is acknowledged
and agreed by Tenant that (i) certain of the Work Items may be completed after
the Commencement Date; (ii) Tenant shall provide reasonable access to the
Premises for the purpose of the completion of such items; and (iii) the failure
to complete such items prior to the Commencement Date shall not be a delay in
the Commencement Date. Without limitation upon the foregoing, Landlord covenants
and agrees to use good faith, diligent efforts to complete the Work Items on or
prior to the Commencement Date or as soon as reasonably practicable thereafter
and Tenant covenants and agrees to make the Premises reasonably available to
Landlord after the Commencement Date to the extent necessary to complete the
Work Items. Landlord hereby represents and warrants to Tenant that, as of the
Commencement Date, all mechanical, electrical, plumbing, sprinkler and HVAC
systems and equipment in the Building are and shall be in good working order.
5.2 DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant if
Landlord does not deliver possession of the Premises to Tenant on the
Commencement Date or if Landlord is not able to permit Tenant to enter the
Premises (as a result of Landlord's failure to acquire the Premises from 3COM
Corporation, a Delaware corporation, as successor-by-merger to U.S. Robotics
Inc., a Delaware corporation ("Seller"), the performance of any remediation,
removal or environmental clean up activities or for any other reason) prior to
the Commencement Date as provided in Section 25.17 hereof for the limited
purposes described therein. The obligations of Tenant under the Lease shall not
thereby be affected, except that the Commencement Date shall be delayed until
Landlord delivers possession of the Premises to Tenant, and the Lease Term shall
be extended by a period equal to the number of days of delay in delivery of
possession of the Premises to Tenant, plus the number of days necessary to end
the Lease Term on the last day of a month. Notwithstanding the foregoing, if
Landlord fails to deliver possession of the Premises to Tenant by July 15, 1998
(whether as a result of the failure to acquire the Premises or otherwise),
Tenant shall have the right, as its sole remedy hereunder, at law, or in equity,
to terminate this Lease by delivery of written notice to Landlord not later than
five (5) business days hereafter. Tenant acknowledges and agrees that Landlord
intends to perform a Phase II environmental site assessment at the Premises
prior to the Commencement Date (the "Assessment"). If the performance of any
cleanup, remediation or removal activities recommended by the Assessment ("Clean
Up Activities") at the Premises by Landlord unreasonably disturbs (or prevents)
Tenant's use and occupancy of the Premises, Tenant shall have the right, as its
sole remedy hereunder, at law or in equity, to terminate this Lease by delivery
of written notice to Landlord not later than five (5) business days after the
commencement of Clean Up Activities, provided, however, that the foregoing
provision shall in no event apply to any cleanup, remediation of removal
activities not recommended by the Assessment.
2
<PAGE> 3
SECTION 6: SUBORDINATION; NOTICES TO SUPERIOR LESSORS AND MORTGAGEES;
ATTORNMENT
6.1 SUBORDINATION OF LEASE. This Lease, and all rights of Tenant
hereunder, are subject and subordinate to all ground leases of the Premises now
or hereafter existing and to all mortgages or trust deeds or deeds of trust (all
of which are hereafter referred to collectively as "Mortgages"), that may now or
hereafter affect or encumber all or any portion of Landlord's interest in the
Premises; provided, however, that this subordination shall not apply to any new
Mortgage placed upon the premises unless and until Tenant is provided with a
reasonable nondisturbance agreement executed by the applicable Superior Party
(defined below). This subordination shall apply to each and every advance made,
or to be made, under such Mortgages; to all renewals, modifications,
replacements and extensions of such Mortgages; and to "spreaders" and
consolidations of such Mortgages. This Section 6.1 shall be self-operative and
no further instrument or subordination shall be required; however, in
confirmation of such subordination, Tenant shall from time to time execute,
acknowledge and deliver any instrument that Landlord may from time to time
reasonably require in order to evidence or confirm such subordination. Landlord
shall use its best efforts to have any existing Superior Mortgagee provide
Tenant with a reasonable nondisturbance agreement executed by such Superior
Mortgagee. Tenant acknowledges that this Lease has been (and, in the future, may
be) assigned by Landlord to a Superior Mortgagee (defined below) as additional
collateral security for the loans secured by the Superior Mortgage (defined
below) held by such Superior Mortgagee. Any ground lease to which this Lease is
subject and subordinate is hereinafter referred to as a "Superior Lease," the
lessor under a Superior Lease is hereinafter referred to as a "Superior Lessor,"
and the lessee thereunder, a "Superior Lessee"; and any Mortgage to which this
Lease is subject and subordinate is hereinafter referred to as a "Superior
Mortgage," and the holder of a Superior Mortgage is hereinafter referred to as a
"Superior Mortgagee." Notwithstanding the foregoing, this Lease may be made
senior to the lien of any Superior Mortgage, if and only if the Superior
Mortgagee thereunder so requests. The term Superior Mortgagee and Superior
Lessor are hereinafter collectively referred to as a "Superior Party" or
"Superior Parties".
6.2 NOTICE IN THE EVENT OF DEFAULT. In the event that Landlord breaches or
otherwise fails to timely perform any of its obligations under this Lease,
Tenant shall give written notice of such alleged breach or default to Landlord
and to each Superior Mortgagee and Superior Lessor whose name and address shall
previously have been furnished, in writing, to Tenant, (provided, however, that
Tenant's failure to so notify such parties shall not be deemed a default
hereunder) whereupon any or all of Landlord, a Superior Mortgagee or Superior
Landlord or may remedy or cure such breach or default within thirty (30) days
following the giving of such notice; provided, however, that said thirty
(30)-day cure period shall be automatically extended in the event that the
breach or default cannot, by its nature, be cured within thirty (30) days and
one or more of Landlord, the Superior Mortgagee or the Superior Lessor is
diligently proceeding to cure said default.
6.3 SUCCESSOR LANDLORD. If any Superior Lessor or Superior Mortgagee shall
succeed to the rights of Landlord hereunder, then, at the request of such party
(hereinafter referred to as "Successor Landlord"). Tenant shall attorn to and
recognize each Successor Landlord as Tenant's Landlord under this Lease and
shall promptly execute and deliver any instrument such Successor Landlord may
reasonably request to further evidence such attornment. Tenant hereby
acknowledges that in the event of such succession, then from and after the date
on which the Successor Landlord acquires Landlord's rights and interest under
this Lease (the "Succession Date"), the rights and remedies available to Tenant
under this Lease with respect to any obligations of any successor Landlord shall
be limited to the equity interest of the Successor Landlord in the Premises.
SECTION 7: QUIET ENJOYMENT
Subject to the provisions of this Lease, so long as Tenant pays all of the
Rent and performs all of its other obligations hereunder, Tenant shall not be
disturbed in its possession of the Premises by Landlord, Agent or any other
person lawfully claiming through or under Landlord. This covenant shall be
construed as a covenant running with the land of the Premises and is not a
personal covenant of Landlord.
SECTION 8: ASSIGNMENT, SUBLETTING AND MORTGAGING
8.1 PROHIBITION. Tenant acknowledges that this Lease and the Rent due
under this Lease have been agreed to by Landlord in reliance upon Tenant's
reputation and creditworthiness and upon the continued operation of the Premises
by Tenant for the particular uses set forth in Section 4 above; therefore,
Tenant shall not, whether voluntarily, or by operation of law, or otherwise; (a)
assign or otherwise transfer this Lease; (b) sublet the Premises or any part
thereof, or allow the same to be used or occupied by anyone other than Tenant;
or (c) mortgage, pledge, encumber, or otherwise hypothecate this Lease or the
Premises, or any part thereof, in any manner whatsoever, without in each
instance obtaining the prior written consent of Landlord, which consent may be
given or withheld in Landlord's reasonable discretion. Any purported assignment,
mortgage, transfer, pledge or sublease made without the prior written consent of
Landlord shall be absolutely null and void and of no legal force or effect. No
assignment of this Lease shall be effective and valid unless and until the
assignee executes and delivers to Landlord any and all documentation reasonably
required by Landlord in order to evidence assignee's assumption of all
obligations of Tenant hereunder. Any consent by Landlord to a particular
assignment, sublease or mortgage shall not constitute consent or approval of any
subsequent assignment, sublease or mortgage, and Landlord's written approval
shall be required in all such instances. Any consent by Landlord to any
assignment or sublease shall not be deemed to release Tenant from its obligation
hereunder and Tenant shall remain fully liable for performance of all
obligations under this Lease. In the event that Landlord elects to reject any
proposed sublease or assignment, the Tenant's sole and exclusive remedy shall be
to seek a declaratory judgment against Landlord so as to enable Tenant to avoid
a termination of this Lease. Any violation of the provisions of this Section 8.1
shall constitute a default under this Lease. Notwithstanding anything to the
contrary herein, Tenant, at any time and from time to time during the Lease Term
shall have the right to sublet all or ay portion of the Premises to Clark
Industries.
8.2 RIGHTS OF LANDLORD. If this Lease is assigned, or if the Premises (or
any part thereof) are sublet or used or occupied by anyone other than Tenant,
whether or not in violation of this Lease, Landlord or Agent may (without
prejudice to, or waiver of its rights), collect rent from the assignee,
subtenant or occupant. Landlord or Agent may apply the net amount collected to
the Rent herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of this Section 8.
With respect to the allocable portion of the Premises sublet, in the event that
the total rent and other considerations (whether cash or non-cash) received
under any sublease by Tenant is greater than the total Rent required to be paid,
from time to time, under this Lease, Tenant shall pay to Landlord fifty percent
(50%) of such excess as received from any subtenant and such amount shall be
deemed a component of the Additional Rent due under this Lease.
3
<PAGE> 4
8.3 PERMITTED TRANSFERS. The provisions of Section 8.1(a) shall not apply
to a transfer of a majority of the voting stock of Tenant or to any other change
in voting control of Tenant (if Tenant is a corporation), or to any comparable
transaction involving any other form of business entity, whether effectuated in
one (1) or more transactions, as if such transfer were an assignment of this
Lease; and said provisions shall not apply to a transfer to a corporation into
or with which Tenant is merged or consolidated, or to which substantially all of
Tenant's assets are transferred, or to any corporation that controls or is
controlled by Tenant, or is under common control with Tenant (each, a "Permitted
Transfer"), provided in any of such events (a) the successor to Tenant has a net
worth, at least equal to the net worth of Tenant immediately prior to such
merger, consolidation or transfer worth of Tenant on the date of this Lease and
(b) proof reasonably satisfactory to Landlord of such net worth shall have been
delivered to Landlord at least ten (10) days prior to the effective date of any
such transaction. Any such permitted transferee shall execute and deliver to
Landlord any and all documentation reasonably required by Landlord in order to
evidence assignee's assumption of all obligations of Tenant hereunder. In the
event of a Permitted Transfer and only upon the performance in full to
Landlord's satisfaction of the requirements of this Section 8.3, Tenant shall be
released from further liability hereunder except as to obligations and claims
accruing or arising prior to such Permitted Transfer and as otherwise provided
herein.
SECTION 9: COMPLIANCE WITH LAWS
If any license or permit is required for the conduct of Tenant's business
in the Premises, Tenant, at its expense, shall procure such license prior to the
Commencement Date, and shall maintain in good standing and renew such license or
permit during the Term hereof. Tenant shall give prompt notice to Landlord of
any notice it receives of the violation of any law or requirement of any
governmental or administrative authority with respect to the Premises or the use
or occupation thereof. Tenant shall, at Tenant's expense, comply with all laws
and requirements of any governmental or administrative authorities that impose
any duty on Landlord, Agent or Tenant arising from Tenant's actions regarding
its business operations or use of the Premises, and Tenant shall pay all
expenses, fines and damages that are imposed upon any or all of Landlord, Agent,
any Superior Lessee, Superior Lessor or Superior Mortgagee, by reason or arising
out of Tenant's failure to fully and promptly comply with and observe the
provisions of this Section. Notwithstanding the foregoing, Tenant shall have no
obligations to perform any repairs, replacements or restoration of the
foundation, exterior and interior load-bearing walls, parking lot structure,
roof structure or roof covering or tuckpointing of the Premises.
SECTION 10: INSURANCE
10.1 TENANT ACTIVITIES. Tenant shall not violate, or knowingly permit the
violation of, any condition imposed by any insurance policy issued in respect of
the Premises and shall not do, or knowingly permit anything to be done, or keep
or knowingly permit anything to be kept in the Premises, that would: (a) result
in insurance companies of good standing refusing to insure (or imposing special
conditions on insuring) any or all of the Premises or the property therein, in
amounts reasonably satisfactory to Landlord; or (b) results in the cancellation
of (or the assertion of any defense by the insurer, in whole or in part, to
claims under) any policy of insurance with respect to any or all of the Premises
or the property therein.
10.2 INSURANCE TO BE MAINTAINED BY TENANT. Tenant shall, at its sole cost
and expense, at all times during the Term (and any extensions thereof) obtain
and pay for and maintain in full force and effect the insurance policy or
policies described in Exhibit D attached hereto. Tenant shall deliver to
Landlord not less than ten (10) days prior to the Commencement Date certificates
of insurance (in form and substance reasonably acceptable to Landlord) for all
insurance policies required to be obtained by Tenant pursuant to this Lease. If
Tenant fails to submit such certificates to Landlord within the specified time,
or otherwise fails to obtain and maintain insurance coverages in accordance with
this Section 10.2, then Landlord, at Landlord's sole option, may, but shall not
be obligated to, procure such insurance on behalf of, and at the expense of,
Tenant. Tenant shall reimburse Landlord for such amounts upon demand, it being
understood that any such sums for which Tenant is required to reimburse Landlord
shall constitute Additional Rent.
10.3 INSURANCE TO BE MAINTAINED BY LANDLORD. Landlord shall secure fire,
casualty, and extended coverage insurance on the Premises and related
improvements for their full insurance and replacement value, subject to a
deductible amount determined in the absolute discretion of Landlord. Landlord
shall also secure general liability insurance coverage against any and all
claims for injuries to persons or property occurring in or about the Premises in
amounts to be determined in the absolute discretion of the Landlord. Landlord
shall provide proof of continuous coverage under such policies including copies
of certificates thereof and evidence of renewal upon reasonable request of
Tenant. Such insurance shall be obtained and maintained with generally
recognized responsible insurance companies qualified to do business in the State
of Illinois. Tenant agrees to pay as Additional Rent any and all costs and
expenses associated with the insurance described in this Section 10.3.
10.4 WAIVER OF RIGHT OF RECOVERY. None of Landlord, Agent or Tenant shall
be liable to one another [or to any insurance company (by way of subrogation of
otherwise) insuring any such party] for any loss or damage to the Premises, the
structure of the buildings located thereon, other tangible property located on
the Premises, or any resulting loss of income, or losses under workers'
compensation laws and benefits, despite the fact that such loss or damage might
have been occasioned by the negligence or misconduct of such party, its agents
or employees, provided and to the extent that any such loss or damage would be
covered by insurance that the party suffering the loss is required to maintain
pursuant to the terms of this Lease. The failure of any party to insure its
property shall not void this waiver. Each of Landlord, Agent and Tenant shall
secure an appropriate clause in, or an endorsement upon, each insurance policy
obtained by it and covering or applicable to the Premises and the personal
property, fixtures, and equipment located therein or thereon, pursuant to which
the insurance company consents to such waiver of right of recovery. The waiver
of right of recovery set forth above in this Section 10.3 shall extend to
Landlord, Agent, Tenant, and their respective agents and employees, and each
Superior Lessor, Superior Mortgagee, and to other appropriate parties designated
by Landlord.
SECTION 11: ALTERATIONS
11.1 PROCEDURAL REQUIREMENTS. Tenant may, from time to time, at its
expense, make alterations or improvements in and to the Premises (hereinafter
collectively referred to as ""Alterations''), provided that Tenant first obtains
the written consent of Landlord in each instance. Landlord's consent to
Alterations shall not be reasonably withheld or delayed, provided that: (a) the
Alterations are non-structural and the structural integrity of the Premises
shall not be adversely affected; (b) the Alterations are to the interior of the
Premises; (c) the proper functioning of the mechanical, electrical, heating,
ventilating, air-conditioning ("HVAC"), sanitary and other service systems of
the Premises shall not be adversely affected and
4
<PAGE> 5
the usage of such systems by Tenant shall not be increased; (d) Tenant shall
have appropriate insurance coverage reasonably satisfactory to Landlord
regarding the performance and installation of the Alterations; (e) the
Alterations shall conform with all other requirements of this Lease; and (f)
Tenant shall have provided Landlord with detailed plans (the "Plans") for
such Alterations in advance of requesting Landlord's consent. Additionally,
after obtaining Landlord's preliminary consent to the Plans, but before
proceeding with any Alterations, Tenant shall, at its expense, obtain all
necessary governmental permits and certificates for the commencement and
prosecution of Alterations and shall submit to Agent, for Landlord's written
approval, working drawings, plans and specifications, and all permits for the
work to be done and Tenant shall not proceed with such Alterations until it has
received said approval. After obtaining Landlord's approval to the Alterations,
Tenant shall give Landlord at least ten (10) days prior written notice of the
commencement of any Alterations at the Premises, and Landlord may elect to
record and post notices of non-responsibility at the Premises. Notwithstanding
the foregoing, Tenant shall not be obligated to obtain Landlord's consent to
perform Alterations which are non-structural, cosmetic or decorative in nature;
provided, however, that (i) the aggregate cost of such Alterations does not
exceed $25,000 during the Term of this Lease and (ii) Tenant shall adhere to
all of the other requirements of this Section 11.1 in connection with such
Alterations.
11.2 PERFORMANCE OF ALTERATIONS. Tenant shall cause the Alterations to be
performed in compliance with all applicable permits, laws and requirements of
public authorities, and with Landlord's reasonable rules and regulations. Tenant
shall cause the Alterations to be diligently performed in a good and workmanlike
manner, using new materials and equipment at least equal in quality and class to
the standards for the Premises established by Landlord or Agent. Alterations
shall be performed by contractors first approved by Landlord, which approval
shall not be unreasonably withheld or delayed, and Tenant's agents, contractors,
workmen, mechanics, suppliers and invitees shall cooperate, and not interfere
with, Landlord and its agents and contractors (if any). Tenant shall obtain all
necessary permits and certificates for final governmental approval of the
Alterations and shall provide Landlord with "as built" plans, copies of all
construction contracts, governmental permits and certificates and proof of
payment for all labor and materials, including, without limitation, copies of
paid invoices and final lien waivers.
11.3 LIEN PROHIBITION. Tenant shall pay when due all claims for labor and
material furnished to the Premises in connection with the Alterations. Tenant
shall not permit any mechanics or materialmen's liens to attach to the Premises
or Tenant's leasehold estate. Tenant, at its expense, shall procure the
satisfaction, discharge, or bonding of record of all such liens and encumbrances
within thirty (30) days after the filing thereof. In the event Tenant has not so
performed, Landlord may, at its option, pay and discharge such liens and Tenant
shall be responsible to reimburse Landlord, on demand, for all costs and
expenses incurred in connection therewith, together with interest thereon at the
rate set forth in Section 21.3 below, which expenses shall include reasonable
fees of attorneys of Landlord's choosing, and any costs in posting bond to
effect discharge or release of the lien as an encumbrance against the Premises.
Any sums due from Tenant pursuant to the preceding sentence shall constitute
Additional Rent under this Lease.
SECTION 12: LANDLORD'S AND TENANT'S PROPERTY
12.1 LANDLORD'S PROPERTY. Subject to Section 12.2 below, all fixtures,
machinery, equipment, improvements and appurtenances attached to, or built into,
the Premises at the commencement of, or during the Term, whether or not placed
there by or at the expense of Tenant, shall become and remain a part of the
Premises; shall be deemed the property of Landlord (the "Landlord's Property"),
without compensation or credit to Tenant; and shall not be removed by Tenant
unless Landlord requests their removal. Further, any personal property in the
Premises on the Commencement Date, movable or otherwise, unless installed and
paid for by Tenant, shall be and shall remain the property of Landlord and shall
not be removed by Tenant. In no event shall Tenant remove any of the following
materials or equipment without Landlord's prior written consent: any power
wiring or power panels, lighting or lighting fixtures, wall or window coverings,
carpets or other floor coverings, heaters, air conditioners or any other heating
or air conditioning equipment, fencing or security gates, or other similar
building operating equipment and decorations. Landlord shall leave in place at
the Premises for use by Tenant the following items that were in the Premises as
of December 18, 1997 if and to the extent delivered to Landlord by Seller
(defined below) upon the consummation of Landlord's acquisition of the Premises:
existing furniture as depicted on Exhibit E attached hereto, building equipment,
air compressors and related equipment, buss ducting, external and internal UPS
power systems, telecommunication panels, communication and phone lines, office
furniture, corrugated bailer, trash compactor, refrigerators, power distribution
and the awnings over the rear entrance and north wall of the building. Landlord
shall in no event be obligated to deliver any of the items identified in Exhibit
E regardless of whether such items were present on December 18, 1997. All of the
foregoing items shall be deemed Landlord's Property for all relevant purposes
and Landlord shall have no obligation to deliver, or liability to Tenant for
the failure to deliver, any such items to the extent removed or damaged by
Seller.
12.2 TENANT'S PROPERTY. All movable non-structural partitions, business
and trade fixtures, machinery and equipment, communications equipment and office
equipment, whether or not attached to, or built into, the Premises, which are
installed in the Premises by, or for the account of, Tenant without expense to
Landlord and that can be removed without structural damage to the Premises, and
all furniture, furnishing and other articles of movable personal property owned
by Tenant and located in the Premises (collectively, the "Tenant's Property")
shall be and shall remain the property of Tenant and may be removed by Tenant at
any time during the Term, provided, however, that Tenant shall repair or pay the
cost of repairing any damage to the Premises resulting from the installation
and/or removal thereof.
12.3 REMOVAL OF TENANT'S PROPERTY. At or before the Expiration Date, or
the date of any earlier termination, Tenant, at its expense, shall remove from
the Premises all of Tenant's Property (except such items thereof as Landlord
shall have expressly permitted, in writing, to remain, which property shall
become the property of Landlord), and Tenant shall repair any damage to the
Premises resulting from any installation and/or removal of Tenant's Property.
Any other items of Tenant's Property that shall remain in the Premises after the
Expiration Date, or following an earlier termination date, may, at the option of
Landlord, be deemed to have been abandoned, and in such case, such items may be
retained by Landlord as its property or be disposed of by Landlord, in
Landlord's sole and absolute discretion and without accountability, at Tenant's
expense. Notwithstanding the foregoing, if Tenant is in default under the terms
of this Lease, it may remove Tenant's Property from the Premises only upon the
express written direction of Landlord.
SECTION 13: REPAIRS AND MAINTENANCE
13.1 TENANT REPAIR AND MAINTENANCE. Tenant shall, at its expense,
throughout the Term, maintain and preserve the Premises and the fixtures and
appurtenances therein (including, but not limited to, the Premises' plumbing and
HVAC systems, and excluding, however, those components of the Premises for which
Landlord is expressly responsible under Section
5
<PAGE> 6
13.3). Tenant shall enter into a preventative maintenance and service contract
with a reputable service provider for maintenance of the HVAC systems of the
premises. Tenant shall also be responsible for all repairs and replacements
(whether structural or non-structural; interior or exterior, and ordinary or
extraordinary), in and to the premises and the facilities and systems thereof,
if and to the extent that the need for such repairs or replacements arises
directly or indirectly from (a) the performance or existence of any
alternations, (b) the installation, use or operation of Tenant's Property in
the Premises, (c) the moving of Tenant's Property in or out of the Premises, or
(d) any act, omission, misuse, or neglect of Tenant or any of its subtenants or
its or their respective employees, agents, contractors, invitees, or others
entering into the Premises by act or omission of Tenant or any subtenant.
Without limiting the generality of the foregoing, Tenant, as its expense, shall
promptly replace or repair all scratched, damaged, or broken doors and glass in
and about the Premises and floor coverings in the Premises and repair and
maintain all sanitary and electrical fixtures therein; provided, however, that
all replacement materials and methods of replacement shall be approved in
writing by Landlord prior to installation, which approval shall not be
unreasonably withheld or delayed. Any repairs or replacements required to be
made by Tenant to the mechanical, electrical, sanitary, HVAC, or other systems
of the Premises shall be performed by appropriately licensed contractors
approved by Landlord, which approval shall not be unreasonably withheld or
delayed. All such repairs or replacements shall be subject to the supervision
and control of landlord or Agent, and all repairs and replacements shall be
made with materials of equal or better quality than the items being repaired or
replaced.
13.2 TENANT EQUIPMENT. Tenant shall not place a load upon any floor of the
Premises that exceeds either the load per square foot that such floor was
designed to carry or that which is allowed by law. Business machines and
mechanical equipment belonging to Tenant that cause noise or vibrations that may
be transmitted to the structure of the Premises to such a degree as to be
objectionable or of concern to Landlord shall, at Tenant's expense, be placed
and maintained by Tenant in settings or cork, rubber or spring-type vibration
eliminators sufficient to eliminate such noise or vibration.
13.3 LANDLORD REPAIRS. Notwithstanding anything contained herein to the
contrary, Landlord (and not Tenant), at its sole cost and expense, shall be
responsible for the maintenance, repair, replacement and restoration of the
foundation, exterior and interior load-bearing walls, parking lot structure,
roof structure and roof covering and tuckpointing of the Premises; provided,
however, that in the event that any such repair, replacement or restoration is
necessitated by any or all of the matters set forth in Clauses 13.1(a), (b), (c)
or (d) [collectively, "Tenant Necessitated Repairs"], then (i) Landlord shall be
obligated to make a good faith submission of an insurance claim under the
appropriate insurance policy obtained by Landlord in connection with the
Premises pursuant to Section 10.3 hereof for the damage or casualty
necessitating such repair, replacement or restoration or any replacement
occasioned by the acts, omissions, misuse or neglect described in Section 13.1,
item (d) above if Landlord reasonably believes that such damage or casualty is
covered by such insurance policy; provided, however, that Landlord shall not be
obligated to appeal or litigate any denial of such claim, and (ii) Tenant shall
pay as Additional Rent any and all costs and expenses that Landlord incurs in
order to perform such Tenant Necessitated Repairs, including, without
limitation, any insurance deductible and any portion of an insurance claim not
paid by the applicable insurer, and such reimbursement shall be paid, in full,
within ten (10) days after Landlord's delivery of demand therefor. Landlord
agrees to commence and complete the maintenance, repairs, replacements or
restoration described in this Section 13.3 within a reasonable period of time
after receiving notice of the need for such repairs; provided, however, that
Landlord's obligation under this Section 13.3 shall accrue prior to Landlord's
receipt of such notice.
SECTION 14: UTILITIES
14.1 PURCHASING UTILITIES. Tenant shall purchase all utility services from
the utility or municipality providing such service; shall provide for scavenger,
cleaning and extermination services; and shall pay for such services when
payments are due. Tenant shall be solely responsible for the repair and
maintenance of any meters necessary in connection with such services.
14.2 USE OF ELECTRICAL ENERGY BY TENANT. Tenant's use of electrical energy
in the Premises shall not, at any time, exceed the capacity of (i) any of the
electrical conductors and equipment in or otherwise servicing the Premises, or
(ii) the Premises' heating, ventilating and air-conditioning ("HVAC") systems.
SECTION 15: LANDLORD'S RIGHTS
15.1 LANDLORD'S RIGHTS OF ACCESS. Landlord, Agent and their respective
agents, employees and representatives shall have the right to enter and/or pass
through the Premises at any reasonable time or times upon reasonable advance
notice (a) to examine and inspect the Premises and to show them to actual and
prospective Superior Parties or prospective purchasers or mortgagees of the
Premises or providers of capital to Landlord and its affiliates and all
consultants and advisors relating thereto; and (b) to make such repairs,
alternations, additions and improvements in or to the Premises or its facilities
and equipment as Landlord is required or desires to make. Landlord and Agent
shall be allowed to take all materials into and upon the Premises that may be
required in connection therewith, without any liability to Tenant and without
any reduction or modification of Tenant's covenants and obligations hereunder.
During the period of six (6) months prior to the Expiration Date (or at any
time, if Tenant has vacated or abandoned the Premises or is otherwise then in
default under this Lease), Landlord and its agents may exhibit the Premises to
prospective tenants. In the exercise of each of the foregoing rights, Landlord
shall give Tenant reasonable prior notice of its entry, except in the case of
emergency. Nothing set forth above implies obligations of improvement beyond the
Work Items per EXHIBIT C.
15.2 OTHER LANDLORD RIGHTS. Landlord and Agent shall have the following
rights exercisable, without notice and without liability to Tenant, for damage
or injury to persons, property or business and without being deemed an eviction
or disturbance of Tenant's use or possession of the Premises or giving rise to
any claim for setoff or abatement of Rent: to sell or otherwise transfer the
Premises and assign and pass through all of Landlord's obligations hereunder to
the new owner.
SECTION 16: NON-LIABILITY AND INDEMNIFICATION
16.1 NON-LIABILITY. None of Landlord, Agent, any other managing agent,
Superior Parties, or their respective affiliates, owners, partners, directors,
officers, agents and employees shall be liable to Tenant for any loss, injury or
damage, to Tenant or to any other person, or to its or their property,
irrespective of the cause of such injury, damage or loss; provided, however,
that Landlord and Agent (but not their respective affiliates, owners, partners,
directors, officers, or employees) shall be liable for any injury, loss or
damage caused by, or resulting from, the gross negligence or willful misconduct
of Landlord,
6
<PAGE> 7
Agent or their respective agents, servants or employees in the operation or
maintenance of the Premises (subject, however, to the doctrine of comparative
negligence in the event of negligence on the part of Tenant or any of its
contractors) or from Landlord's breach of this Lease. Further, none of
Landlord, Agent, any other managing agent, Superior Parties, or their
respective partners, directors, officers, agents and employees shall be liable
(a) for any such damage caused by other persons in, upon or about the Premises,
or caused by operations in construction of any private, public or quasi-public
work, unless such persons are on the Premises, or operations are undertaken, at
Landlord's direction; or (b) with respect to matters for which Landlord is
liable, for consequential or indirect damages purportedly arising out of any
loss of use of the Premises or any equipment or facilities therein by Tenant or
any person claiming through or under Tenant.
16.2 TENANT INDEMNIFICATION. Tenant hereby indemnifies, defends, and holds
Landlord and all Landlord Affiliates harmless from and against any and all
claims, judgments, liens, causes of action, liabilities, damages, costs, losses
and expenses (including, but not limited to reasonable legal, engineering and
consulting fees of engineers, attorneys and consultants selected by Landlord)
arising from or in connection with (a) Tenant's conduct or management of the
Premises or any business therein, or any work or Alterations done, or any
condition created (other than by Landlord) in or about the Premises during
either or both of the Term and the period of time, if any, prior to the
Commencement Date that Tenant may have been given access to the Premises,
including any and all mechanics and other liens and encumbrances; (b) any act,
omission or negligence of Tenant or any of its subtenants or licensees or their
partners, directors, officers, agents, employees, invitees or contractors; (c)
any accident, injury or damage whatsoever (unless caused by Landlord's gross
negligence, willful misconduct or breach of this Lease) occurring in, at or upon
the Premises; (d) any breach or default by Tenant in the full and prompt payment
and performance of Tenant's obligations under this Lease; (e) any breach by
Tenant of any of its warranties and representations under this Lease, and (f)
any actions necessary to protect Landlord's interest under this Lease in a
bankruptcy proceeding or other proceeding under the Bankruptcy Code. In case any
action or proceeding is brought against Landlord or any Landlord Affiliate by
reason of any such claim, Tenant, upon notice from any or all of Landlord, Agent
or any Superior Party, shall resist and defend such action or proceeding by
counsel reasonably satisfactory to, or selected by, Landlord or such Superior
Lessor or Superior Mortgagee. Tenant's obligations under this Section 16.2 shall
survive the termination of this Lease for any reason.
16.3 FORCE MAJEURE. Except as otherwise provided in this Lease, the
obligations of Tenant hereunder shall not be affected, impaired or excused, and
Landlord shall have no liability whatsoever to Tenant, with respect to any act,
event or circumstance arising out of (a) Landlord's failure to fulfill, or delay
in fulfilling any of its obligations under this Lease by reason of labor
dispute, governmental preemption of property in connection with a public
emergency or shortages of fuel, supplies, or labor, fire, unusual delays in
deliveries, unavoidable casualties or by other similar causes, beyond Landlord's
reasonable control; or (b) any failure or defect in the supply, quantity or
character of utilities furnished to the Premises, or by reason of any
requirement, act or omission of any public utility or others serving the
Premises beyond Landlord's reasonable control. Tenant shall not hold Landlord or
Agent liable for any latent defect in the Premisis, nor shall Landlord be
liable for injury or damage to person or property caused by fire, or
theft, or resulting from the operation of heating or air conditioning or
lighting apparatus, or from falling plaster, or from steam, gas, electricity,
water, rain, snow, ice, or dampness, that may leak or flow from any part of the
Premises, or from the pipes, appliances or plumbing work of the same, except to
the extent resulting from Landlord's willful misconduct, gross negligence or
breach of this Lease. Tenant agrees that under no circumstances shall Landlord
or Agent be liable to Tenant for any loss of, destruction of, damage to or
shortage of any property, including, but not limited to, Tenant's Property
except to the extent resulting from Landlord's willful misconduct or gross
negligence.
16.4 LIMITATION OF LIABILITY. Notwithstanding anything to the contrary
contained in this Lease, the liability of Landlord (and of any Successor
Landlord hereunder) to Tenant shall be limited to the interest of Landlord in
the Premises, and Tenant agrees to look solely to Landlord's interest in the
Premises for the recovery of any judgment or award against Landlord, it being
intended that Landlord shall not be personally liable for any judgment or
deficiency. In addition, Tenant acknowledges that Agent is acting solely in its
capacity as agent for Landlord and, shall not be liable for any obligations,
liabilities, losses or damages arising out of or in connection with this Lease.
SECTION 17: MAGE OR DESTRUCTION
17.1 NOTIFICATION. Tenant shall give prompt notice to Landlord and Agent
of (a) any occurrence in or about the Premises for which Landlord or Agent might
be liable, (b) any fire or other casualty in the Premises, (c) any damage to, or
defect in, the Premises, of which Tenant has knowledge, for the repair of which
Landlord or Agent might be responsible, and (d) any damage to or defect in any
part or appurtenance of the Premises' sanitary, electrical, HVAC, elevator or
other systems located in or passing through the Premises or any part thereof, of
which Tenant has knowledge.
17.2 REPAIR PROVISIONS. Subject to the provisions of Section 17.4 below,
if the Premises are damaged by fire or other insured casualty, Landlord shall
repair or cause Agent to repair the damage and restore and rebuild the Premises
(except for Tenant's Property) with reasonable dispatch after (a) notice to it
of the damage or destruction and (b) the collection of the insurance proceeds
attributable to such damage, and Tenant shall repair the damage to and restore
and repair Tenant's Property, with reasonable dispatch after such damage or
destruction.
17.3 RENTAL ABATEMENT. If (a) the Premises are damaged by fire or other
casualty, thereby causing the Premises to be inaccessible or (b) the Premises
are partially damaged by fire or other casualty, the Rent shall be
proportionally abated to the extent of any actual loss of use of the Premises.
17.4 TOTAL DESTRUCTION. If the Premises shall be totally destroyed by fire
or other casualty, or if the Premises shall be so damaged by fire or other
casualty that (in the opinion of a reputable contractor or architect designated
by Landlord) (i) its repair or restoration requires more than one hundred eighty
(180) days to complete or (ii) such repair or restoration requires the
expenditure of more than fifty percent (50%) of the full insurable value of the
Premises immediately prior to the casualty or (iii) the damage is less than the
amount stated in (ii) above, but occurs during the last two (2) years of Lease
Term, Landlord and Tenant shall each have the option to terminate this Lease
within five (5) days after said contractor or architect delivers written notice
of its opinion to Landlord and Tenant, but in all events prior to the
commencement of any restoration of the Premises by Landlord. In such event, the
termination shall be effective as of the date Tenant terminates all operations
at the Premises. If (A) any Superior Party or other party entitled to the
insurance proceeds fails to make such proceeds available to Landlord in an
amount sufficient for restoration of the Premises, or (B) the issuer of any
casualty insurance policies on the Premises fails to make available to Landlord
sufficient proceeds for restoration of the Premises, then Landlord may, at
Landlord's sole option, terminate this Lease, by giving Tenant written notice to
such effect within thirty (30) days after notice
7
<PAGE> 8
from a Superior Party or the insurance company that such insurance proceeds will
not be made available, in which event this Lease shall terminate effective as
of the date upon which Tenant receives such notice. For purposes of this
Section 17.4 only, "full insurable value" shall mean replacement cost, less the
cost of footings, foundations and other structures below grade.
17.5 REPAIR OR RESTORATION. Subject to the provisions of Section 17.4
above, Tenant shall not be entitled to terminate this Lease and no damages,
compensation or claim shall be payable by Landlord for purported inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Premises pursuant to this Section. Landlord or Agent shall use
its diligent, good faith efforts to make such repair or restoration within one
hundred eighty (180) days of the date of damage, and in such manner as not to
unreasonably interfere with Tenant's use and occupancy of the Premises.
SECTION 18: EMINENT DOMAIN
18.1 TOTAL CONDEMNATION. If the whole of the Premises, or if any part of
the Premises that materially affects Tenant's use and occupancy of the Premises,
shall be taken by condemnation or in any other manner for any public or
quasi-public use or purpose, this Lease and the term and estate hereby granted
shall terminate as of the date of vesting of title on such taking (herein called
"Date of the Taking"), and the Rent shall be prorated and adjusted as of such
date.
18.2 AWARD. Landlord shall be entitled to receive the entire award or
payment in connection with any taking provided, however, Tenant shall have the
right to separately pursue, against the condemning authority, an award in
respect of the loss, if any, to leasehold improvements or other interest of
Tenant in the Premises paid for by Tenant, without any credit or allowance from
Landlord and further provided that such separate award does not diminish or
interfere with Landlord's pursuit of its own award.
18.3 COMPENSATION TO TENANT FOR TEMPORARY USE. If the temporary use or
occupancy of all or any part of the Premises shall be taken by condemnation or
in any other manner for any public or quasi-public use or purpose during the
Term, Tenant shall be entitled, except as hereinafter set forth, to receive that
portion of the award or payment for such taking which represents compensation
for the use and occupancy of the Premises, for the taking of Tenant's Property
and for moving expenses, and Landlord shall be entitled to receive that portion
that represents reimbursement for the cost of restoration of the Premises. This
Lease shall be and remain unaffected by such taking, and Tenant shall continue
to be responsible for all of its obligations hereunder insofar as such
obligations are not affected by such taking and shall continue to pay, in full,
the Rent when due. If the period of temporary use or occupancy shall extend
beyond the Expiration Date, that part of the award that represents compensation
for the use and occupancy of the Premises (or a part thereof) shall be prorated
between Landlord and Tenant so that Tenant shall receive so much thereof as
represents the period up to and including such Expiration Date and Landlord
shall receive so much thereof as represents the period after such Expiration
Date. Notwithstanding anything contained herein to the contrary, Tenant may
terminate this Lease upon ten (10) days prior written notice to Landlord in the
event of a temporary taking or condemnation that materially and adversely affect
Tenant's use and occupancy of the Premises pursuant to this Section 18.3 which
Tenant reasonably believes will last for a period of at least one (1) year from
the date of such taking or condemnation, as applicable.
18.4 PARTIAL OR TEMPORARY TAKING. Subject to the rights of any Superior
Mortgagee or Superior Lessor, and other parties having rights to condemnation
proceeds, in the event of any taking of less than the whole of the Premises,
which taking does not result in termination of this Lease, or in the event of a
taking for a temporary use or occupancy of all or any part of the Premises, or
other partial taking of the Premises, that does not result in a termination of
this Lease: (a) Landlord, at its expense, shall proceed with reasonable
diligence to repair the remaining parts of the Premises (other than those parts
of the Premises that are Tenant's Property) to substantially their former
condition, to the extent that the same is feasible (subject to those changes
which Landlord reasonably deems desirable, and to building and other
governmental codes and regulations) and so as to constitute a complete and
tenantable Premises; provided, however, that if a condemnation award is not
sufficient to pay for such repairs, Landlord may, in its sole and absolute
discretion, terminate this Lease or perform such repairs to the extent of such
condemnation award, and (b) Tenant, at its expense, and whether or not any award
or awards shall be sufficient for the purpose, shall proceed with reasonable
diligence to repair Tenant's Property, to substantially its former condition, to
the extent feasible, subject to such reasonable changes as Landlord and Tenant
shall agree upon, in writing. Furthermore, in the event of a partial or
temporary taking of the Premises that does not result in a termination of this
Lease, the Base Rent due hereunder shall be reduced in a proportionate amount,
based upon the proportion that the area that has been taken bears to the total
area of the Premises. Such reduction shall be effective from the date on which
the partial taking occurs.
SECTION 19: SURRENDER AND HOLDOVER
On the last day of the Term, or upon any earlier termination of this lease,
or upon any re-entry by Landlord upon the Premises, (a) Tenant shall quit and
surrender the Premises to Landlord "broom-clean" and in good order, condition
and repair, except for ordinary wear and tear and such damage or destruction as
Landlord is required to repair or restore under this Lease, and (b) Tenant shall
remove all of Tenant's Property therefrom, except as otherwise expressly
provided in this Lease. The obligations imposed under the preceding sentence
shall survive the termination or expiration of this Lease. If Tenant remains in
possession after the Expiration Date hereof or after any earlier termination
date of this Lease or of Tenant's right to possession: (a) Tenant shall be
deemed a tenant-at-will; (b) Tenant shall pay one hundred fifty percent (150%)
of the Rent last prevailing hereunder, and also shall pay all direct damages
sustained by Landlord, by reason of such remaining in possession after the
expiration or termination of this Lease; (c) there shall be no renewal or
extension of this Lease by operation of law; and (d) the tenancy-at-will may be
terminated upon thirty (30) days' notice from Landlord or Tenant. The provisions
of this Section 19 shall not constitute a waiver by Landlord of any re-entry
rights of Landlord provided hereunder or by law.
SECTION 20: EVENTS OF DEFAULT
20.1 BANKRUPTCY OF TENANT. It shall be a default by Tenant under this
Lease if Tenant makes an assignment for the benefit of creditors, or files a
voluntary petition under any state or federal bankruptcy or insolvency law, or
an involuntary petition alleging an act of bankruptcy or insolvency is filed
against Tenant under any state or federal bankruptcy or insolvency law, or
whenever a petition is filed by or against Tenant under the reorganization
provisions of the United States Bankruptcy Code or under the provisions of any
law of like import, or whenever a petition shall be filed by Tenant under the
arrangement
8
<PAGE> 9
provisions of the United States Bankruptcy Code or similar law, or whenever a
receiver of Tenant, or of, or for, the property of Tenant shall be appointed,
or Tenant admits in writing that it is insolvent or is not able to pay its
debts as they mature.
20.2 DEFAULT PROVISIONS. Each of the following shall constitute a default
by Tenant under this Lease: (a) if Tenant fails to pay Rent or any other payment
when due hereunder within ten (10) days after written notice thereof from
Landlord (provided, however, that if and to the extent Tenant fails to pay Rent
or any other payment when due hereunder more than twice in any consecutive
twelve (12) month period, Landlord shall have no obligation whatsoever to
provide such written notice or allow any such ten (10) day period); or (b) if
Tenant fails, whether by action or inaction, to timely comply with, or satisfy,
any or all of the obligations imposed on Tenant under this Lease for a period of
thirty (30) days after Landlord's delivery to Tenant of written notice of such
default under this subsection 20.2(b); provided, however, that if the default
cannot, by its nature, be cured within such thirty (30) day period, but Tenant
commences and diligently pursues a cure of such default promptly within the
initial thirty (30) day cure period, than Landlord shall not exercise its
remedies under Section 21 unless such default remains uncured for more than
sixty (60) days after Landlord's initial delivery to Tenant of notice of such
default.
SECTION 21: REMEDIES
21.1 LANDLORD'S CURE RIGHTS UPON DEFAULT OF TENANT. If Tenant defaults in
the performance of any of its obligations under this Lease, Landlord, without
thereby waiving such default, may (but shall not be obligated to) perform the
same for the account, and at the expense of, Tenant, upon compliance with any
notice requirements and cure periods set forth in Subsection 20.2
21.2 LANDLORD'S REMEDIES. In the event of any uncured default by Tenant
under this Lease, Landlord, at its option, and after the proper notice and cure
period, if any, as provided in Section 20.2 has expired, without further notice
or demand to Tenant, may, in addition to all other rights and remedies provided
in this Lease, or otherwise at law or in equity: (a) terminate this Lease and
Tenant's right of possession of the Premises, and recover all damages to which
Landlord is entitled under law, specifically including, without limitation,
accelerated Rent attributable to the balance of the Term, and all Landlord's
reasonable expenses of reletting the Premises (including necessary repairs,
alterations, improvements, reasonable legal fees and brokerage commissions), or
(b) terminate Tenant's right of possession of the Premises without terminating
this Lease; provided, however, that Landlord shall use its reasonable efforts,
whether Landlord elects to proceed under Subsections (a) or (b) above, to relet
the Premises, or any part thereof for the account of Tenant, for such rent and
term and upon such terms and conditions as are reasonably acceptable to
Landlord. If Landlord shall elect to pursue its rights and remedies under
Subsection (b), then Landlord shall at any time have the further right and
remedy to rescind such election and pursue its rights and remedies under
Subsection (a), including but not limited to such time as Landlord has obtained
a tenant to relet the Premises, which, in Landlord's reasonable judgment, is a
suitable tenant. For purposes of such reletting, Landlord is authorized to
repair, alter and improve the Premises to the extent deemed reasonably necessary
by Landlord, in its sole and absolute discretion. If the Premises are relet and
a sufficient sum is not realized therefrom, after payment of all Landlord's
reasonable expenses of reletting (including repairs, alterations, improvements,
reasonable legal fees and brokerage commissions), to satisfy the payment, when
due, of Base Rent and Additional Rent reserved under the Lease for any monthly
period, then Tenant shall, in Landlord's sole judgment, either (i) pay any such
deficiency monthly or (ii) pay such deficiency on an accelerated basis, which
accelerated deficiency shall be discounted at a rate of six percent (6%) per
annum. If Landlord fails to relet the Premises, then Tenant shall pay to
Landlord the sum of (i) the projected costs of Landlord's reasonable expenses of
reletting (including the anticipated costs of repairs, alterations,
improvements, additions, reasonable legal fees and brokerage commissions) as
reasonably estimated by Landlord and (ii) the accelerated amount of Base Rent
and Additional Rent due under the Lease attributable to the balance of the Term
discounted at a rate of six percent (6%) per annum. Tenant agrees that Landlord
may file suit to recover any sums due to Landlord hereunder from time to time
and that such suit or recovery of any amount due Landlord hereunder shall not be
any defense to any subsequent action brought for any amount not theretofore
reduced to judgment in favor of Landlord. In the event Landlord elects, pursuant
to Subsection (b) of this Section 21.2, to terminate Tenant's right of
possession only, without terminating the Lease, Landlord may, at Landlord's
option, enter into the Premises, remove Tenant's Property, Tenant's signs and
other evidences of tenancy, and take and hold possession thereof as provided in
Section 19 hereof; provided, however, that such entry and possession shall not
terminate this Lease or release Tenant, in whole or in part, from Tenant's
obligation to pay the Rent reserved hereunder for the full Term, or from any
other obligation of Tenant under this Lease. Any and all property that may be
removed from the Premises by Landlord pursuant to the authority of the Lease or
of law, to which Tenant is or may be entitled, may be handled, removed or stored
by Landlord at the risk, cost and expense of Tenant, and in no event or
circumstance shall Landlord be responsible for the value preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Any such property of Tenant not retaken from storage by Tenant within
thirty (30) days after the end of the Term, however terminated, shall be
conclusively presumed to have been conveyed by Tenant to Landlord under this
Lease as in a bill of sale, without further payment or credit by Landlord to
Tenant.
21.3 ADDITIONAL RIGHTS OF LANDLORD. Any and all costs, expenses and
disbursements, of any kind or nature, incurred by Landlord or Agent in
connection with the enforcement of any and all of the terms and provisions of
this Lease, including reasonable attorneys' fees (through all appellate
proceedings), shall be due and payable (as Additional Rent) upon Landlord's
submission of an invoice therefor. All sums advanced by Landlord or Agent on
account of Tenant under this Section, or pursuant to any other provision of this
Lease, and all Rent, if delinquent or not paid by Tenant and received by
Landlord when due hereunder, shall bear interest at the rate of five percent
(5%) per annum above the "prime" or "reference" or "base" rate of interest
publicly announced as such, from time to time, by The First National Bank of
Chicago, from the due date thereof until paid, and such interest shall be and
constitute Additional Rent and be due and payable upon Landlord's or Agent's
submission of an invoice therefor. Suit or suits for the recovery of such
damages, or any installments thereof, may be brought by Landlord from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the Expiration Date, nor limit or preclude
recovery by Landlord against Tenant of any sums or damages to which, in addition
to the damages particularly provided above, Landlord may lawfully be entitled by
reason of any default hereunder by Tenant. The various rights, remedies and
elections of Landlord reserved, expressed or contained herein are cumulative and
no one of them shall be deemed to be exclusive of the others or of such other
rights, remedies, options or elections as are now or may hereafter be conferred
upon Landlord by law.
21.4 EVENT OF BANKRUPTCY. In addition to, and in no way limiting the other
remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes
the subject of a voluntary or involuntary bankruptcy, reorganization,
composition, or other similar type proceeding under the federal bankruptcy laws,
as now enacted or hereinafter amended, then:
9
<PAGE> 10
(a) "Adequate assurance of future performance" by Tenant and/or any
assignee of Tenant pursuant to Bankruptcy Code Section 365 will include (but not
be limited to) payment of an additional/new security deposit in the amount of
three (3) times the then-current Rent payable hereunder.
(b) Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code, shall be deemed, without further act or
deed, to have assumed all of the obligations of Tenant arising under this Lease
on and after the effective date of such assignment. Any such assignee shall,
upon demand by Landlord, execute and deliver to Landlord an instrument
confirming such assumption of liability.
(c) 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.
(d) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other considerations
payable or otherwise to be delivered to Landlord or Agent (including Rent and
other amounts hereunder), shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the bankruptcy estate of
Tenant. Any and all monies or other considerations constituting Landlord's
property under the preceding sentence not paid or delivered to Landlord or Agent
shall be held in trust by Tenant or Tenant's bankruptcy estate for the benefit
of Landlord and shall be promptly paid to or turned over to Landlord.
SECTION 22: BROKER
Tenant covenants, warrants and represents that the broker set forth in
Section 1.8(A) was the only broker to represent Tenant in the negotiation of
this Lease ("Tenant's Broker"). Landlord covenants, warrants and represents that
the broker set forth in Section 1.8(B) was the only broker to represent Landlord
in the negotiation of this Lease ("Landlord's Broker"). Landlord shall be solely
responsible for paying the commissions of Landlord's Broker. Each party agrees
to and hereby does defend, indemnify and hold the other harmless against and
from any brokerage commissions or finder's fees or claims therefor by a party
(other than Tenant's Broker and Landlord's Broker) claiming to have dealt with
the indemnifying party and all costs, expenses and liabilities in connection
therewith, including, without limitation, reasonable attorneys' fees and
expenses, for any breach of the foregoing. The foregoing indemnification shall
survive the termination of this Lease for any reason.
SECTION 23: ESTOPPEL CERTIFICATES
Tenant shall, from time to time and within ten (10) days after any request
by Landlord, execute and deliver to Landlord (and to any existing or prospective
mortgage lender, ground lessor, or purchaser designated by Landlord), a
statement: (i) 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); (ii) certifying the dates to
which the Rent has been paid; (iii) stating whether Landlord is in default in
performance of any of its obligations under this Lease, and, if so, specifying
each such default; (iv) stating whether any event has occurred which, with the
giving of notice or passage of time, or both, would constitute such a default,
and, if so, specifying each such event; and (v) stating whether any rights of
Tenant (e.g., options) have been waived. Any such statement delivered pursuant
hereto shall be deemed a representation and warranty to be relied upon by the
party requesting the certificate and by others with whom Landlord may be
dealing, regardless of independent investigation. Tenant also shall include in
any such statements such other information concerning this Lease as Landlord or
Agent may reasonably request including, but not limited to, the amount of Rent
under this Lease, and whether Landlord has completed all (if any) improvements
to the Premises required under this Lease. Within 10 days of Tenant's request
therefor, Landlord shall execute and deliver to Tenant a statement of like
effect.
SECTION 24: HAZARDOUS SUBSTANCES
24.1 DEFINITIONS. For purposes of this Section 24, "Hazardous Substance"
means any substance or matter regulated or listed under the Resources
Conservation Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
52 U.S.C. Section 9601 et seq., any applicable federal, state, local or common
law relating to the protection of human health or conservation of the
environment (the foregoing laws being referred to herein as "Environmental
Laws"). For purposes of this Section 24, "Landlord's Environmental Liability"
means: any and all losses, liabilities, obligations, penalties, claims, fines,
lost profits, demands, litigation, defenses, costs, judgments, suits,
proceedings, damages (including consequential, punitive and exemplary damages),
disbursements or expenses of any kind or nature whatsoever (including attorneys'
fees at trial and appellate levels and experts' fees and disbursements and
expenses incurred in investigating, defending against, settling or prosecuting
any suit, litigation, claim or proceeding) which may at any time be either
directly or indirectly imposed upon, incurred by or asserted or awarded against
Landlord or any of Landlord's parent and subsidiary corporations and their
affiliates, shareholders, directors, officers, employees, and agents in
connection with or arising from: (i) any Hazardous Substance used, emitted,
released, discharged, generated, manufactured, sold, transported, handled,
stored, treated, reused, disposed of or recycled on, in or under all or any
portion of the Property, or any surrounding areas as a result of the act or
omission of (x) Tenant or any of Tenant's employees, agents, invitees,
contractors or representatives or (y) at Tenant's direction, any third party
after the Commencement Date and prior to the Expiration Date, (ii) any
misrepresentation, inaccuracy or breach of any warranty, covenant or agreement
contained or referred to in this Section 24: (iii) any violation, liability or
claim of violation or liability under any Environmental Laws as a result of the
act or omission of (x) Tenant or any of Tenant's employees, agents, invitees,
contractors or representatives or (y) at Tenant's direction, any third party
after the Commencement Date and prior to the Expiration Date; or (iv) the
imposition of any lien for damages caused by, or the recovery of any costs
incurred for the cleanup of, any release or threatened release of Hazardous
Substances as a result of the act or omission of (x) Tenant or any of Tenant's
employees, agents, invitees, contractors or representatives or (y) at Tenant's
direction, any third party after the Commencement Date and prior to the
Expiration Date.
24.2 PROHIBITION. Tenant shall not conduct or authorize the generation,
transportation, storage, use, treatment or disposal on or in the Premises of any
Hazardous Substance without prior written authorization by Landlord, which
authorization may be given or withheld in Landlord's sole and absolute
discretion, and Tenant's failure to comply with the provisions of this Section
24.2 shall constitute a default under this Lease.
10
<PAGE> 11
24.3 PERMITTED ACTIVITIES. Tenant shall, at its own cost, comply with all
applicable Environmental Laws relating to the Premises or Tenant's use of the
Premises and any and all applicable environmental permits relating to the
Premises or Tenant's use of the Premises. Tenant shall promptly provide Agent
copies of all communications, permits or agreements with any governmental
authority or agency (federal, state or local) or any private entity received by
Tenant relating in any way to the presence, release, threat of release,
placement on or in the Premises, or the generation, transportation, storage,
use, treatment, or disposal at the Premises, of any Hazardous Substance.
Landlord, Agent and their respective agents and employees shall have the right
to enter the Premises and/or conduct appropriate tests for the purposes of
ascertaining Tenant compliance with all applicable laws, rules or permits
relating in any way to the presence of Hazardous Substances on the Premises.
Upon written request by Landlord or Agent (given no more than once per calendar
year and only after Landlord's receipt of notice of Tenant's violation of any
Environmental Law), Tenant shall provide Landlord with the results of
appropriate test of air, water or soil to demonstrate that Tenant complies with
all applicable laws, rules or permits relating in any way to the presence of
Hazardous Substances on the Premises or any portion thereof.
24.4 REMEDIAL ACTION. If the presence, release, threat of release,
placement on or in the Premises or any portion thereof, or the generation,
transportation, storage, use, treatment, or disposal at the Premises or any
portion thereof of any Hazardous Substance results directly or indirectly from
any act or omission of (x) Tenant or any of Tenant's employees, agents,
invitees, contractors or representatives or (y) at Tenant's direction, any third
party after the Commencement Date and prior to the Expiration Date and gives
rise to any form of liability (including, but not limited to, a response action,
remedial action, or removal action) under any applicable Environmental Law or an
environmental permit, Tenant, at its sole cost and expense, shall promptly take
any and all remedial and removal action necessary to clean up and/or remediate
the Premises or any portion thereof in accordance with Environmental Law and
mitigate exposure to liability arising from the Hazardous Substance required by
law. Landlord shall be liable for and shall pay, at Landlord's sole cost and
expense (and shall hold Tenant harmless from), all costs related to any and all
clean-up and remediation of Hazardous Substances and compliance with all
applicable Environmental Laws with respect to, arising from or caused, in whole
or in part, directly or indirectly by: (i) the presence in, on or under the
Premises, or the discharge or release, in or from the Premises, of any such
Hazardous Substance to the extent that such presence, discharge or release is
solely caused by Landlord's activities in or at the Premises, or to the extent
same existed prior to the date Tenant takes occupancy of the Premises.
Landlord's obligations under this Section 24.4 shall survive in perpetuity the
expiration of the Term hereof. For purposes of this paragraph, "Landlord" shall
be deemed to include Landlord, its employees, agents, contractors and
representatives.
24.5 INDEMNITY. Tenant shall and does hereby protect, indemnify, defend
(at trial and appellate levels and with counsel, experts and consultants
acceptable to Landlord and at Tenant's sole cost) and hold Landlord and its
Affiliates free and harmless from and against any Landlord's Environmental
Liability or other loss, cost or expense incurred by Landlord and to the extent
resulting from Tenant's breach of its obligations under this Section 24
(collectively, "Tenant's Indemnification Obligations"). Tenant's Indemnification
Obligations shall survive in perpetuity.
SECTION 25 MISCELLANEOUS
25.1 MERGER. All prior understandings and agreements between the parties
are merged in this Lease, which alone fully and completely expresses the
agreement of the parties. No agreement shall be effective to modify this Lease,
in whole or in part, unless such agreement is in writing, and is signed by the
party against whom enforcement of said change or modification is sought.
25.2 NOTICES. Any notice required to be given by either party pursuant to
this Lease, shall be in writing and shall be deemed to have been properly given,
rendered or made only if personally delivered or if sent by Federal Express or
other comparable commercial overnight delivery service, addressed to the other
party at the addresses set forth below (or to such other address as Landlord or
Tenant may designate to each other from time to time by written notice), and
shall be deemed to have been given, rendered or made on the day so delivered or
on the first business day after having been deposited with the courier service:
<TABLE>
<S> <C>
If to Landlord: First Industrial, L.P.
311 South Wacker Drive, 40th Floor
Chicago, Illinois 60606
Attn: Michael W. Brennan
With a copy to: First Industrial Realty Trust
9450 W. Bryn Mawr Road
Suite 150
Rosemont, Illinois 60018
Attn: Timothy Donohue
With a copy to: Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Attn: Howard Nagelberg and Suzanne Bessette-Smith
If to Tenant: Sabratek Corporation
8111 North St. Louis Avenue
Skokie, Illinois 60076
Attn: Scott Skooglund
With a copy to: Ross & Hardies
150 N. Michigan Avenue, Suite 2500
Chicago, Illinois 60601
Attn: Scott Hodes, Esq.
</TABLE>
25.3 NON-WAIVER. The failure of either party to insist, in any one or
more instances, upon the strict performance of any one or more of the
obligations of this Lease, or to exercise any election herein contained, shall
not be construed as a waiver or relinquishment for the future of the
performance of such one or more obligations of this Lease or of the right to
11
<PAGE> 12
exercise such election, but the Lease shall continue and remain in full force
and effect with respect to any subsequent breach, act or omission. The receipt
and acceptance by Landlord or Agent of Rent with knowledge of breach by Tenant
of any obligation of this Lease shall not be deemed a waiver of such breach.
25.4 LEGAL COSTS. Any party in breach or default under this Lease (the
"Defaulting party") shall reimburse the other party (the "Nondefaulting Party")
upon demand for any costs or expenses that the Nondefaulting Party incurs in
connection with the breach or default, regardless whether suit is commenced or
judgment entered. Such costs shall include reasonable legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, in the event of litigation, the court in such action
shall award to the party in whose favor a judgment is entered, a reasonable sum
as attorneys' fees and costs, which sum shall be paid by the losing party.
Tenant shall pay Landlord's reasonable attorneys' fees incurred in connection
with Tenant's request for Landlord's consent under provisions of this lease
governing assignment and subletting, or in connection with any other act which
Tenant proposes to do and which requires Landlord's consent.
25.5 PARTIES BOUND. Except as otherwise expressly provided for in this
Lease, this Lease shall be binding upon, and inure to the benefit of, the
successors and assignees of the parties hereto. Tenant hereby releases Landlord
named herein from any obligations of Landlord for any period subsequent to the
conveyance and transfer of Landlord's ownership interest in the Premises
provided that such transferee expressly assumes liability therefor. In the event
of such conveyance and transfer, Landlord's obligations shall thereafter be
binding upon each transferee (whether Successor Landlord or otherwise). No
obligation of Landlord or Tenant shall arise under this Lease until the
instrument is signed by, and delivered to, both Landlord and Tenant.
25.6 RECORDATION OF LEASE. Upon request of either party hereto, the other
party shall cooperate in the recordation of a memorandum of lease relating
hereto.
25.7 SURVIVAL OF OBLIGATIONS. Upon the expiration or other termination of
this Lease, neither party shall have any further obligation or liability to the
other except as otherwise expressly provided in this Lease and except for such
obligations as, by their nature or under the circumstances, can only be, or by
the provisions of this Lease, may be performed after such expiration or other
termination. The provisions of Sections 2, 3, 12, 16, 19, 22, and 24 shall
survive any termination of this Lease.
25.8 GOVERNING LAW, CONSTRUCTION. This Lease shall be governed by and
construed in accordance with the laws of the state in which the Premises are
located. If any provision of this Lease shall be invalid or unenforceable, the
remained of this Lease shall not be affected but shall be enforced to the extent
permitted by law. The captions, headings and titles in this Lease are solely for
convenience of reference and shall not affect its interpretation. This Lease
shall be construed without regard to any presumption or other rule requiring
construction against the party causing this Lease to be drafted. Each covenant,
agreement, obligation, or other provision of this Lease to be performed by
Tenant, shall be construed as a separate and independent covenant of Tenant, not
dependent on any other provision of this Lease. All terms and words used in this
Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require.
25.9 TIME. Time is of the essence of this Lease. If the time for
performance hereunder falls on a Saturday, Sunday or a day that is recognized as
a holiday in the state in which the Premises are located, then such time shall
be deemed extended to the next day that is not a Saturday, Sunday or holiday in
said state.
25.10 AUTHORITY OF TENANT. If Tenant is a corporation, partnership,
association or any other entity, it shall deliver to Landlord, concurrently with
the delivery to Landlord of an executed Lease, certified resolutions of Tenant's
directors or other governing person or body (i) authorizing execution and
delivery of this Lease and the performance by Tenant of its obligations
hereunder and (ii) certifying the authority of the party executing the Lease as
having been duly authorized to do so.
25.11 COUNTERPART EXECUTION. This Lease may be executed in counterparts
and, when all counterpart documents are executed, the counterparts shall
constitute a single binding instrument.
25.12 RIDERS. All Riders and Exhibits attached hereto and executed (or
initialed) both by Landlord and Tenant shall be deemed to be a part hereof and
hereby incorporated herein.
25.13 WAIVER OF TRIAL BY JURY. THE LANDLORD AND THE TENANT, TO THE FULLEST
EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY COURT ACTION BROUGHT BY ANY PARTY
TO THIS LEASE WITH RESPECT TO THIS LEASE, THE PREMISES, OR ANY OTHER MATTER
RELATED TO THIS LEASE OR THE PREMISES.
25.14 PURCHASE CONTINGENCY. Tenant acknowledges and agrees that Landlord's
obligations hereunder, including but not limited to, Landlord's obligations
pursuant to Sections 25.15 or 25.17 hereof, are contingent upon, and shall in no
event commence unless and until, Landlord acquires the Premises from Seller. In
the event that Landlord is unable to acquire the Premises from Seller for any
reason whatsoever, this Lease shall be null and void and of no further force and
effect and neither party shall have any further liability to the other
hereunder. The Commencement Date shall in no event occur unless and until
Landlord has completed its acquisition of the Premises from Seller.
25.15 RENTAL SUBSIDY. Landlord covenants and agrees that from and after
the Commencement Date, on the express condition that Tenant has commenced paying
Rent hereunder and is not in default hereunder, Landlord shall credit against
the Rent due hereunder an amount equal to $21,936.10 (the "Subsidy Amount") each
month until October 1, 1999 which Subsidy Amount represents the monthly base
rent and additional rent payable pursuant to that certain Lease Agreement (the
"Existing Lease") by and between Tenant and American National Bank and Trust
Company of Chicago, Trust No. 40365. Landlord shall have no obligation to
provide the Subsidy Amount if (i) Tenant has not commenced paying Rent
hereunder; (ii) Tenant is in default hereunder beyond applicable notice and cure
periods; or (iii) Tenant has been delivered a notice of default hereunder but
any applicable cure period has not expired; provided, however, that in the event
that Landlord does not provide all or some portion of the Subsidy Amount as a
result of a default by Tenant for which notice has been provided but the cure
period has not lapsed hereunder which is subsequently cured by Tenant in a
timely fashion and in accordance with the
<PAGE> 13
requirements of the Lease, Landlord shall pay to Tenant promptly after such
cure an amount equal to that portion of the subsidy Amount that Landlord failed
to provide on account of such default.
25.16 INTERRUPTION OF SERVICES. Nothwithstanding anything to the contrary
contained herein, in the event of any discontinuance or interruption in
utilities or other services at the Premises, which discontinuance or
interruption continues for longer than ten (10) consecutive business days, rent
hereunder shall abate during such period of discontinuance or interruption.
25.17 TENANTS ACCESS. In the event that Landlord acquires the Premises
from Seller prior to the Commencement Date, Landlord shall permit Tenant and
Tenant's agents or independent contractors to enter the Premises for the limited
purpose of allowing Tenant to perform the build-out activities approved in
advance by Landlord, which approval shall not be unreasonably withheld or
delayed (the "Tenant's Improvement Work"). Such entry prior to the Commencement
Date shall be subject to the condition that (i) Tenant and Tenant's agents,
contractors, workmen, mechanics, suppliers, and invitees shall cooperate with
and not interfere with Landlord and its agents and contractors in completing the
Work Items; (ii) Tenant shall maintain, in full force and effect, the insurance
policy or polices required under the Lease; (iii) Tenant shall pay for any
utilities required solely by Tenant in connection with Tenant's access to the
Premises; and (iv) Tenant shall receive written permission from the City of
Skokie, if necessary under applicable law, authorizing the conduct of Tenant's
Improvement Work ("City Approval"). Tenant agrees that any such entry into the
Premises prior to the Commencement Date for the limited purposes of the Tenant's
Improvement Work shall be deemed to be under all of the terms, covenants,
conditions and provisions of the Lease, except as to the covenant to pay Rent
and Tenant shall be required to pay only that portion of the utilities consumed
at the Premises as is required by item (iii) of the preceding sentence. Tenant
further agrees that to the extent permitted by law, Landlord and its principals
shall not be liable in any way for any injury or death to any person or persons,
loss or damage to any of Tenant's Property or installations made in the Premises
or loss or damage to property placed therein prior to the Commencement Date, the
same being at Tenant's sole risk, except that Landlord (and not its principals)
may be liable to Tenant but only to the extent of its gross negligence or
willful misconduct. Prior to commencing Tenant's Improvement Work, Tenant shall
(i) notify Landlord of the names and addresses of all contractors for whom and
which access is being provided and the approximate number of individuals,
itemized by trade, who will be present in the Premises; (ii) provide Landlord
with copies of all contracts pertaining to the performance of the work for which
such early access is being required; (iii) provide Landlord with copies of all
plans and specifications pertaining to the work for which such access is being
requested; (iv) provided Landlord with copies of all licenses and permits
required in connection with the performance of the work for which such access is
being requested, including, but not limited to, the City Approval; and (v)
provide Landlord with certificates of insurance naming Landlord as additional
insured and instruments of indemnification against all claims, costs, expenses,
damages and liabilities which may arise in connection with Tenant's Improvement
Work. All of the foregoing shall be subject to Landlord's approval, which
approval shall no be unreasonably withheld or delayed. Such access shall be
subject to scheduling by Landlord, but Landlord shall make reasonable efforts to
comply with Tenant's schedule for Tenant's Improvement Work.
25.18 RENEWAL OPTION. Provided that no default exists under this Lease at
the time the option to renew which is described below is exercised, or at the
commencement of the renewal period, Tenant shall have the right to extend the
Term for one three-year period commencing on the Expiration Date, upon the same
terms and conditions as are contained in this Lease, except as hereinafter
provided:
(a) The Base Rent for the renewal period shall be increased (but
in no event decreased) at a rate per annum per square foot of rentable area in
the Premises, equal to the greater of (i) $34,942 per month or (ii) 75% of the
rent per square foot per annum then prevailing in the market for comparable
space in the Chicago metropolitan area for a term equal to the renewal period
and commencing at approximately the date of the renewal period as such rate is
reasonably determined by Landlord.
(b) Landlord shall have no obligation to make improvements,
decorations, repairs, alterations, or additions to the Premises as a condition
to Tenant's obligation to pay Rent for the renewal period, and the Net Base Rent
quoted for the renewal period shall not be reduced by either (aa) by reason of
such fact, (bb) to take into account any rental concession whatsoever
(including, but not limited to rent abatements, allowances for moving expenses,
lease assumptions, or other concessions), or (cc) to take into account the
absence of any cost or expense which Landlord would have incurred had the
Premises been leased to a person or entity other than Tenant.
(c) Landlord's good faith determination of the Net Base Rent for
the renewal period shall be conclusive, binding upon Tenant and not contestable
by Tenant; provided, however, Tenant shall have the right to nullify its
exercise of the option to extend the Term, by written notice to Landlord, given
within thirty (30) days of Landlord's notice to Tenant (which Landlord's notice
shall be given to Tenant not later than six months prior to the commencement of
the renewal period) setting forth the Net Base Rent for the renewal period, in
which event Tenant's exercise of the option to extend shall be null and void and
neither Landlord nor Tenant shall have any further rights or liabilities with
respect thereto. Tenant's failure to given the notice of nullification described
above within such thirty (30) day period shall constitute acceptance by Tenant
of, and Tenant's agreement to pay, the Net Base Rent specified for the renewal
period.
(d) Tenant shall have no further or additional right to extend the
Term of this Lease.
(e) This option to extend shall be exercised, if at all, by
written notice to Landlord given not earlier than eighteen (18) months nor
later than nine (9) months prior to the Expiration Date. In the event Tenant
fails to comply with the procedure for exercise of the option to extend, Tenant
shall have no further right to extend the Term.
(f) The renewal option granted pursuant to this Section 25.18 is
personal to Tenant. If Tenant subleases any portion of the Premises or assigns
or otherwise transfers any interest under the Lease to any other persons or
entity pursuant to, and in accordance with, Section 8 hereof, prior to the
exercise of this renewal option (whether with or without Landlord's consent),
this renewal option shall lapse. If Tenant subleases any portion of the Premises
or assigns or otherwise transfers any interest of Tenant under the Lease to any
entity or person pursuant to, and in accordance with, Section 8 hereof (whether
with or without Landlord's consent) after the exercise of this renewal option
but prior to the commencement of the renewal period, such renewal option shall
lapse and the Term shall expire as if this renewal option were not exercised. If
Tenant subleases any portion of the Premises or assigns or otherwise transfers
any interest of Tenant under the Lease pursuant to, and in accordance with,
Section 8 hereof after the exercise of this renewal option and after the
commencement of the
13
<PAGE> 14
renewal period, then the Term shall expire upon the expiration of the renewal
period during which such sublease or transfer occurred
25.19 LANDLORD'S DEFAULT. In the event that Landlord defaults in the
observance or performance of any term or condition required to be performed by
Landlord hereunder, Tenant, may elect to act to cure and remedy such default
hereunder by Landlord; provided, however, that Tenant may not exercise such
remedy without first providing written notice of the alleged default to
Landlord, setting forth with reasonable specificity and detail the nature of
such default, and thereafter permitting Landlord a thirty (30) day period to
cure such default (which cure period may be extended if Landlord is diligently
pursuing performance of the applicable cure, but such cure is not completed
within the 30 day period). In the event that Tenant elects to cure a default by
Landlord as herein provided, Landlord shall reimburse Tenant for all reasonable
third-party costs and expenses actually expended by Tenant to perform any
obligation of Landlord actually and properly owing hereunder. In connection with
the exercise of such remedy or otherwise, Tenant shall not be entitled to any
abatement, deduction or set off against the Rent payable hereunder.
Notwithstanding the above-described remedy, in no event and under no
circumstances may Tenant take any action or perform any repairs, replacements or
restoration involving the foundation, roof or structure of the Premises, or any
of the load-bearing walls. Furthermore, any work performed by Tenant pursuant to
its election of this remedy shall comply with the requirements of Section 11.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease by
their duly authorized representatives as of the day and year first above
written.
LANDLORD: FIRST INDUSTRIAL, L.P., a Delaware limited partnership
By: First Industrial Realty Trust, Inc., a Maryland
corporation, its general partner
By:
---------------------------------------------
Its:
---------------------------------------------
TENANT: SABRATEK CORPORATION, a Delaware corporation
By:
---------------------------------------------
Its:
---------------------------------------------
14
<PAGE> 15
LEASE EXHIBIT A
PREMISES
Premises: The 84,760 square foot warehouse/distribution facility commonly known
as 8111 N. St. Louis, Skokie, Illinois more particularly described on
Exhibit A-1 hereto.
A-1
<PAGE> 16
LEASE EXHIBIT B
RENTAL PAYMENTS
<TABLE>
<CAPTION>
Year Monthly Rent Annual Rent Per Square Foot
---- ------------ ----------- ----------------
<S> <C> <C> <C>
1-3 $33,550.83 $402,610 $4.75
4-5 $34,257.17 $411,086 $4.85
(and month 1 of year 6;
if applicable)
</TABLE>
B-1
<PAGE> 17
LEASE EXHIBIT C
LANDLORD'S REPAIRS AND IMPROVEMENTS
1. Landlord to place Premises in a "broom swept condition" and place all
HVAC Systems and all other building systems in good working order.
2. Office carpeting to be replaced and office walls to be painted.
3. Paint the walls in the cafeteria and the bathrooms.
C-1
<PAGE> 18
LEASE EXHIBIT D
REQUIRED INSURANCE
(a) "ALL-RISK" PROPERTY AND LOSS OF INCOME COVERAGE FOR TENANT'S PROPERTY.
"All Risk" (including, but not limited to, earthquake and flood) (i) property
insurance on a replacement cost basis, covering the building and all of the
other improvements on the Premises, and covering all of Tenant's Property (as
defined in Section 12.2 of this Lease), all merchandise and trade fixtures and
furnishings and equipment and all other personal property of Tenant and all
leasehold improvements installed in the Premises by, or on behalf of, Tenant all
in an amount not less than the full replacement cost of all such improvements
and property and (ii) business interruption insurance in an amount sufficient to
assure that Landlord shall recover the loss of any rental income due and owing
to Landlord from Tenant under the terms of this Lease, which coverage shall
provide such protection to Landlord for a period of not less than twelve (12)
consecutive months. The total amount of the deductible required under each
policy providing such coverage shall be no more than $10,000.00 per loss.
Landlord, Agent and any other parties designated by Landlord (including, but not
limited to, its beneficiary, its general and limited partners, and Superior
Parties) shall be included as loss payee(s).
(b) LIABILITY COVERAGE. Commercial general public liability and
comprehensive automobile liability [and, if necessary to comply with any
conditions of this Lease, umbrella liability insurance] covering Tenant against
any claims arising out of liability of bodily injury and death and personal
injury and advertising injury and property damage occurring in and about the
Premises, and otherwise resulting from any acts and operations of Tenant, its
agents and employees, with limits of not less than total limits of $2,000,000.00
per occurrence and $5,000,000.00 annual general aggregate, per location. The
total amount of a deductible or otherwise self-insured retention with respect to
such coverage shall be not more than $10,000.00 per occurrence. Such insurance
shall include, inter alia: (i) "occurrence" rather than "claims made" policy
forms unless such "occurrence" policy forms are not available; (ii) any and all
liability assumed by Tenant under the terms of this Lease, to the extent such
insurance is available; (iii) premises medical-operations expenses in an amount
not less than $5,000.00 per person, per accident; (iv) a hostile fire
endorsement; (v) Landlord, Agent and any other parties designated by Landlord or
Agent (including, but not limited to, its beneficiary, its general and limited
partners, and Superior Mortgagees) shall be designated as Additional Insured(s)
with respect to (x) the Premises, and (y) all operations of Tenant, and (z) any
property and areas and facilities of Landlord used by Tenant, its employees,
invitees, customers or guests; and (vi) severability of insured parties and any
cross-liability exclusion deleted so that the protection of such insurance shall
be afforded to Landlord in the same manner as if separate policies had been
issued to each of the insured parties.
(c) WORKER'S COMPENSATION COVERAGE. Worker's compensation and employer's
liability insurance in the state in which the Premises and any other operations
of Tenant are located and any other state in which Tenant or its contractors or
subcontractors may be subject to any statutory or other liability arising in any
manner whatsoever out of the actual or alleged employment of others. The total
limits of the employer's liability coverage (including umbrella liability
insurance) shall be not less than the amounts specified in Subsection (b) above.
All insurance policies required under this lease exhibit shall: (i) be
issued by companies licensed to do business in the State in which the Premises
are located and reasonably acceptable to Landlord; (ii) not be subject to
cancellation or material change or non-renewal without at least thirty (30)
days' prior written notice to Landlord and any other parties designated by
Landlord (A) to be loss payee(s) or additional insured(s) under the insurance
policies required from Tenant, or (B) to receive such notices; and (iii) be
deemed to be primary insurance in relation to any other insurance maintained by
Landlord or Agent.
<PAGE> 19
FIRST AMENDMENT TO INDUSTRIAL BUILDING LEASE
This First Amendment to Industrial Building Lease (the "Amendment") is made
and entered into this day of June, 1998 by and between FIRST INDUSTRIAL,
L.P., a Delaware limited partnership ("Landlord"), and SABRATEK CORPORATION, a
Delaware corporation ("Tenant").
RECITALS:
WHEREAS, Landlord and Tenant have previously executed and entered into that
certain Industrial Building Lease (the "Lease") dated May 15, 1998; and
WHEREAS, Landlord and Tenant desire to amend and modify certain terms and
conditions contained in the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged hereby, Landlord and Tenant hereby amend
the Lease and agree as follows:
1. The foregoing recitals are hereby incorporated into the body of this
Amendment as if more fully restated herein.
2. The following language is hereby added to the end of Section 5.2 of
the Lease:
"Landlord and Tenant acknowledge and agree that the Clean Up
Activities shall not be deemed to unreasonably disturb or prevent
Tenant's use and occupancy of the Premises (and Tenant shall have no
right to terminate this Lease pursuant to this Section 5.2 or
otherwise on account of such Clean Up Activities) unless the Clean Up
Activities (i) prevent Tenant from using all of the truck level docks
at the Premises or (ii) result in the loss of use by Tenant of more
than thirty (30) parking spaces or (iii) continue for a period of 90
days.
3. Except as amended hereby, the Lease shall be and remain in full force
and effect.
4. This Amendment may be executed in any number of identical
counterparts, all of which, when taken together, shall constitute the same
instrument. A facsimile copy of this Amendment shall be deemed an original for
all relevant purposes.
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD: FIRST INDUSTRIAL, L.P., a Delaware
limited partnership
By: First Industrial Realty Trust, Inc., a
Maryland corporation its general partner
By:
-----------------------------------
Its:
-----------------------------------
TENANT: SABRATEK CORPORATION, a Delaware
corporation
By:
-----------------------------------
Its:
-----------------------------------
2
<PAGE> 21
SECOND AMENDMENT TO INDUSTRIAL BUILDING LEASE
This Second Amendment to Industrial Building Lease (the "AMENDMENT") is
made and entered into this 5th day of August, 1998 by and between FIRST
INDUSTRIAL, L.P., a Delaware limited partnership ("LANDLORD"), and SABRATEK
CORPORATION, a Delaware corporation ("TENANT").
RECITALS:
WHEREAS, Landlord and Tenant have previously executed and entered into that
certain Industrial Building Lease dated May 15, 1998, as amended by that certain
First Amendment to Industrial Building Lease (as amended, the "LEASE"); and
WHEREAS, Landlord and Tenant desire to amend and modify certain terms and
conditions contained in the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged hereby, Landlord and Tenant hereby amend
the Lease and agree as follows:
1. The foregoing recitals are hereby incorporated into the body of this
Amendment as if more fully restated herein.
2. Notwithstanding the terms of Exhibit D to the Lease, Landlord (and not
Tenant) shall be obligated to maintain "All Risk" (including, but not limited
to, earthquake and flood) property insurance on a replacement cost basis
covering the building and the Premises. Tenant covenants and agrees to reimburse
Landlord for the cost of such insurance promptly after presentation of one or
more invoices for the cost thereof.
3. Except as amended hereby, the Lease shall be and remain in full force
and effect.
4. This Amendment may be executed in any number of identical
counterparts, all of which, when taken together, shall constitute the same
instrument. A facsimile copy of this Amendment shall be deemed an original for
all relevant purposes.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD: FIRST INDUSTRIAL, L.P., a Delaware
limited partnership
By: First Industrial Realty Trust, Inc., a
Maryland corporation its general partner
By:
-----------------------------------
Its:
-----------------------------------
TENANT: SABRATEK CORPORATION, a Delaware
corporation
By:
-----------------------------------
Its:
-----------------------------------
2
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-----------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (in thousands) $ 2,515 $ 2,079 $ 6,752 $ 4,751
=============================================================================
Weighted average common shares outstanding 10,454,220 10,105,888 10,474,081 9,405,101
=============================================================================
Basic income per share $ 0.24 $ 0.21 $ 0.64 $ 0.51
=============================================================================
Dilutive effect of options and warrants
outstanding under treasury-stock method 563,636 1,499,473 985,793 1,259,733
-----------------------------------------------------------------------------
11,017,856 11,605,361 11,459,874 10,664,834
=============================================================================
Diluted income per share $ 0.23 $ 0.18 $ 0.59 $ 0.45
=============================================================================
</TABLE>
- E-1 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 53,096,730
<SECURITIES> 21,978,613
<RECEIVABLES> 22,006,006
<ALLOWANCES> 837,875
<INVENTORY> 22,189,021
<CURRENT-ASSETS> 100,767,145
<PP&E> 5,681,597
<DEPRECIATION> 1,963,010
<TOTAL-ASSETS> 152,336,121
<CURRENT-LIABILITIES> 7,909,117
<BONDS> 85,000,000
0
0
<COMMON> 108,037
<OTHER-SE> 59,087,363
<TOTAL-LIABILITY-AND-EQUITY> 152,336,122
<SALES> 47,755,447
<TOTAL-REVENUES> 50,265,225
<CGS> 22,205,704
<TOTAL-COSTS> 22,205,704
<OTHER-EXPENSES> 18,022,159
<LOSS-PROVISION> 837,875
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,239,002
<INCOME-TAX> 3,487,050
<INCOME-CONTINUING> 6,751,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,751,952
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.59
</TABLE>
